Slovakia in 2013 Radovan Ďurana, INESS

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Macro – w shape, or ww shape?

Macro – 2013 down, down GDP, Annual growth Source:IFP GDP, Annual change

Consumption Investment GDP growth Change in stock Net export Macro Source: IFP

Macro – Man on the moon Export rulz + 22% between (Import + 13%, due to low household cons.) -83% to EU -Germany 21% -Czech Republic 13% Industrial production + 13%

Macro – Man on the moon Annual growth of employment in division Automotive production: 3,1% ( workers)

Government spending vs. GDP

Macro – Dark side in bln. Eur Change 2008/2012 Car sales4,03,0-25% Retail sales19,817,9-9% Accomodation0,40,3-19% Restaurants, bars, krčmy1,10,8-27%

Macro – Dark side Total lending in bln. eur Corporate lending in (right axis) Source: IFP

Macro employment Total employment Unemployment rate Contracts

Macro employment in ths.2008Q12013Q1 Working persons2 391, ,70 Employed2 063, ,70 Economicly active2 671, ,20

Macro - Unemployment Total unemployment in ths.2008Q12011Q12013Q1 Difference 2013/2008 Total population change years years years years years years years years years Total280,5372,2395,5115

Unemployment rate prediction ,514,213,312,5 Source: IFP

Wages 10% growth in HC sector = 0,7% of overall average wage growth (IFP) Average monthly salary in Eur 2,5% Private Sector804 Eur 2,2% Public Sector810 Eur 3,7%

Macro – Household Revenues in. Mil. eur Change GDP % Gross salaries % Social benefits % Savings %

What is the number of PT jobs in Slovakia?

Contracts April 2012April 2013 Contractors Contracts Age distribution of contractors in January 2012, resp (Source: IFP)

Fiscal Issues 2012 Data State Budget in 2013 Tax Revenues Forecasts

2012 Data Lower tax revenues by 0,7 bln. Eur (-1% GDP) Consolidation measures 0,3 bln. Eur (0,4%) EU Co-financing + contributions – 0,4 bln.eur (0,5%) Municipalities+ SGR exp. Lower by 0,2 bln. Eur (0,3%)

Revenues of public sector Annual change mil. Eur%GDP Total revenues21 281, , ,9699,033,233,1 Tax revenues10 215, , ,916,416,015,4 - Value added tax (without VAT - EU source)4 128,74 651,04 248,3-402,66,75,9 - Excise Taxes1 930,81 999,11 973,3-25,82,92,8 - Personal income tax1 513,91 741,41 880,0138,62,52,6 - Corporate income tax1 683,01 659,41 704,044,52,4 Other taxes429,2474,3471,6-2,70,70,6 Social contributions8 251,68 634,79 065,1430,412,512,7 Property revenues812,6854,11 007,2153,01,21,4 Dividends + interest628,0648,0834,6186,50,91,2 Grants and transfers1 374,21 800,61 713,2-87,42,62,4 from which EU653,0793,0805,412,41,1 Source: Fiscal council

Expenditures of public sector Annual change mil. Eur%HDP Total expenditures26 328, , ,7308,238,337,5 Current expenditures23 940, , ,4778,334,8 Employees compensations5 065,34 912,15 013,5101,47,17,0 Intermediate consumption3 200,43 108,03 087,6-20,34,54,3 Subsidies893,5862,8993,5130,71,21,4 Interest expense884,81 084,41 322,1237,71,61,9 Social benefits9 315,59 363,89 789,6425,813,513,7 Health care system3 481,93 392,93 501,5108,64,9 Capital expenditures2 387,92 379,51 909,4-470,13,42,7 Capital investments1 680,91 462,81 326,1-136,62,11,9 Deficit-5 047, , ,9390,8-5,1-4,3 Source: Fiscal council

Primary balance EU 2012

Debt 2012 From 43,3% GDP to 52,1% GDP 52% of the growth – deficit financing 30% of the growth – reserves 18% of the growth – Eurozone bailout Excluding the PICGSS, Slovak debt growth the highest in EU in period

2013 Budget Tax measures II. Pillar Banks Frozen expenditures

In thousands EUR As of As of Annually State budget revenues State budget expenditures Debt service EU expenditures Co- financing Contributions to the EU, including reserves Transfer to Social Insurance Agency Other expenditures of state budget Deficit of state budget

Tax Revenues Forecasts Tax revenues in ths. EurRealityForecast Direct taxes Indirect taxes (VAT, Petrol, Tabacco..) International trade taxes Local taxes Bank taxes Public Broadcasting tax Social Contributions II. Pillar transfer Health Contributrions Tax and contributions revenues , Tax Revenues growth nominal0,5%2,6%4,8% GDP Nominal growth4,4%4,8%5,4% Source: Fiscal council, IFP

Tax Property, not Activity?

