The state budget deficit, excluding intervention measures, was around EUR 900 million in the first ten months of this year. This is approximately half of the Ministry of Finance’s projected full-year deficit.
The increase in the deficit this year is entirely due to higher current expenditure. The increase in expenditure is broad-based, and as expected with the largest contributions coming from higher labour costs following changes to the public sector salary system. Meanwhile, revenue growth is significantly lower than last year. This is partly due to a slowdown in economic activity and partly due to a further decline in revenue from EU funds. Intervention measures have had a negligible impact on the overall state budget balance this year, as flood recovery measures are predominantly financed from dedicated sources.
The planned winter bonus will further contribute to the deterioration of the fiscal situation this year and in the coming years. When the budget documents were assessed, we have not included the impact of the winter bonus in the general government balance projections, where, the deficit is already expected to increase, even without the winter bonus, primarily due to the significantly underestimated effect of the salary reform. The bonus will put permanent pressure on public finances, introducing it would increase the general government deficit by around 0.3 percentage points of GDP in the medium term. This increase would bring the deficit close to 3% of GDP, effectively eliminating the fiscal manoeuvring space to address the consequences of potential future shocks, which are becoming increasingly frequent.