In the first half of this year, the fiscal situation further deteriorated. In the first quarter, the deficit of the general government sector as a whole was 3.4% of GDP, while the data available for the second quarter point to a similar trend. According to most projections, the full-year deficit is expected to be around 3% of GDP, which is one of the criteria for initiating the excessive deficit procedure under EU rules. The state budget outturn in the first half of the year and the possible implementation of the Intervention Measures for the Development of Slovenia Act (ZIURS) increase the risk that the the deficit will be even larger than currently projected.
The key reason for the growing general government deficit is the continuation of relatively high, broad-based and predominantly structural growth in public expenditure. The high growth in current expenditure was mainly the result of changes in the salary system and legally required regular adjustment of rights to public funds. The large number of discretionary measures adopted during the past few years has also contributed significantly to the growth in expenditure. At the same time, the fiscal room for manoeuvre is shrinking due to the increasing transfers to other public finance budgets, the financing of which is becoming increasingly demanding. Investment spending also remained high. At the national level, it is primarily fuelled by the soon-expiring Recovery and Resilience Plan (RRP) and intensified absorption of cohesion funds. At the municipal level, increased investment activity is associated with the approaching local elections. This year’s deficit increase has been mitigated by stronger revenue growth, mainly due to higher VAT revenues and corporate income tax as a result of better macroeconomic trends, and partly also higher inflation.