Submitting Report

The submitted draft public administration budget for 2005 – 2007 is based on The Inputs of Public Administration Budget for 2005 – 2007 and The Convergence Program for Slovakia for 2004 - 2010 approved by the government in spring 2004. As compared to these documents, changes in the draft budget are minimal, which proves the consistency of government economic policy. In 2005, the public finance deficit is budgeted in the amount of 3.4% of GDP. 

The submitted budget will significantly contribute to sound and dynamic growth of Slovak economy, draw public finance closer to the sustainable long term level and at the same time create conditions for the implementation of Euro in Slovakia not later than in 2009. The budget establishes better public finance agenda, which is one of the main goals of the government. 

The submitted material is based on positive macroeconomic assumptions, affirming that the Slovak economy is sound. In the next three years, dynamic growth of Slovak economy by average 5.5%, inflation less than 3% and employment rate growth at 0.7% a year is expected by the government. At the same time, real wages are expected to grow by 3.1% next year. Basic difference between the present and the past is that the current fast economic growth is balanced, based on sound foundations, and sustainable. Nevertheless, in comparison with the projections of international and local public and private institutions, the prognoses of Ministry of Finance of SR are realistic to slightly conservative, just as the prognoses of Ministry of Finance should be.

With the implementation of draft budget, the public finance will draw closer to the level of long term sustainability. The launch of pension reform together with suggested reduction of deficit will significantly contribute to preparation of public finance for population aging, which Slovakia will be facing in the next decades. The share of gross public debt in GDP will slightly increase in the course of monitored three years, however, at the same time at the end of 2007 Slovakia will record receivables in the amount of more than SKK 18 bn towards the EU budget. Furthermore, the debt of SKK 10 bn will be removed from the health sector. Assets of State Housing Development Fund will also grow. Globally, it can be said that the public finance will in the course of the budgeted period reduce financial burden of the future generations. 

On the basis of the submitted budget the government can fulfil the most difficult Maastricht criterion in a sustainable way – reducing of pubic finance deficit to 3% of GDP. Without the costs for the creation of the capitalization pillar, this goal could be fulfilled in 2006 in accordance with the Government Policy Statement. Inclusion of pension reform costs will shift the decrease to 3% in 2007. Economy development and economic policy aims show, that it is possible to fulfil the rest of Maastricht criteria in 2007 in a sustainable way, therefore Slovakia will be ready for the implementation of Euro in 2009. Despite of Eurostat decision from March 2004, on the basis of which the pension reform costs increase public finance deficit, in course of the next few months the discussion will take place within EU about implementation of a special schedule for assessing the three per cent criterion accomplishment. The government will continue in active promoting of this schedule within EU. In case of successfully completed effort to impose special schedule which would allow fulfilling the Maastricht criteria already in 2006, the government will concentrate on implementation of Euro in 2008.

The draft public administration budget for 2005 – 2007 also fulfils another significant point of the Government Policy Statement, which is to reduce the rate of redistributing by means of public finance. The share of public expenses in GDP will decrease from 44% to 39.5% in the period of 2002 – 2006, even though public expenses were artificially increased during this period by approximately 1% of GDP due to levies to the EU budget. Without this factor, the share of public expenses in GDP would decrease by 5.5% in the period of four years. 

Tax and levies burden will in the period of 2002 – 2006 decrease from 33.5% of GDP to 29.5%. In 2004, Slovakia has the lowest tax and levies burden (30.8% of GDP) from all member states of EU, while the EU average is 38.8%. 

In contrast to the last two years the submitted draft public administration budget brings a significant increase in costs, even in fixed prices. Year-to-year growth of budgeted expenses for public finance will reach 9.6% at the inflation rate of 3.3% in 2005. The submitted budget will definitely have a positive impact on the citizens. For instance, the budgeted average growth of real wages for public sector employees is 3.3% and growth of pensions is 8.2% as of 1 July 2005. The budget provides opportunities for using almost SKK 18 bn for building highways. This is a year-to-year growth by 78%. The budget also provides resources for investment support of two car factories and many other development projects. 

Public finance is influenced by four significant factors during this period of four years. The first factor is represented by implementation of many structural reforms in the period of 2003 – 2004, which are significantly reflected in the budget. The second factor is represented by access of Slovakia to EU, which is partly reflected in this year's budget, however, the full impact will be seen in 2005, which is the first full year of Slovakia's membership in EU. Fiscal decentralisation is a current change, which will take place from January 2005. The last significant factor is represented by pension reform, which will significantly influence 2005 and 2006 budgets. In this period citizens will decide whether they join the capitalization pillar or not.

