A key short-term risk to the sustainability of public finances is the renewed demands for public sector wage increases. It should be pointed out that measures taken in the past have maintained, on average, the real purchasing power of public employees at its pre-epidemic level, and large bonuses have been paid as part of the intervention measures. Given that the share of the general government wage bill in GDP is the sixth highest in the EU, we estimate that any increase in the wage bill without a systemic adjustment of wages and other parameters of the employment relationship and, in particular, without the simultaneous adoption of measures to increase the efficiency and accessibility of public services would only increase the risks to public finances (see more on pages 9–11). The latter have already increased since the beginning of the epidemic, due to the adoption of permanent discretionary measures unrelated to crisis mitigation.
According to preliminary data, the state budget recorded a surplus in January 2024 (EUR 333 million), which, excluding the direct impact of the intervention measures, amounted to EUR 351 million. In both comparisons, the surplus was slightly higher than in January last year.
The Health Insurance Institute of Slovenia ended 2023 with a deficit, despite increased growth in social contributions revenue and a substantial increase in the transfers from the state budget. The latter is becoming an increasingly important source of financing for the health insurance budget. Since 2017, it has increased by an average annual rate of almost 40%, and its share in GDP was almost 0.6% last year.
The real purchasing power of pensions has increased over the past four years, as growth in all types of pensions has outpaced cumulative inflation. With pension expenditure growth almost matching the increase in nominal GDP over this period, the share of pension expenditure remained the same last year as in 2019 (9.6% of GDP). The favourable labour market conditions allowed for a reduction in the total transfer from the state budget, which last year (1.8% of GDP) was the lowest since 1995. According to the Pension and Disability Insurance Institute of Slovenia’s financial plan for 2024, the transfer from the state budget is expected to increase to 2.1% of GDP this year, due to the high regular adjustment of pensions.
Municipal budget accounts recorded their largest ever surplus last year, thanks to the increase in the lump sum funding and, in particular, a large transfer from the state budget for post-flood recovery. In addition, expenditure growth slowed, mainly as a result of the stagnation of investment activity, which is linked to the electoral cycle at the local level.
On 23 January 2024, Fiscal Council hosted a delegation of International Monetary Fund (IMF) within its regular annual visit to Slovenia in accordance with Article IV of the IMF’s Articles of Agreement.
The purpose of the visit was to exchange views on current public finance developments and challenges as well as on risks to long-term fiscal sustainability.
In 2023, the state budget deficit amounted to EUR –2,293 million, while excluding the direct impact of various intervention measures, the deficit would have been EUR -656 million.
State budget trends were worse last year than in 2022. The overall deficit was higher (by EUR 929 million), mainly as a result of the ‘core’ deficit (excluding intervention measures), which was higher by EUR 648 million. The total amount of intervention measures was higher by EUR 281 million. The deterioration compared with 2022 was largely due to higher growth in ‘core’ spending, in particular labour costs and transfers to social security funds, mainly to the Health Insurance Institute of Slovenia, and partly to lower revenue growth, in particular some key tax revenues with a slowdown in economic activity and inflation.
In accordance with the Fiscal Council’s expectations, the 2023 state budget’s outturn was nonetheless much less negative than the Ministry of Finance’s autumn estimate. The overall deficit was lower by EUR 828 million, mainly due to a lower realisation of ‘core’ spending (excluding intervention measures). When the budget documents for 2024 and 2025 were prepared last autumn, the Ministry of Finance’s estimate of the 2023 outturn was again significantly overestimated. This also led to an overestimated projection of the level of ‘core’ spending for 2024. To a certain extent, the latter is not based on the measures currently in place and allows for the adoption of additional discretionary measures with a lasting negative impact on the government’s fiscal position even within the limits set by the adopted budget. The adopted amendment to the 2024 budget based on the actual outturn for 2023 allows for a 5.8% growth of ‘core’ spending in 2024, compared to only a 1.0% growth in the previous estimated outturn.
