Regular consultation of Fiscal Council: Enforcement of the fiscal rules in a changing legislative and geopolitical circumstances

The Fiscal Council organised its regular consultation with experts in public finance and economic policy. The consultation was attended by Messrs Matej Avbelj, Mitja Gaspari, Bogomir Kovač, Mojmir Mrak and Dušan Mramor. In line with the Fiscal Council initiative, the discussion focused on enforcement of the fiscal rules in a changing legislative and geopolitical circumstances. The participants pointed out the relevant role of the Fiscal Council during the process of legislative changes of fiscal rules and drew attention to high risks in the geopolitical environment.

Speech delivered by President Kračun at the meeting of the Committee on Finance

The Fiscal Council has been invited to attend the 61st extraordinary meeting of the Committee on Finance, held on 12 March 2025 to discuss the agenda item: Legislative proposal on Fiscal Rule Act (ZFisP-1), second reading, EPA 1948-IX.

Monthly Information, March 2025

According to preliminary data, the state budget had a modest surplus of EUR 17 million in the first two months of the year, down from EUR 182 million in the same period last year. For the full year 2025, the deficit is projected at EUR -1.9 billion.

Revenue grew by 4.1% year-on-year in the period, half of last year’s growth. Expenditure increased by almost 13%, three times more than last year.

Monthly Information, February 2025

The 2025 budget has been formulated on the basis of overestimates of expenditure for 2024. The increase in the deficit could therefore be higher this year than shown when the budget documents were adopted. The deficit excluding intervention measures is thus projected to increase by as much as EUR 1.6 billion this year compared to the latest available figures for 2024, while expenditure is projected to increase by EUR 2.4 billion (17% higher than last year). More than half of the additional expenditure will be on current spending (e.g. wages and social benefits), which is a long-term burden on public finances. This approach to budgetary planning can lead to irrational spending and jeopardise the sustainability of government finances.

In January, the budget had a surplus of EUR 203 million, down from a surplus of EUR 336 million the previous year. Revenue increased by 1.9%, significantly less than last year (10.6%), mainly due to less EU funding. Expenditure increased by 18%, mainly due to higher subsidies and investments.

The health insurance budget (ZZZS) had a surplus of EUR 79 million last year, mainly due to the transformation of supplementary insurance into a compulsory contribution and the further increase of the transfer from the state budget to 0.6% of GDP, almost three times more than before the epidemic.

The record 8.8% pension adjustment forced the transfer from the state budget to the pension insurance budget (ZPIZ) to increase by almost a third last year to EUR 1.4 billion, or 2.2% of GDP. Pension expenditure has grown by 44% in five years and accounts for 10% of GDP.

Municipalities ran a deficit of -0.4% of GDP last year (EUR -236 million), the highest since the financial crisis fifteen years ago. The main reason for the increase in the deficit compared to 2023 is less money from the state budget for natural disaster recovery.

Monthly Information, January 2025

The state budget deficit in 2024 amounted to EUR 808 million; excluding the direct impact of intervention measures, the deficit was EUR 275 million.

The much lower overall deficit in 2024 compared to the previous year was mainly due to the reduced impact of intervention measures. It was approximately EUR 1 billion lower than in 2023, also partly due to dedicated revenues and EU funds for flood recovery. The lower deficit excluding intervention measures was the result of stronger revenue growth and a reduction in investment, while growth in other expenditure remained high and well above the long-term average.

As expected by the Fiscal Council, the actual outturn in 2024 again deviated significantly from the estimate made by the Ministry of Finance three months before the end of the year. Realistic and transparent projections are a prerequisite for decisions that support economic growth, the sustainability of public finances and the well-being of society. Precaution in fiscal planning is generally appropriate, but systematic overestimation of expenditure and the resulting deficit can lead to the inappropriate use and allocation of otherwise limited public resources, undermine public and financial market confidence in the ability to manage public finances, and result in sub-optimal choice of measures.

The general government deficit, which averaged 1.4% of GDP in the first three quarters of 2024, was also lower than in the same period of the previous year. We estimate that the deficit for the year as a whole will again be lower than the Ministry of Finance’s October projection. The continued decline in the gross government debt ratio, which stood at 66.9% of GDP at the end of the third quarter, continues to be driven mainly by inflation. The net government debt remains much lower (around 45% of GDP), due to the maintenance of high liquidity reserves.

Monthly Information, December 2024

According to preliminary data, the state budget deficit for the first eleven months of the year amounted to EUR 396 million, less than a third of the deficit recorded in the same period last year. According to the latest available estimate by the Ministry of Finance, the end-of-year deficit is expected to amount to EUR 1,407 million, implying a deficit of as much as EUR 1 billion in December.

The balance excluding the direct impact of intervention measures showed a surplus of EUR 100 million, similar to the same period last year (EUR 80 million). Total expenditure on intervention measures amounted to EUR 496 million, just four tenths of the amount spent in the same period last year. According to the latest available estimate by the Ministry of Finance, EUR 713 million is earmarked for intervention measures this year (excluding the Reconstruction Fund).

The growth in “core” expenditure (excluding intervention measures) was 9.3%, an increase compared to the same period last year (7.2%). The main reasons for this year’s growth were contributions to budgetary funds, in particular to the newly established Reconstruction Fund, and the transfer to the Pension and Disability Insurance Institute of Slovenia (ZPIZ) due to the high indexation of pensions.

Like the Fiscal Council, the European Commission has assessed that the Medium-Term Fiscal Structural Plan 2025–2028 formally meets the requirements of European legislation. However, the European Commission also warns of risks that actual net expenditure growth will be higher than required or allowed as a result of changes to the public sector pay system, the introduction of long-term care, the reform of the healthcare system and deviations from the planned implementation of major investment projects. The possibility that net expenditure growth could be significantly higher than required is also indicated by the adopted amendment to the state budget for 2025, which projects a growth in non-intervention spending of 12.3%. According to the Plan, the growth in net general government expenditure in 2025 could be no higher than 5.6%.