Although financial advantages of Slovakia's access to EU are undisputed (in 2005 Slovakia may receive SKK 28 bn more than its levies to EU will be), from the public finance point of view integration means additional burden. The burden in 2005 represents approximately SKK 17 bn in comparison with 2003. Its main part constitutes levies to the EU budget, which is more than SKK 15 bn. Without the influence of public finance expenses associated with Slovakia's access to EU, the process of decreasing the deficit would be even faster. 

In the case of public finance development, the major unknown quantity is represented by the estimated interest of citizens in the second pillar of the pension system. The number of citizens wanting to join the new system will be known on 30 June 2006, which is the deadline for making decisions. At present we can only estimate that the impact of the pension system reform on the public finance deficit will represent up to 1.1% of GDP a year in the period of 2005 – 2007. As the real result may be quite different from this estimation and the government cannot influence it, the goal of the fiscal policy in the period of 2005 – 2006 is the deficit without expenses associated with the second pillar. The fiscal policy will have to react to possible difference from estimated values, so that the deficit including pension reform expenses in 2007 does not exceed 3% of GDP.

In contrast to budget preparation in the last few years, the 2005 – 2007 budget was prepared in relatively stable legislation framework. Although the impacts of some reform laws have not fully influenced the public finance yet, risks due to changes of legislative framework during the preparation of budget are considerably lower than in the past. The submitted budget projects passing of some legislative changes during this autumn. These include mainly postponement of the effectiveness Act on Environmental Fund to 2006 and decrease in the rank wage supplement for some officers. 

During the preparation of public administration budget, discussions were held on three basic fiscal parameters. The discussion resulted in a draft budget, which combines these indicators in an optimal way. 

A.	Public finance revenues are determined in the first place by the amount of taxes and levies, which will be decreasing gradually in the following years in a tempo the government deems appropriate at the moment. 
B.	Besides revenues, the budget expenses are also defined by the level of public finance deficit, which will be slightly decreasing, which will facilitate sound development of Slovak economy. 
C.	Due to dynamic growth of economy and increased usage of European funds in 2005, the public expenses in fixed prices will grow in spite of decrease in taxes and levies and current decrease of deficit. This situation is optimal from the point of view of economy development. The second level of public expenses is represented by distribution of the total volume among individual areas. The long discussions resulted in the present budget draft, which reflects government priorities specified in its Policy Statement. 
Lately, public finance has gone through a complex transformation, which decreased its share in economy, reduced deficit and created conditions for more effective use of resources of tax payers. In the future, much more attention should be paid to the qualitative feature of public finance. Wider public discussion will be necessary that will not only propose increase in expenses in individual chapters, but will be aimed at assuring balance, that is, it will not only focus on where to add, but also where to detract, or possibly, how to increase revenues or where the money should be used more effectively. Improvement in the quality of public finance will be reached by mutually interlinked multi-year budgeting and program budgeting.

The draft public administration budget for 2005 – 2007 comprises shifts in many areas of budgeting process. In the first place, it is reinforcement of multi-year budgeting. While in the last few years only fiscal policy forecast was included into the budget, this year's public administration budget includes public sources usage for the next three years specified for particular public administration entities and for particular programmes in the State budget. Thus, the chapters will gain better ability to plan their activities in medium-term horizon. Although allocation of expenses for the period of 2006 – 2007 is not binding, changes are expected to be made only in undoubtedly justified cases.

Function of programme budgeting is reinforced in the budget. It should be the main device for making public expenses more effective and transparent. Explicit link between the resources provided and the results reached must always be present when using the public sources, because the public finance expenses should go where they will be the most contributing. 
The key issue of public finance management is effectiveness of use. Not only the volume of resources for individual areas is important, but above all the effects and results these resources can bring. For instance, not only the number of resources allocated by the budget for flood protection is important, but also the fact, if they are used for maximum protection of the area. It is equally important, if we can build more highways from resources allocated for building highways, or if we can built them in the area where the tax payers will benefit from them more. Similarly, not only the number of resources allocated for salaries of teachers is important, but also if they are used effectively – for example, it should be considered having fewer teachers and give them better salaries.

New Act on Budgetary Rules approved by the National Council of SR in September will play the key role in increasing transparency of public finance. 

2. New regulation framework for compiling the public administration budget for 2005 - 2007

In the submitted proposal of the public administration budget for 2005 – 2007 qualitative changes in the area of methodology of budget compilation were completed; of which major part was implemented during the preparation of budget for 2004. Within implementation of the public finance management reform with the aim to increase efficiency and transparency of the whole process of budget compilation, further qualitative shift took place during the process of budget creation for public finance for the subsequent budgetary years. Compilation of public administration budget for 2005 – 2007 was based on the new regulatory framework, which is contained in the Act on Budgetary Rules in Public Administration. 

