The Slovenia Times

FinMin would have wanted to see more ambition


The minister has been kept busy despite the holiday season, mainly with the privatisation of NLB bank. However, her key message to her successor will be to press on with consolidation, regardless of the good results.

"Taking on new obligations in a very benevolent way would bring us in a situation we were in 2009 and 2010. I wouldn't want to see a repeat of that scenario, it's not something Slovenia deserves," Vraničar Erman told the STA in a valedictory interview.

The minister will have to leave some of her proposals to her successor because there was not enough political will to adopt them in this term. The handover file will include some pressing legislative proposals transposing EU law.

It will also contain guidelines for changes in taxation, management of state assets and wrapping up the work of the Bank Assets Management Company. "These are all key elements that work must resume on," said the minister.

She is proud of the breakthrough in reducing the general government deficit and public debt. "We have achieved tremendous results there. When the government took over in 2014, the deficit was 5.5 percent of GDP, this year we expect to have a surplus of 0.4 percent."

Public debt is projected at 69% of GDP at the end of the year, down from 83% in 2015. "And this despite the fact that we are keeping solid liquidity reserves for future financing," Varničar Erman said.

The minister is also proud of her aides, in particular staff at the treasury, who successfully managed the debt to extend its maturity and reduce the implicit interest rate.

Through buy-backs of high-interest bonds and new bond issues at much lower interest rates they managed to reduce financing costs by more than EUR 280m.

The minister also pointed to a breakthrough in dealing with red tape and curbing the informal sector through billing, which secured over EUR 80m in extra receipts without any increase in nominal tax rates.

However, she was not able to put all her plans into action. "The thing that hurts most, perhaps, is that every change took an enormous amount of energy, more than I'd expected."

The minister regrets that parliament failed to pass the bill creating the legal basis for damage suits by shareholders and junior bondholders wiped out in the 2013 and 2014 bank bailout.

"I believe this was one of the most substantively important acts of the Finance Ministry which unfortunately didn't have sufficient political support so that the people who feel injured had an opportunity to test their position in court." She hopes her successor will resume the effort.

The minister is also saddened about the slow progress in introducing a real estate tax. The property valuation bill as a basis for the new tax has been passed, but the minister failed to push through with the real estate tax bill. "I'd like the government was a bit more ambitious," she said.

Vraničar Erman has not been thinking about it yet whether she would like to be part of a new finance minister's team. "I've never said no to my cooperation as an expert and I wouldn't in the future, but it all depends on the content of work and how we'd get along. However, substance is the key."

The Finance Ministry has made calculations for the measures proposed in the tentative coalition talks of six parties led by Marjan Šarec, which unofficially added up to EUR 1.7bn.

"Professionally, we were happy to accept the task because we find it responsible that they check as early as this phase of coalition talks whether there are sufficient fiscal means to implement individual measures."

The minister was quite busy balancing ministries' financial needs, in particular the Health Ministry's. She is sad to say that the ministries often asked for additional funding, while little was done to streamline spending.

"I don't think the key question is how much extra funds we'll earmark for reducing waiting times, but rather which rational measures to apply to set up a system that will facilitate fast handling of patients. Once in place, the financial effects need to be added to it."

The health budget has never before had so much revenue as this year, but the needs are increasing as well. The minister says that health budget financing is highly volatile, depending on pay and employment trends.

The issue has been addressed to an extent with an agreement that the state budget should take over the financing of the health budget costs which are not health services.

Even before the election, parties dedicated much attention to the idea to scrap the top, 50% personal income tax bracket, which affects a small number of taxpayers. The minister says that the receipts from this bracket are relatively small compared to the EUR 2.2bn collected annually in personal income tax.

She does not think that scrapping the top bracket alone would result in additional consumption and employment which would fully offset the loss from the tax, but she did say that reducing the 50% rate would substantially contribute to making Slovenia more internationally competitive.

The new government will also face major challenges related to demographic trends, which she said call for a rethink, not only about a demographic fund, but also about changes to employments policy, the health and pensions systems and long-term care.

For the short term, the minister underscored the need to continue with tweaks to the pensions system because all the transitional periods from 2012 expire at the end of 2019.

The demographic fund is needed to shore up the pension budget in the mid-term. Expenditure is increasing fast due to the ageing population, with the biggest hike expected after 2035.

The bill on the demographic fund has been largely finalized by the outgoing coalition parties, but it will need to wait for the new minister.

"The key is to realise that the demographic fund is not intended for active management of strategic investments. That's the main sticking point that we failed to get the bill to parliament. It's because part of the public and politics believe the demographic fund should own strategic investment."

The minister believes that the demographic fund should be a financial investor and that its priority should be to generate the highest possible yield. "It can do so by having its investments dispersed as is the case abroad. Such investments are secure because they are not based on just a few investments."


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