Fiscal council chief sceptical about some stimulus measures

Ljubljana- In the second wave of epidemic, the government seems to be taking rapid measures under pressure to be able to boast, believes Davorin Kračun, the head of the Fiscal Council. “It could easily happen that many measures will prove counterproductive,” he said in an interview the newspaper Večer runs on Saturday.

He gave as an example media reports about the government flirting with introducing forced retirement, something the country had during the financial crisis.

The measure would mean the public pension insurance fund has to pay EUR 200 million more in pensions every year, meaning a permanent rise in expenditure.

“This is in contradiction with efforts for pension reform which would bring a long-term sustainability of public finances.”

Kračun believes the government’s measures show a kind of panic, cautioning against it.

“Even if Slovenia is the leader in terms of Covid-19 deaths, panic is ill-placed. What we need is taking action rationally, transparently and most of all, effectively.”

Given the large scope of borrowing – EUR 5.7 billion in ten months – the measures must “really be well targetted and most of all, transparent”.

In Kračun’s view, Slovenia “was in a relatively good condition” when the health crisis hit, “but it could have been better”.

He regrets its failing to create enough wiggle room in the years of growth, while entertaining an illusion of eternal growth.

“This made it increase expenditure beyond reasonable possibilities, especially in the year before the epidemic broke out.”

Kračun cautioned against excessive borrowing, saying that at this time of favourable conditions, it is like a fire.

He believes the government is aware the fiscal rule focuses on the principle of prudence in budgeting, “but how it acts is another question”.

“Once the crisis is over, we are in for long-term challenges,” he said.

“Whatever permanent and inefficient rise in public spending which does not lead to GDP or productivity growth is making these long-term challenges harder.”

Earlier this year the Fiscal Council – which monitors Slovenia’s compliance with the constitutional rule of a balanced budget – expressed reservations about the supplementary budgets for 2021 and 2022, pointing to risks stemming from decisions to fully liberalise fuel prices, close shops on Sundays and change vehicle taxation.

Kračun believes popular measures which would be a serious threat to revenue should be avoided, while there are also risks on the expenditure side, mostly ideas to change the single pay system for the public sector, and in social transfers.

“This leads to being ever more exposed to political risks when likeable measures will burden the future parliament and government forcing them into more serious measures to stabilise public finances,” the economist told Večer.