www.fs-rs.si / News / News / Public Finance and Macroeconomic Developments, January 2019
Published: 01/10/2019

Public Finance and Macroeconomic Developments, January 2019

Favourable fiscal trends continued last year, but structural indicators, the position in the economic cycle and increased risks require increased caution in running fiscal policy and the adoption of measures to address long-term challenges. The general government sector recorded a surplus of 0.8% of GDP in the three quarters of 2018, which was mainly driven by economic growth, the favourable labour market situation and the related strong increase in the general government revenue, in particular tax revenues. The growth in primary expenditure (which excludes interest expenditure) gradually increased, whereas the policies outlined and the measures already taken suggest a further increase in primary expenditure growth in 2019 and consequently a possible deterioration in the structural balance. The high surplus of the state budget in eleven months of the last year is, in addition to favourable economic conditions, largely due to one-off factors. This fact is, according to the Fiscal Council, necessary to take into consideration in drafting the revised 2019 budget, in particular when designing policies with a permanent impact on the level of expenditure.

Economic growth last year remained high, but it slowed down in line with the forecast. The Fiscal Council estimates that the peak of the economic cycle was achieved at the transition from 2017 to 2018. Risks to an even more significant slow-down in growth in 2019 than the forecast on which the latest budgetary documents are based are increasing. The risks stem, in particular, from uncertainties in the international environment, which may have a significant impact on the economic situation in a small open economy such as Slovenia’s.

The Fiscal Council believes that 2019 should be used for drafting and adopting measures that adequately address long-term challenges, in particular in relation to demographic changes, and contribute to a sustainable improvement in public finances and to an increase in economic potential. Fiscal measures may be taken both on the expenditure side, where there are possibilities for streamlining, as well as on the revenue side, where a more efficient tax system should be ensured. With a structural increase in expenditure, in particular regarding labour costs, greater efficiency in the public sector should also be ensured.

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