www.fs-rs.si / News / News / Assessment by the Fiscal Council: Assessment of the Draft Revised Budget of the Republic of Slovenia for 2023
Published: 05/08/2023

Assessment by the Fiscal Council: Assessment of the Draft Revised Budget of the Republic of Slovenia for 2023

This year’s draft revised budget foresees a high general government deficit (-4.5% of GDP), equally affected by the intervention measures to cushion the impact of the cost-of-living crisis and the epidemic and the “core” deficit (excluding the impact of intervention measures). The latter is also the only reason for the significant increase in the deficit compared to last year (by 2.2 percentage points of GDP), largely due to the assumed decline in the revenue-to-GDP ratio and the further strengthening of the already high level of investment activity. Growth in “core” current spending is also expected to be significantly higher this year than its long-term average and the current estimate of medium-term economic potential growth, mainly reflecting high inflation and, to some extent, discretionary measures. Its ratio to GDP will not increase significantly, so that core current spending will not contribute significantly to the increase in the deficit-to-GDP ratio.

According to the government’s assurances, the draft revised budget is in line with the 2023 Stability Programme and therefore the assessment of compliance with the fiscal rules made by the Fiscal Council in April this year remains unchanged. According to this indicative assessment, most of the indicators used for 2023 point to a deviation in fiscal policy from compliance with the fiscal rules. In particular, due to the high inflation and the projected further strengthening of investment activity, the projections for the general government balance in the 2023 Stability Programme suggest an expansionary fiscal policy stance this year, while exceptional circumstances still persist. In this context, it should be noted that the set high level of government expenditure in 2023 and the declining cyclical revenue-to-GDP ratio also contribute significantly to the limited manoeuvring room for additional fiscal policy measures in the coming years, which would worsen the structural position of public finances and thus affect the medium-term sustainability of public debt.

The lower deficit proposed in the draft revised budget compared to the current budget adopted last autumn is mainly due to lower expenditure related to the cost-of-living crisis, partly reflecting the new measures, and partly due to more appropriate projections of certain items, the shortcomings of which were already highlighted by the Fiscal Council in the autumn. Nevertheless, budget planning remains deficient due to the inadequate classification of measures as intervention measures, insufficient assessment of the impact of discretionary measures, systematic under- or overestimation of individual revenue and expenditure categories, and uncoordinated processes for the preparation of budget documents.

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