The inadequacy of the budgetary planning is also indicated by the fact that the budget balances of the Ministry of Finance have not been adequately adjusted to the adopted 2024 budget or to the changes approved by the National Assembly during the budget adoption process with respect to the draft budget. The most significant changes relate to the solidarity levy for post-flood reconstruction included in the draft, which was cancelled during the budget adoption process, to the revised value of lump sum funding of municipalities +, and to the partial adjustment of transfers to individuals and households to inflation which was approved by the National Assembly and not included in the draft budget. These transfers are expected to fall by 10.2% this year according to the Ministry of Finance’s available budget balance and last year’s outturn, which is unrealistic. With inflation at 4.2% last year, they are likely to increase, which could lead to even higher growth in ‘core’ spending than currently indicated.
The decline in the government debt-to-GDP ratio is entirely due to high inflation, while its faster and more sustained decline is prevented by the high government deficit.
The risks to the medium-term sustainability of public finances have increased significantly since the outbreak of the epidemic. Over the 2020–2023 period, expenditure growth, excluding the impact of intervention measures to mitigate the effects of crises and expenditure on investment and interest, increased year by year and exceeded the estimated growth of medium-term economic potential throughout the whole period. In addition to the delay in introducing systemic changes, this is largely due to the adoption of numerous discretionary measures not related to crises which have a permanent negative impact on public finances.
In the first eleven months of 2023, the state budget recorded a deficit (of EUR 1,321 million), while it recorded a surplus of EUR 5 million when excluding the impact of various intervention measures.
State budget trends in the first eleven months were worse than in the same period last year. The overall deficit was higher (by EUR 760 million) and was mainly the result of the EUR 504 million lower “core” surplus (excluding intervention measures). The overall amount of all intervention measures was year-on-year higher by EUR 256 milion.
The eleven-month outturn confirms the Fiscal Council’s assessment on continued unrealistic budget planning. According to the assessment of the state budget outturn for 2023, which the Fiscal Council received with the draft budget documents for the next two years, an 77.4% year-on-year increase in the total state budget expenditure is possible in December of this year (the year-on-year increase recorded in the first eleven months of this year was EUR 9.3%). As a result, the budget deficit in the last month of this year could reach as much as EUR 1.8 billion, or almost EUR 500 million more than in the first eleven months of this year.
The Fiscal Council was visited by the delegation of the Croatian Fiscal Policy Commission which is currently an authority in formation, led by Prof. Dr Sandra Krtalić.
During the meeting we presented conditions for the work of the Slovenian Fiscal Council, our experience so far and challenges we face carrying out in our work.
In the first ten months of 2023, the state budget recorded a deficit (of EUR 1,120 million), which turned to a surplus of EUR 57 million when excluding the impact of various intervention measures.
State budget trends in the first ten months were worse than in the same period last year. The overall deficit was higher (by EUR 845 million) and was mainly the result of the “core” surplus (excluding intervention measures), which was lower by EUR 590 million. The overall amount of all intervention measures was year-on-year higher by EUR 255 milion.
Due to a higher previous year basis, total revenue in the first ten months of this year was 1.8% higher year-on-year, while the “core” expenditure (excluding intervention measures) was 8.3% higher. The increase in “core” expenditure was mostly due to labour costs and transfers to the social security funds.
The ten-month outturn confirms the Fiscal Council’s assessment on continued unrealistic budget planning. According to the budgetary trends in the first ten months of this year and the assessment of the state budget outturn for 2023, which the Fiscal Council received with the draft budget documents for the next two years, the total state budget expenditure can increase by almost 50% year-on-year in the last two months of this year (the year-on-year increase recorded in the first ten months of this year was EUR 9.8%). As a result, the budget deficit in the last two months of this year could reach as much as EUR 2.0 billion, which would be EUR 912 million more than in the last two months of last year or EUR 637 million more than in the whole previous year.