According to provisional data, the state budget deficit amounted to EUR –2.412 billion in the first eight months of 2021, while without the direct effect of COVID-related measures the deficit would have amounted to EUR –402 million. A deficit of EUR –2.747 billion is envisaged in the state budget for the whole year.
Revenue in the first eight months was 20.6% higher than in the same period last year and, without taking into account the direct effect of COVID-related measures, it was 9.4% higher. The relatively high revenue growth is largely due to the base effect, when revenue fell sharply last year at the onset of the epidemic, and the easing of restrictive measures this year.
Expenditure in the first eight months was 16.8% higher than in the same period last year and, without taking into account the direct effect of COVID-related measures totalling EUR 2.248 million, it was 7.7% higher. The latter is predominantly due to higher labour costs and investment.
In the first eight months of 2021, the total direct cost of COVID-related measures amounted to EUR 2.248 billion, which is about three times more than was anticipated for the whole 2021 by the budget amendment in October last year. The largest part of COVID-related expenditure in the first eight months was accounted for by employee allowances (almost EUR 700 million).
The total direct effect of COVID-related measures since March 2020 amounts to EUR 4.641 billion, and the total cost of such measures, taking into account the potential effect of guarantees, liquidity loans and deferred credit payments on the state budget results, stands at EUR 5.251 billion.
According to preliminary data, 27 thousand employees were involved in job retention measures in June 2021. In May, for which the data are already more definitive, the number was about 40 thousand, which is about 5.0% of all employees. The basic income for June was transferred to 28 thousand self-employed people or about 38% of all the self-employed, while the total number of basic income recipients was 32 thousand.
The Fiscal Council notes that the general government deficit remains very high this year despite a significant recovery in economic activity. According to current SURS data, the GDP level in the second quarter of this year lagged behind the level from the last quarter of 2019 by only 0.2%. This is reflected in the relatively favourable trend in tax revenue, which in the first eight months of this year exceeded the level from the same period of the pre-crisis year 2019. Nevertheless, the deficit in eight months was higher than in the same period last year and almost reached the projected level for the whole of 2021. In addition, this year the expenditure structure deviates significantly from the projections made at last year’s budget amendment. The key reason for this deviation is the extremely high level of expenditure on COVID-related measures, with employee allowances account for the bulk of that. The Fiscal Council estimates that around EUR 900 million in allowances paid from the beginning of the epidemic to the end of August this year indicates that anti-corona legislative packages have some systemic shortcomings in the regulation of this area. However, investment expenditure, which according to the adopted budget documents is the main reason for the projected high deficit this year, lags significantly behind projections, which is only partly due to the traditionally lower spending of EU funds than expected. Evidently, optimistic planning of such expenditure can give way to other forms of spending without this being reflected in aggregate budget trends.
In view of these trends, the Fiscal Council reiterates that, when preparing budgets, funds to prevent the consequences of the epidemic should be spent in a targeted and transparent manner and systemic problems should not be solved in this way. Planning of EU funds must be realistic and available funds must be used efficiently. Economic policy must ensure that the measures taken do not create macroeconomic imbalances, particularly due to supply-side constraints and the absorption capacity. The structural position of public finance cannot be permitted to deteriorate and that the government debt does not increase inappropriately, or risks to the sustainability of public finance increase in the long run.
According to the practice established so far, the Fiscal Council will re-examine whether the conditions for invoking exceptional circumstances set out in the Fiscal Rule Act are fulfilled for the next two years after the publication of the IMAD autumn forecast of economic trends and before the October submission of budget documents for the assessment of compliance with fiscal rules.