According to Finance Minister Janez Šušteršič, effects of the pension reform should kick in as early as next year, while the 5% cut would apply to the entire public sector, not only the public administration.

"The public sector must be adapted to what our economy can pay for," Šušteršič said. With the total of EUR 4bn earmarked for public sector pay per year, the 5% cut represents about EUR 200m. Individual public sector entities will have their hands free in deciding how to achieve the cut, the minister explained.

Budget expenditure for 2013 is estimated at EUR 9.5bn, slightly above this year's figures due to successful drawing of EU funds, which gives the government an estimated EUR 600m extra for investments, Šušteršič said.

The government also plans to cut expenditure by decreasing capitation funds available to municipalities by 3.3% for 2013.

Budget deficit is capped at EUR 1bn, which means budget revenues should amount to EUR 8.5bn.

One of the measures to achieves this is a VAT rise (from 8.5% to 20%) for a number of goods and services, including newspapers, magazines and communal services. The measure is expected to bring in EUR 70m, Šušteršič said.

Further revenues are expected to be generated by publishing a list of tax delinquents, ramp up the environment tax and increase taxes on luxury cars, according to the minister.

The government also proposed a new financial services tax and a two-year extension of the existing tax on banks assets.

Šušteršič said the government measures were a response to deteriorating economic conditions and a downgraded outlook for 2013.

"Nevertheless, the government must respect its commitments in order to keep the budget deficit below 3% of GDP. Respecting this commitment is crucial for maintaining the country's credibility," the finance minister said, highlighting the importance of structural reforms.