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Published: 09/05/2023

Monthly Information, September 2023

In the first eight months of 2023, the state budget recorded a deficit (of EUR 735 million), which amounted to EUR 95 million excluding the impact of expenditure to contain the epidemic (EUR 161 million) and measures to mitigate the cost-of-living crisis (EUR 479 million).

The eight-month outturn confirms the Fiscal Council’s assessment on continued unrealistic budget planning, which can form an inappropriate basis for the high level of expenditure set for the following years. Given the outturn so far, the second revised state budget for 2023, adopted in August, allows for a deficit in the amount of EUR 2.4 billion in the last four months of this year. That would mean EUR 1 billion more than last year’s total and approximately two times as much as in the last four months of 2020, i.e. during the pandemic. To the extent allowed under the revised state budget, the actual deficit outturn by the end of the year would be unjustified in the Fiscal Council’s assessment, in light of numerous challenges. We expect the 2024 and 2025 budget presentations to include a realistic assessment of this year’s outturn, which should be the only appropriate basis for projections.

The Fiscal Council defined the August natural disaster as an extraordinary macroeconomic and fiscal shock. A complete rectification of its consequences, including appropriate modifications that would prevent such repercussions of any similar events in the future, will require years of effort, in terms of both financial resources and improving the efficiency of public institutions in public spending for these purposes.

As the process of assessing the actual damage is still ongoing and it is therefore impossible to determine the exact amount of financial resources required, certain measures adopted thus far seem to be premature. This mostly concerns the decision to take out extensive additional loans under the Recovery and Resilience Plan, where deadlines for the implementation of projects are extremely short and Slovenia already faces significant problems in meeting milestones, and the decision to introduce additional, albeit temporary, tax charges on the population and businesses, not least in light of the economic cool-down. The Fiscal Council believes that, before making such decisions, it would be sensible to wait for the preparation of budgets for the next two years to find reserves that could account for the changed priorities in the planned expenditure.

Published: 08/25/2023

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

The scale of the August floods in Slovenia represents an exceptional macroeconomic and fiscal shock. Although their financial impact is currently unknown, the draft revised state budget for 2023 is only the first step in the budgetary financing aimed at addressing the large financial impact of the floods. The impact will be more clearly reflected in the autumn draft budget documents for 2024 and 2025, which should include damage assessments and estimates of the effects of the Government’s recovery measures.

In April this year, the Fiscal Council presented its assessment of the Stability Programme and, on this basis, an assessment of the 2023 revised state budget in May. In this context, it highlighted the expansionary fiscal policy stance in the year in which exceptional circumstances are still in place. According to the Fiscal Council, the change in only one component of budget expenditure, amounting to EUR 220 million, in the current draft revised state budget for 2023 does not affect the assessment of the state of fiscal policy and compliance with the fiscal rules adopted at the time of the first revised budget this year. The impact of the projected amendment of EUR 300 million in the financial assets and liabilities account on the state budget balance and debt position, and thus on compliance with the fiscal rules, cannot be assessed at this stage. In principle, a large-scale natural disaster is a “one-off event”, which is not taken into account in the calculation of the indicators of compliance with the fiscal rules. In addition, the amendment presented in the draft revised state budget will increase the net debt but not the gross debt of the general government, as the financing will come from the reduction of funds in the state budget account.

The Fiscal Council regularly draws attention to deficient budgeting, insufficient assessment of the impact of discretionary measures, systematic under- or over-estimation of individual revenue and expenditure categories, and uncoordinated processes for the preparation of budget documents. All of the above warnings will be particularly relevant in the uncertain situation ahead, when the Government will have to ensure even greater transparency in the preparation and implementation of the state budget, in particular in the case of the establishment of an extra-budgetary flood relief fund and in the case of a fund that would be part of the entire general government sector subject to fiscal rules. The same applies to already existing budgetary funds that could be a source of financing for flood relief.

Published: 07/13/2023

Public Finance and Macroeconomic Developments, July 2023

In the first half of this year, the fiscal situation deteriorated slightly, which is mostly related to high inflation. Its initial positive impact on revenue, which was noticeable last year, has gradually faded and with a certain delay the pressure on expenditure increased, as expected. The direct impact of intervention measures has been slightly less than in the same period last year, although it is still considerable. The negative effect of measures to alleviate the cost-of-living crisis, which are focused on the business sector this year, has been increasing. The relative indebtedness of the general government continues to gradually reduce, mostly due to high inflation, although it remains higher than before the epidemic. Considering the more adverse fiscal trends forecasted for this year compared to the EU average and the uncertainty regarding the effect of further measures, the risk of a more pronounced tightening of financing conditions is increasing, although, for now, it is also limited by a large liquidity reserve. Many adopted and announced discretionary measures are a continuation of the unsuitable past approach with no positive consequences for fiscal sustainability.

