The Slovenia Times

Flood-affected budget documents passed amid criticism

The National Assembly debates budget documents. Photo: Anže Malovrh/STA

Slovenia's state budget deficit is to hit 3.3% of GDP in 2024 due to spending for post-flood reconstruction but then drop to 1.8% in 2025 under budget documents passed by the National Assembly on 22 November amid concerns raised by economists that budgeting is unreliable.

In 2024, €14 billion in revenue is expected, while expenditure is to reach €16.2 billion, €720 million more than in the original budget plan for 2024 passed a year ago. The budget deficit is to hit €2.2 billion.

The deficit is to drop to €1.3 billion in 2025, which would put it within the framework of the EU fiscal rules. The state treasury's revenue is to increase to €14.6 billion, while expenditure is to drop to €15.8 billion.

The general government deficit, a broader measure, is to amount to 3.8% of GDP in 2024, up from the initially expected 2.8%.

EU fiscal rules, which come back in force next year, dictate that the general government deficit should be below 3% of GDP. But the government has asked the EU Commission to treat expenditure related to the devastating August floods as an one-off expense, meaning they are not subject to fiscal rules.

According to Finance Ministry State Secretary Saša Jazbec, a total of €1.6 billion is planned for flood-related expenses over the next two years, of which €1.1 billion in 2024. Most is set aside in budget reserves.

Criticism from Fiscal Council

The opposition as well as economists have been critical of the expanding expenditure and Davorin Kračun, the head of the Fiscal Council, described budgeting as unrealistic.

The Fiscal Council has been pointing out for several years now that budget expenditure has been unrealistically high due to one-off outlays related to crises, which meant future budgeting is unrealistic as well.

What is more, the government changed some of the inputs while keeping the overall figures the same, which Kračun said undermined "budget credibility" further.

Yielding under the pressure of NGOs and trade unions, the government backed off from its original plan to freeze public sector pay and welfare benefits in 2024 as part of the package accompanying the budgets.

In line with the changes made by the government, the legislation now provides for social transfers to be adjusted to 70% of the increase in inflation, which Finance Minister Klemen Boštjančič said meant about €44 million.

He said that an automatic full indexation of social transfers to inflation could create additional inflationary pressures.

In a bid to get public sector unions back at the negotiating table, the government also withdrew its proposal to ban any increase in base pay of public employees.

"Budget planning is flawed and does not inspire sufficient trust," Kračun said. He said the document was irrelevant, as the government failed to present the fiscal impact of the measures taken since presenting its budget proposals.

The government has also decided to suspend a renewable energy contribution to reduce households' electricity bills, and withdrew the plan that would see all employees make a mandatory contribution for post-flood reconstruction.

Instead, it plans a temporary increase in corporate income tax and tax on total assets of banks.

This was raised by Andrej Hoivik, an MP for the Democrats (SDS), who said "businesses are begging you on their knees to stop the belt tightening, and young entrepreneurs to stop chasing them away."

"Instead of the burden on businesses being eased, it is being increased," said Jernej Vrtovec of New Slovenia (NSi), who argued that the budget had "no concept or vision".

The opposition also complained about the budgets not being development-oriented and revenue projections being exaggerated. They spoke out against just 70% indexation of social transfers, saying the government was trying to make savings on the backs of the most vulnerable groups.


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