Enhancing the Growth Potential during the Fiscal Consolidation Ingrid Brocková Permanent Representative of the SR to the OECD Economics University in Bratislava November 15-16,2012

Global Challenges – Context for the Slovak Republic Historical context - importance of public policies ( Historical context - importance of public policies ( Global challenges – key trends Global challenges – key trends Food for thoughts /questions relevant to development in Slovakia Food for thoughts /questions relevant to development in Slovakia

Key Trends Public policies matter,... Living standard Living standard Life expectancy Life expectancy Demographics Demographics Emerging powers Emerging powers Globalization Globalization

Economic Challenges Sustainable public finances (EU context), fair and sustainable tax and spending balance, policy mix Sustainable public finances (EU context), fair and sustainable tax and spending balance, policy mix Financial sector – balance between savings and investment into real economy (separation/regulation of socially demaging investment banking) Financial sector – balance between savings and investment into real economy (separation/regulation of socially demaging investment banking) Regulation „failure to regulate market failure is a failure“, good regulation as an integral part of the system, not an add- on Regulation „failure to regulate market failure is a failure“, good regulation as an integral part of the system, not an add- on Open economies – open markets and trade, whilst managing the social, structural and sequencing impatcs of globalization Open economies – open markets and trade, whilst managing the social, structural and sequencing impatcs of globalization

Social and Environmental Challenges Social: Jobs – how to achieve job-rich growth Jobs – how to achieve job-rich growth Inequality – OECD: Divided We Stand and the Jobs Study Inequality – OECD: Divided We Stand and the Jobs Study Social Security – financing the health, education and pension system (HOW?) Social Security – financing the health, education and pension system (HOW?) Ownership – the role fo all stakeholders (business community, unions, etc.) Ownership – the role fo all stakeholders (business community, unions, etc.)Environmental: Perfect storm – natural resource scarcity is growing rapidly, accentuated by increasingly extreme and unpredictable weather events and climate change. Perfect storm – natural resource scarcity is growing rapidly, accentuated by increasingly extreme and unpredictable weather events and climate change. Energy and environmental security Energy and environmental security

Institutional Challenges Domestically - a dramatic decline in trust in politics, public services and democratic institutions at the very same time as an increase in the need for good governance and smart government Domestically - a dramatic decline in trust in politics, public services and democratic institutions at the very same time as an increase in the need for good governance and smart government Internationally – a „zero-sum“ rather than „win-win“ mentality to most negotiations (trade, climate, etc). Internationally – a „zero-sum“ rather than „win-win“ mentality to most negotiations (trade, climate, etc). Need for more holistic approach - Behavioural Economics and Complexity Economics OECD : New Approaches to Economic Thinking Sophisticated integration, recognition of complementarities, inconsistencies, trade-offs, spillovers.

Slovak Republic EU context (consolidation effort) EU context (consolidation effort) Goal: Balanced and sustainable economic growth and employment while to achieve the competetiveness; What kind of growth? Environmentally sustainable? Job rich? Socially inclusive? Goal: Balanced and sustainable economic growth and employment while to achieve the competetiveness; What kind of growth? Environmentally sustainable? Job rich? Socially inclusive? Focusing on policy making and measuring – going beyond the GDP; measuring „what matters“ (not only trends, but stocks – natural and human capital). Focusing on policy making and measuring – going beyond the GDP; measuring „what matters“ (not only trends, but stocks – natural and human capital).

Long-term Unempl oyment

Youth Unemployment

Educational Achievement Average of PISA scores in reading, mathematics and science

Direct public funding of business´s research and development

Structural changes in the Slovak Republic (OECD Going for Growth 2012) Communication (country specific approach in implementation of structural reforms) Communication (country specific approach in implementation of structural reforms) The optimal policy mix? Growth friendly? Fiscal consolidation with human face, choice of instruments The optimal policy mix? Growth friendly? Fiscal consolidation with human face, choice of instruments Long-term vs. short-term impact? Long-term vs. short-term impact?

Priorities supported by indicators Improve funding and effectiveness of the education system (Roma children, vocational training, student tuition); Reduce regulatory barriers to competition (administrative burdens, privatization process in network industries, compulsory chamber membership); Regulatory Impact Assessment (RIA); Eliminate barriers to female labour participation (parental leave, remove fiscal disincentives to work for second earners); Reduce the implicit taxes on continued work at older ages (index the retirement age to life expectancy and make pension adjustment for earlier and later retirement more actuarially neutral);

Priorities supported by indicators Improve activation policies (capacity of PES, tighten conditionality requirements for jobseekers, target job creatino subsidies more narrowly); Improve the innovation support framework (reduce administrative burdens on start-ups, access to the VC and ICT, public funding of R&D, R&D framework); Strengthen the judicial and law enforcement systems (accountability – performance indicators and court statistics).

OECD Economic Survey – Slovak Republic 2012 Improving the fiscal framework to enhance growth in an era of fiscal consolidation Investing efficiently in education and active labour market policies Secretary General of the OECD, December 6, 2012 in Slovakia

Thank you for your attention The Permanent Delegation of the Slovak Republic to the OECD