The no-policy-change scenario in the 2022 Stability Programme foresees a gradual improvement in the fiscal situation. However, this improvement will be somewhat limited by the discretionary measures already adopted, and the envisaged 2025 deficit is set to be higher than last year, without taking into account the COVID-related measures. Revenue growth is expected to continue, largely based on the projection that relatively favourable macroeconomic conditions will continue despite a number of negative risks. High tax bases are the result of increased economic activity, due considerably to the expansionary fiscal policy, and the contribution of the higher inflation, which is also related to excess demand. In the medium term, the relatively favourable fiscal balance achieved before the epidemic will not be fully restored, mainly due to the adopted discretionary structural measures which, since the invocation of exceptional circumstances, have not been directly linked to mitigating the consequences of the epidemic. The adoption of these measures significantly limits the room to manoeuvre in terms of the future fiscal policy implementation. Given the fiscal situation and the current estimates of the cyclical position and despite the uncertainty related to the favourable macroeconomic projection, additional fiscal policy support is not necessary, as it could trigger important imbalances. Alternative estimates of expenditure levels and growth show that, even under the no-policy-change scenario, these are generally above the thresholds ensuring medium-term fiscal policy sustainability. The fiscal policy’s main aims should be to ensure sustainable growth in current spending, to respond in an appropriate manner to development challenges and to strengthen the economy’s resilience with efficient investments financed, to the greatest possible extent, with a higher amount of available European funding.
To date, 13 April 2022, the Fiscal Council has not received a proposal from the Government of the Republic of Slovenia of the framework of the budget preparation for 2023-2025 and draft Stability Program 2022.
The Fiscal Rule Act (Official Gazette RS 55/15 and 177/20) stipulates in the second paragraph of Article 6 that the Government submits the proposed framework for the preparation of budgets along with the Draft Stability Program to the National Assembly and the Fiscal Council no later than 20 days before the deadline for submitting the Stability Program to the European Commission. The deadline for submitting the Stability Program to the European Commission is at the end of April each year.
On 11 April 2022, the Fiscal Council informed the Government of the Republic of Slovenia and the National Assembly of the Republic of Slovenia about the delay and the violations of domestic legislation and European agreements, which we also publish. No reply has been received from the Government by 13 April 2022.
Achieving the climate and energy targets will be one of the greatest challenges for fiscal policy in the coming years. As it is expected that investments in the implementation of these targets will increase significantly, one of the solutions frequently mentioned in the discussions on potential changes in fiscal rules at the EU level is the special treatment of green investments in calculating the indicators of compliance with the rules. Within this context, we have assessed how great the consequences of implementing the climate and energy targets set out in the National Energy and Climate Plan (NECP) for public finance in the period until 2030 would be.
We estimate that the volume of investments contributing to the achievement of climate and energy targets in 2016–2020 at the level of national economy amounted to EUR 5 billion or on average 2% of GDP per year. Approximately three-quarters of this were private funds, which had been, to a significant extent, mobilised through targeted incentives from public funds. In the NECP, the investment requirements for meeting the targets are estimated at EUR 28.4 billion, which amounts to, on average, 6% of GDP per year.
According to our estimate, the funds available from the identified dedicated resources for investments in the 2021–2030 period amount to EUR 11.6–12.3 billion. This means a two times greater annual average than in 2016–2020. Based on this estimate, we have devised different scenarios of investment potential. According to the scenario that best reflects the current state and requires the least changes in orientations, the investment potential amounts to EUR 19.7–20.4 billion. According to this scenario, the Eco Fund would earmark a similar amount of funds for grants in the future as in the last few years, when the time of application processing has increased considerably due to the Eco Fund’s limited staff and administrative capacities. The estimate also includes quite optimistic assumptions regarding the scope of mobilisation of private financial resources related to investments in buildings that were taken into account in the national strategy on energy renovation of buildings adopted last year. The gap between the investment potential envisaged in this scenario and the required volume of investments in 2021–2030 identified in the NECP amounts to EUR 8.0–8.7 billion. This represents nearly half of the average annual volume of investments of the general government in the 2016–2020 period or approximately 2.0% of GDP per year.
