Assessment by the Fiscal Council: Assessment of budgetary documents for the 2024–2027 period

The general government deficit, excluding the intervention measures, is expected to remain at a similar level until 2027, after an increase to around 2.0% of GDP this year, despite the projected stable and relatively favourable macroeconomic conditions mirrored in general government revenue. The projected deterioration of the fiscal position this year is mainly due to the projections of investment, which, in the Fiscal Council’s view, is again overestimated. The persistence of the deficit over the next three years is primarily expected to originate from the high level of current spending resulting from discretionary measures taken in previous years. This year, fiscal policy is inappropriately set with a markedly expansionary stance which is also not in line with last year’s recommendation of the EU Council. In the face of a number of risks, assessing the fiscal policy stance in the coming three years on the basis of the documents presented is uncertain. The Fiscal Council considers that the projections do not follow the currently estimated anticipated path within the new EU governance framework. The EU Council will make a final decision on this path in autumn. Moreover, the analysis suggests that debt is unsustainable in the long term. The transitional nature of the budget documents, as cited by the Government, does not justify their shortcomings. The documents represent a missed opportunity to put in place an appropriate medium-term budgetary framework as the new fiscal rules are about to enter into force. As a consequence, the preparation of the first medium-term fiscal and structural plan under the new fiscal rules framework this autumn remains a major challenge.

Monthly Information, April 2024

The state budget was in deficit in the first three months of the year (EUR 379 million), according to preliminary data, excluding the direct effect of intervention measures amounting to EUR 278 million. In both comparisons, the deficit was higher than in the same period last year.

Total revenue was 4.0% higher year-on-year on average in the first three months of the year, while total expenditure was 5.3% higher. The growth in “core” expenditure (8.4%) more than doubled in the first three months of this year compared to the same period last year. This was mainly due to the high growth in labour costs due to the early payment of holiday allowance and to the increase in the transfer to the Pension and Disability Insurance Institute of Slovenia (ZPIZ) in the context of the high regular adjustment of pensions.

The total volume of the various intervention measures in the first three months of the year (EUR 112 million) was less than half of that in the same period last year.

The general government deficit was 2.5% of GDP last year, 1.9 percentage points of GDP lower than the government’s projections in October. The lower-than-projected deficit was mainly due to an expected lower realisation of investment and lower capital transfers. This was mainly due to a lower realisation of flood recovery measures than planned in the autumn budget documents.

Fiscal Council consultation on to the revised system of the economic governance in EU and its implications for Slovenia

The Fiscal Council organised its regular consultation with experts in public finance and economic policy. The consultation was attended by Messrs Matej Avbelj, Anže Burger, Mitja Gaspari, Bogomir Kovač, Mojmir Mrak and Dušan Mramor. In line with the Fiscal Council initiative, the discussion focused on the reform to the system of the economic governance in EU and its consequences regarding the implementation of Fiscal Rule Act and fiscal policy in Slovenia. The participants unanimously stressed out the importance of maintaining the relevant role of the Fiscal Council also in the new system of the economic governance and pointed out the risks linked to the long-term fiscal policy challenges.

Monthly Information, March 2024

According to preliminary data, in the first two months of 2024 the state budget recorded a surplus (of EUR 179 million), which amounted to EUR 253 million excluding the impact of various intervention measures. In both comparisons, the surplus slightly exceeded that recorded in the same period of the previous year.

In the first two months of this year, total revenue and total expenditure recorded a year-on-year increase of 8.0% and 4.1%, respectively.

The increase in “core” expenditure (3.8%) at the beginning of this year was mostly due to investment spending, transfer to the Pension and Disability Insurance Institute of Slovenia (ZPIZ) and labour costs.

The total amount of various intervention measures in the first two months of the year was almost half less than in the same period last year.

Monthly Information, February 2024

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.

Fiscal Council hosted the delegation of the International Monetary Fund

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.