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A responsible budget for a successful economy

Last update: 05.01.2006 06:00

The Slovak economy is found in a very good condition, its growth reaches, according to the latest information, 6.2%. This growth is not only fast, but also healthy – successful export, which is growing by more than 16%, contributes to it and decent dynamics have been also shown by domestic consumption and investments. On the contrary, the economy is not artificially supported by government expenditures, which are growing by only 1% this year.

Nevertheless, success of the Slovak economy is not caused by support from abroad. Quite the contrary, it was reached despite the adversity of the external environment. For several years the largest European countries have not been able to free themselves from economic problems and the oil price not only causes the anger of motorists, but also has a negative influence on the state of economy.

Budgetary policy is the main tool of economic policy, through which 570 billion crowns is being redistributed this year. And this very responsible budgetary policy over the last three years has contributed in a significant way to the current success of the Slovak economy. Public finance deficit shall drop between the years 2002 and 2006 from the level of 5.7% of GDP to 2.9%, therefore by 2.8 percentage points. The tax and levy burden shall decrease in the same period from 32.5% of GDP to 29.2%, therefore by 3.3% of GDP, which in financial terms represents approximately SKK 50 billion.

Approving and implementing the budget for the year 2006 will contribute to a strengthening of the positive development of our economy. Its dynamic growth will also show very clearly in the improvement of the living standard of citizens, since the growth of real wages as well as pensions is expected at the level around 4%. In comparison with the year 2002, expenditures in areas that were defined as a priority in the Competitiveness Strategy for Slovakia up to 2010 will be strengthened. Public expenditures for the construction of motorways and science have almost doubled, also expenditures for University education (55%) or justice (78%) record significant growth.

 The proposed budget is not a typical budget for an election year. Public finance deficit shall decrease by 0.5 % of GDP compared to this year, therefore by 7 billion crowns. Many other governments would probably decide to consume these resources and refuse to decrease the deficit in the election year. The budget that the Parliament is voting about today is different. This budget is responsible. By decreasing the deficit, it will actually contribute not only to the healthy development of macroeconomics in the year 2006, but also to the fact that during next year it will indebt future generations less.

I consider, apart from attained macroeconomic results and also the fact, that the public, including part of the trade unions, and also politicians, including many opposition ones, began to realize that increasing public finance deficit is an exceptionally irresponsible shifting of a financial burden onto future generations, to be the greatest progress that Slovakia has attained in the last years. Slovakia must already today prepare itself very intensively for the population ageing that will not bypass it in the nearest decade. While 6 citizens of a productive age must take care of one citizen at a post-productive age at present, in 2050 it will be done by only two. Such a development shall significantly complicate public finance, especially due to the growth of pension and health service costs. Therefore it is crucial that increasing the deficit and indebtedness was very unambiguously refused in the most recent years.

 Approval of the proposed budget, together with actual positive development of the economy and also public finance, create very good prerequisites for meeting the Maastricht criteria in the year 2007. Today it is obvious that even the Government that will arise after elections in September 2006 will not have to make any essential restrictive provisions for Slovakia to be ready to introduce the Euro in the year 2009.

Despite the above-mentioned, I do not doubt the fact that there are many matters ripe for improvement in public finance. Even at present a considerable part of public resources is used ineffectively, and faster progress in this area would enable a further decrease of tax and levy burden or deficit. Apart from that the state still performs many activities that the private sector would be able to realize more effectively.

When preparing the budget for the year 2006, programme budgeting was used significantly, which should be the main tool for making public expenditures more effective and also transparent in the following years. A definite relation of provided resources and achieved results must be always present when using public resources, so that public finance expenditures are directed at areas where they will work to society’s greatest benefit. Public finance must be more and more directed at achieved results. Not only the volume of used resources, but especially effects and results that these resources are able to bring must be essential. However, the majority of budgetary chapters are still not able, or do not want, to unambiguously and publicly define their objectives, which could be factually evaluated and also compared internationally.

I believe that the Parliament has supported the healthy trends of the Slovak economy by approving the budget for the year 2006. On the contrary, not approving of the budget would not bring anything positive to the citizens or to entrepreneurs.

State Secretary of the Ministry of Finance of the Slovak Republic
Vladimír Tvaroška