Fiscal responsibility Overall situation Sanctions Municipalities Expenditures ceiling State companies

National Rules Constitutional Budget Responsibility Law Debt break (until % of GDP) expenditures limit (without specification) Rules for self-governments Rules of transparency Laws about budgetary rules debt of self-government < 60% of ordinary income Debt service of self- govt debt < 25% of ordinary income Evaluation of state budget Terms for submitting proposals State Budget Law Defines incomes, expenditures, maximum deficit expenses can be exceeded by 1% max. valid for 1 year International rules Stability and Growth Pact deficit < 3% of GDP, debt < 60% HDP excessive deficit procedure MT objective, consolidation of 0,5% of GDP annualy decreasing the debt over 60% of GDP by 1/20 ann. Expenditures benchmark Semi-automatic sanctions “Fiscal compact” + 2 pack A rule of balanced budget Medium-term objective in national legislation decreasing the debt over 60% of GDP by 1/20 ann. Reviewing EC budget proposal (until 15/10) Strengthening supervision on countries with problems Council Directive 2011/85/EU (part of Six pack) Requirements for the fiscal framework of the Member States: Accounting, statistics, audit, transparency Independent predictions, sensitivity scenarios Numerical rules, medium-term frameworks Source: Fiscal council

Debt brake sanctions debt between 50 – 53% of GDP - MF is sending a written justification of the level of debt to National Council and proposal for its cut-down debt between 53 – 55% of GDP – Government submits to National Council proposal of measures cutting-down the debt - salaries of members of Government are lowered to the previous year level f debt between 55 – 57% of GDP – MF will decrease the state budget expenditures by 3% (exceptions) - consolidated expenditures of public administration cannot rise nominally (exceptions) - self-government expenditures cannot annualy increase in nominal terms debt between 57 – 60% of GDP – Government cannot submit to National Council proposal of public administration budget with budget deficit -self-governments are obliged to approve only balanced or surplus budget for the next year debt over 60% of GDP – in addition to previous action Government asks National Council for confidence vote - sanctions cumulate when debt is over 53% of GDP, e.g. after exceeding the limit of 60% besides the vote of confidence it is necessary also to implement measures described in previous levels of debt.

But Sanctions from 55% of GDP are not applied for the period of 24 months starting the first day after the day when the Manifesto of Government and the vote of confidence were approved (15/5/2012) Sanctions from 55% of GDP are not applied for the period of 36 months starting the first day of the month after the month in which: GDP decreased by 12%, costs related to crisis of financial sector, catastrophic events, Euro bailouts + 3% of GDP

Debt brake in time

When will we have debt over 57%? Debt in bln. EurGDP nominal Debt to GDP 2013*40431, ,055,7% 2014*43622, ,056,3% 2015*46319, ,056,69% 2016*48204, ,055,9% Source: Fiscal council, 2013 updated

Sustainability index Sustainability index decreased from 7,0% of GPD in 2011 to 4,3% in It means that to make Slovak debt sustainable in a long-term period according to definition of constitutional law, it is necessary to constatnly improve the balance of public finance by 4,3% of GDP.. Source: Fiscal council

Future of deficits Short term measures turned off, EC predicts deficit 3,1% v 2014 Oil measures Arctic ice(for how long?) Limited capital investmens Revenues growing faster than expenditures? Nationalization of Health Insurance companies? Risks related to ESA 2010 (autumn 2014)

Policy papers Decrease Minimum wage to 1 € Monitoring of Structural funds Investment subsidies

Q & A ?

Resources Ministry of Finance (IFP) Macro, TaxesMacroTaxes Fiscal council Statistical office

Radovan Ďurana