2.1. New legislative adjustment regarding public administration budget
 
	Public administration budget for 2005 – 2007 was created within the framework of the new Act on Budgetary Rules in Public Administration, which was approved by the National Council of SR in September. 
 
The new Act on Budgetary Rules in Public Administration, when compared to current legislative adjustment, contains the following most important changes:
 
1    Introduction of multi-year budgeting throughout public administration for three budgetary years. 
 
     The aim of the introduction of multi-year budgeting into the budgeting process in the Slovak Republic is to strengthen the interconnection between the medium-term fiscal framework and the annual budget, increase the level of management, discipline and control of public expenditure. Multi-year budgeting is a process, which links expenditure to the political priorities of the government within tight budgetary constraints. 
In terms of multi-year budgeting, public administration budget is created, which consists of the State budget and budgets of other public administration entities for the period of at least three budgetary years; for the first time this format of budgeting process is used for the period of 2005 - 2007. The budget for the following budgetary year, i.e. 2005, is binding, while the budget for the consecutive two budgetary years, i.e. 2006 and 2007, is informational and will be fine-tuned in the consecutive budgetary year, however, only in justified cases.
The government approves the public administration budget proposal for three budgetary years, draft Act on the State budget for the respective budgetary year, draft State budget and draft chapters of State budget for the respective budgetary year. The National Council of SR approves the Act on State budget for the respective budgetary year and takes into consideration the draft public administration budget for three budgetary years.
Introduction of budget compilation in the way mentioned above represents an important medium-term economic tool of economic policy of the State, as well as an important tool to control the public administration expenditure and redistribute resources in accordance with financial possibilities of the State and with political priorities. 
2     General and complete adjustment of handling with public resources, unified and universally valid definition of public administration sector in Slovak jurisdiction and, by means of its definition,  delimitation of public resources in accordance with valid international standards – ESA – 95 methodology.
 
3      Introduction of program budgeting as an integral part of the budgeting process during the creation and implementation of the State budget.
 
4     Introduction of the systemic possibility of using and reporting the State budget resources also in the following year, according to which the budgeted State budget resources for the respective budgetary year, which can be used in the following year, will represent an expense of that budgetary year in which they will actually be used. At the same time, a systemic possibility is introduced enabling using financing resources for capital expenses, EU resources including co-financing from the State budget also in the following years under the conditions provided by law, as well as a possibility to use common transfers provided to end user in the last quarter, until the end of the first quarter of the following year.
 
5      Introduction of the rule of providing return funding sources only from financial assets, not from expenses of the State budget and vice versa, all financial resources from return funding sources are the resources of State finance assets, and do not represent a part of the revenues of the State budget.
 
6      Decrease in the number of budgetary chapters in terms of sorting State budget revenues and expenses from the organizational point of view – cancellation of the separate budgetary chapter “Office of the Judicial Council SR, National Debt, Summary transfers to municipalities and Upper-tier Territorial Units”. 
 
7      New definition of fiscal discipline misconduct compared to the current definition of budgetary discipline misconduct. Definition of fiscal discipline misconduct including sanctions relates equally to all public administration entities, while the scope of powers when executing financial control and State supervision is left to the Act on Financial Control and special regulations, which define the powers of control, as well as supervisory powers within public administration. 
 
8    Making provision for the rule of 50% criterion to distinguish market and non-market producers – as far as subsidised agencies are concerned. From the point of view of definition of public administration sector, the main objective is synchronization with the ESA - 95 methodology in the process of establishment and operation of agencies subsidised by the State, municipality or Upper-tier Territorial Unit, in accordance with the rule of 50% criterion to distinguish market and non-market producers – as far as subsidised agencies are concerned – subsidised agencies can be only those agencies, which cover less than 50% of their production costs by revenues.

2.2. Fiscal decentralisation

	In accordance with the Slovak Government Policy Statement, a new system of financing of municipalities and Upper-tier Territorial Units was prepared, with an objective to reinforce the financial independence of self-governments. Fiscal decentralisation follows the transfer of competencies from the state administrative bodies to municipalities and Upper-tier Territorial Units pursuant to Act no. 416/2001 Coll. Pursuant to this Act, competencies had been transferred to self-governments gradually from 1 January, 2002 until 1 January, 2004. The transfer of competencies, which has already been completed and tax reform implementation will be followed by the next step, namely fiscal decentralisation from January 1, 2005.