In any event, the available dedicated resources will need to be used more efficiently than in the past to properly address the climate and energy challenges. This would include a considerable increase in the efficiency and ability of their use, the adoption and effective implementation of numerous new measures, and a significant strengthening of the institutional framework and capacities. Based on the nature of the necessary measures and past experience, we conclude that, regardless of the chosen investment potential scenario, the gap should probably be closed with public funds, as the private sector has not yet shown any interest in investing in what are mainly infrastructure projects and is, at least in the electricity industries, also dealing with limited financial resources considering the identified investment needs.
According to preliminary data, the state budget deficit amounted to EUR 260 million in the first three months of 2022, while without the direct effect of COVID-related measures, there would have been a surplus of EUR 15 million.
The state budget balance in both comparisons was better than in the same period last year, which is mainly the result of revenue growth as economic activity has recovered.
Revenue in the first three months of 2022 on a year-on-year basis was 27.1% higher, or 25.4% higher without taking into account the direct effect of COVID-related measures.
Expenditure in the first three months this year was 9.6% lower on a year-on-year basis, or 10.3% higher without taking into account the direct effect of COVID measures totalling EUR 315 million.
The total level of state budget expenditure for COVID-related measures from March 2020 to the end of March 2022 amounted to EUR 5.107 million, EUR 315 million of that in the first three months of 2022.
The Fiscal Council, together with the European Commission (DG REFORM) and the Danish DREAM Institute (https://dreamgroup.dk/), held today an initial meeting within the project aided by the Technical Support Instrument (more information is available at: https://ec.europa.eu/info/overview-funding-programmes/technical-support-instrument-tsi_en) for developing a long-term public finance model. In addition to the aforementioned institutions, the meeting was attended by representatives of other Slovenian institutions dealing with topics of the project and providing information and data necessary for the development of the model. The model will be focused on social security systems and, on the completion of the project after 16 months, the model simulations will enable the Fiscal Council to prepare independent, unbiased and transparent opinions on long-term trends and adopted measures as well as to assess the long-term sustainability of social security systems and public finance in general.
The state budget had a surplus of EUR 94 million according to preliminary data during the first two months of 2022, or EUR 240 million not counting the direct effect of COVID measures. The state budget balance in both comparisons was better than in the same period last year, which is mainly the result of the revenue growth as economic activity has recovered. The considerable expansion in the beginning of the year is, to a great extent, concealing the deteriorating structural fiscal balance.
Revenue in the first two months of 2022 on a year-on-year basis was 34.7% higher, or 32.0% higher without taking into account the direct effect of COVID-related measures.
Expenditure in the first two months of this year was –8.9% lower on a year-on-year basis, or 9.5% higher without taking into account the direct effect of COVID measures.
The total level of state budget expenditure for COVID-related measures from March 2020 to the end of February 2022 amounts to EUR 4.965 billion, EUR 171 million of that in the first two months of 2022.
The geopolitical situation poses a high downside risk to public finances, notably through the impact of slowing economic activity and consumer spending on government revenues. Related to this, various subsidies to cushion the impact of rapid price increases also pose a risk of a significant increase in government expenditure, while other risks include in particular the already adopted, but not yet implemented, public sector wage increases and the already expressed demands for additional wage increases. The aggravated geopolitical situation also introduces uncertainty for the conduct of fiscal policy in the year ahead. A decision on the foreseen abolition of the general escape clause in 2023 will be taken on the basis of the EC’s spring forecast by the end of May. Given the risks associated with the geopolitical situation, it is also the EC’s assessment that it is necessary to maintain support of economic growth while limiting any structural deterioration in public finances in order to ensure a sustainable level of indebtedness in the medium term.