Published: 06/13/2023

Assessment by the Fiscal Council: Compliance of the general government budgets with the fiscal rules in 2022

In 2022, the general government deficit was high (-3.0% of GDP), despite a decrease compared to the previous year, which was mainly due to the smaller scope of the intervention measures. The deterioration in the fiscal position excluding this effect was mainly due to a significant decline in the revenue-to-GDP ratio, mainly as a result of the slower growth in the wage bill following the expiry of the COVID-19 benefits. This has not been matched by public spending in a favourable economic environment marked by continued cyclical momentum following the calming of the epidemic, but also by high inflation. Fiscal policy was expansionary-oriented, which was not appropriate in a very favourable cyclical context. On the expenditure side, this was mainly due to a further strengthening of investment activity, financed exclusively by domestic resources. The growth of domestic general government current spending also picked up, which should have been lower relative to other developments in public finances, at least in the part not related to mitigating the impact of high inflation. The inappropriate expansionary stance of fiscal policy in 2022 is confirmed by the indicative quantitative assessments, according to which most fiscal rules were not complied with last year. As a result, general government expenditure last year was significantly higher than the currently estimated maximum permissible level. The latter is, in fact, lower than the ceiling of the last applicable multiannual framework adopted in September last year, which, however, the Fiscal Council already assessed at that time as too high. Last year, only the reduction of the gross debt-to-GDP ratio to 69.9% complied with the existing rules, mainly due to the inflationary increase in nominal GDP.

Published: 06/05/2023

Monthly Information, June 2023

In the first five months of the year, the state budget recorded a deficit (of EUR 226 million), and, excluding the impact of expenditure to contain the epidemic (EUR 101 million) and the measures to ease the cost-of-living crisis (EUR 362 million), a surplus in the amount of EUR 238 million.

The evolution of the state budget in the first five months of the year was worse than in the same period last year. The overall deficit was higher (by EUR 209 million) and the so-called “core” surplus (excluding intervention measures) was lower by EUR 293 million.

The lower year-on-year “core” surplus is mainly due to lower revenue growth than in the same period last year, mainly due to a fall in corporate tax revenue against a high base from last year, but also partly to higher growth in labour cost expenditure as a result of the agreement reached in the autumn.

Published: 05/18/2023

Report on the Fiscal Council’s operations in 2022

According to the Fiscal Rule Act, the Fiscal Council is obliged to submit a report on its activities in the previous year to the National Assembly of the Republic of Slovenia by the end of May each year. Under this law, adopted in June 2015, the Fiscal Council is an autonomous and independent state authority that prepares and makes publicly available assessments on the compliance of fiscal policy with fiscal rules.

Given the high level of uncertainty in the international environment, the exceptional circumstances, which were put in place in March 2020 following the outbreak of the epidemic, applied throughout 2022. The exceptional circumstances allowed for a temporary deviation from the medium-term fiscal objectives also in 2022, provided that this did not endanger medium-term fiscal sustainability. In 2022, however, there was a strong rebound in economic activity after the end of the epidemic. Slovenia recorded strong economic growth and an increase in employment as well as a rise in inflation. While inflation was largely imported, the adjustment process, which autonomously generates domestic inflation, started already in the second half of the year, while domestic fiscal policy did not work in line with monetary policy, which is designed for the euro area average.

Despite the proposal made by the European Commission in April this year, uncertainties regarding the finalisation of the European fiscal rules are currently still present. Whatever the individual countries’ interests in their formulation, it is important that on the financial markets the EU as a whole is perceived as a reliable partner which enjoys the full confidence of investors. Credible fiscal rules that are binding on and acceptable to Member States without any reservations are a prerequisite for government bonds to be sold on financial markets under favourable conditions, thus allowing the smooth financing of development plans.

Even in these uncertain circumstances, the Fiscal Council will consistently pursue its mission to monitor and warn about the sustainability of public finances in the medium and long term. Here the main tool remains the power of argumentation. Therefore the transparency made possible by the wide publication of the Fiscal Council’s assessments ensures the continuous follow-up of fiscal policy. In this way, a democratic pressure is created on decision-makers, while at the same time the assessments help decision-makers to take fiscally sustainable decisions on budget documents.

© Fiscal Council 2017 - 2023

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