	By approving laws related to fiscal decentralisation in September 2004, the chapter “Summary transfers to municipalities and Upper-tier Territorial Units” is cancelled and subsidies budgeted in the mentioned chapter are transformed to tax revenues of municipalities and Upper-tier Territorial Units. The total sum of subsidies transformed to tax revenues amounts to SKK 33,854.9 mill. Out of this sum the income tax revenue from personal income taxes amounts to SKK 31,354.9 mill., out of which to municipality budgets SKK 23,500.5 mill. is paid and to the budgets of Upper-tier Territorial Units SKK 7,854.4 mill. is paid. The tax revenues mentioned above are based on the approved guarantee contained in the Act on Budgetary Definition of Tax Yield from the Incomes of Self-governments, that is, in 2005 the expected decrease in personal income tax due to increased tax bonus is not reflected. Motor vehicle tax yield SKK 2,500.0 mill. will represent budget income for Upper-tier Territorial Units. Revenues and expenditures of the State budget will be reduced by the sum budgeted in the above mentioned chapter.
	
Tax revenues will be used to cover the municipal competencies – performance of the functions of municipal self-governments, public transport, education and social security (personal care services) and competencies of Upper-tier Territorial Units in the area of activities of offices of Upper-tier Territorial Units, transport, culture, schools and social security (social service facilities).

2.3. Improvement in program budgeting 
 
Program budgeting is a system transforming medium-term Government priorities into specific tasks and activities, and by means of programs assigns disposable resources, focusing on the results and effective spending of fiscal expenditures. This is, therefore, result-oriented budgeting.
 
The most important shift in program budgeting took place during the creation of budget for 2004, when expenses of all budgetary chapters, except for the chapters “General Treasury Administration” and “Summary transfers”, were program-allocated.
 
At present, all budgetary chapters contain essentially stabilized programs, which clearly show the purpose of the fiscal expenditures. When compiling the budget for 2005 – 2007, the objective was to further improve the program structures of individual budgetary chapters, namely by means of improving formulation of aims, objectives and measurable indicators in order to emphasize the importance of program budgeting as the central tool for strengthening strategic planning and management of public finance. Progress in fulfilling this aim was rather differentiated in particular chapters.  
 
Implementation of program budgeting – results-oriented budgeting – is a modern trend in budgeting in most of the developed countries. This system facilitates the reinforcement of the medium-term nature of budgeting, preventing fiscal stress, increasing efficiency of budgetary funds use and increasing transparency of the budget for the general public. Implementation of this system is a long-term process, as it requires a change in thinking – understanding the fact, that the objective is not to consume public resources, but to provide a specific service to the tax payers. In other words, this is not financing of existing capacities, but financing of outputs and results.
 
During further improvement of program budgeting, the Ministry of Finance as the coordinator of budgeting process will focus its efforts on the improvement of the whole budgetary cycle, starting from the process of designing and approving the budget through its implementation to continuous and final assessment and fiscal control. However, it will not be possible to achieve substantial progress in this process, unless political managements of individual sectors take more intense part, especially in formulation of strategic objectives and objective of individual sectors. Without their engagement, it is extremely difficult for the persons responsible for the budget to formulate such aims and objectives, which would reflect real political priorities of the sector, and formulation of program structures can thus easily become a difficult formal exercise. The Ministry of Finance has been providing and is ready to continue providing further expert assistance.

3. Prediction of key macroeconomic indicators for 2005 - 2007

3.1. Breakdown of economic development in 2004

Favourable macroeconomic development in Slovakia continued also in 2004. Healthy economy growth – now supported also by domestic demand – is on a very high level, with secondary inflation pressures being minimal and the current account deficit at an exceptionally low level on an annual basis. Furthermore, most recently published figures prove that economic growth is gradually starting to reflect in an increased living standard of the population as well. Consolidation of public financing and implemented structural reforms should constitute a guarantee of strong but sustainable economic growth also in the coming years.    

In relation to current trends, the Ministry of Finance has revised its prognoses compared with the projection when compiling the inputs of the public administration budget for 2005-2007. In just about all key indicators, the revised estimates for 2004 shifted in a positive direction compared with budget inputs; predictions reflect the positive development of the economy seen in the 1st quarter of 2004, as well as the positive development of monthly indicators for the first half of the year. 

Indicator	State budget 2004	Inputs	Current estimate	
GDP – in current prices	SKK 1,293.2 bn 	SKK 1,291.1 bn 	SKK 1,310.8 bn 	
         - real growth	4.1 %	4.1%	4.7 %	
Average annual rate of inflation 	8.1 %	8.1%	7.8 %	
Average unemployment rate	14.9 %	14.8%	14.6 %	
Growth in employment (based on statistics)	1.0 %	0.6%	0.3%	
Average real wage growth	-0.6 %	-0.3%	0.7 %	
Deficit in current account of the balance of payments (proportion of GDP)	3.5 %	2.0%	1.1 %	
The current estimate of the gross domestic product is based on revised national accounts that the Statistical Office SR revised in December 2003.

The growth of the Slovak economy in the first quarter of 2004 exceeded all expectations. Compared with the projection, the development of household final consumption in particular proved more favourable, supported by higher real wages. Despite the marked price hikes in oil prices, inflation is slightly lower than the figures from previous prognoses – the fear of massive price increases after EU entry were not substantiated. Exports also report a strong growth dynamic, which naturally helps reduce the current account deficit even further. The official unemployment rate is declining and is expected to fall below 15% for the year. The only area where a worsening was seen when revising the prognoses concerned the growth in employment. The higher than projected growth in 2003, combined with mass redundancies in the first quarter (in both the private and public sectors) and the delayed effect of direct foreign investment inflow from EU funds, constitute the main grounds for a lower estimate. On the other hand, it must be said that no significant re-evaluation of medium-term trends was made and the generation of new jobs in large numbers is not expected to appear until the second half of the year.  

The growth of the economy in 2004 will be stimulated not only by higher net foreign demand (with effect of 1.9 of a percentage point), as was seen in 2003, but also by a growth in domestic demand (2.8 of a percentage point) – a growth in investments and private consumption. The entry of Slovakia to the EU is also expected to have a positive impact on economic performance, as will the higher count of work days. The Ministry of Finance SR anticipates real GDP growth to possibly reach the level of 4.7% in 2004 under such conditions.  

Household final consumption will, unlike in 2003, be positively stimulated by a real growth in the available pension of households and the prevailing growth in the inclination of households toward consumption. The Ministry of Finance SR expects a real growth in household final consumption this year on the level of 2.7%. The following factors above all will influence the available income of households:

•	Real wage growth by 0.7%, whereby as a consequence of tax reforms (lower tax rates and the introduction of a tax bonus) the net real wage should rise by as much as 1.9%.
•	Higher employment by 0.3%  

The tendency toward consumption will reflect in a further drop in interest rates from deposits on one hand, accompanied by a growth in the possibility to receive consumer credits or make purchases by instalments. The Ministry of Finance SR therefore projects a further drop in savings this year. 

From the perspective of the development of public finances, in particular with regard to income tax and excise duty, the development of the volume of wages and consumption in nominal terms is of particular relevance. In 2004 a positive trend is anticipated in the development of both these tax bases; the wage base should rise in nominal terms by 8.9% and private consumption by 9.5%.

Final consumption of public administration will probably only be of slight support to economic growth; in 2004 a growth of 0.5% is expected, which is in line with the objective of consolidation of public finances. On the other hand, it is important to note that the inflow of funds from the EU to the economy should be greater this year than last year, but this will be reflected primarily in the formation of gross fixed capital. 

The formation of gross fixed capital should, thanks to a revival of investment activity, become the most dynamic component of domestic demand. After two years of decline, a real year-to-year growth of 3.0% is projected with. The growth in investments is projected as a result of the improvement of the business environment as a whole and the inflow of investments from abroad. Domestic and foreign investors alike should be stimulated especially by the relatively low charge of tax, falling interest rates, an acceptable infrastructure and a relatively cheap and qualified workforce. Greater investments should also be boosted by better financial results of domestic companies.

The revival in domestic demand should temporarily reflect in a slight worsening of the balance of foreign trade, although this tendency should be slowed down by the accelerated GDP growth in the countries of the EU. The tempo of growth in the import of goods and services (in fixed prices) should approximate the dynamic of growth of exports of goods and services thanks to the anticipated influx of technologies and increased private consumption. The resulting trade balance should be influenced also by the high price of oil and appreciation pressures on the exchange rate. The development of the trade balance is also closely linked to a slight deepening of the deficit in the current account of the balance of payments, which after an exceptionally favourable year in 2003 could end on the level of 1.1% of GDP. The current account deficit will be securely covered by a surplus in the financial account based primarily on increased inflow of direct foreign investments.

The growth of the economy in connection with the inflow of foreign investments and the generation of new jobs should ensure that in 2004 employment increases to the level of 0.3% (according to statistical reporting). The growth in employment, accompanied by reforms in the area of tax and contributions, and the rising motivation for the unemployed to actively seek work, should gradually lead to a drop in unemployment.  The average unemployment rate could then fall to 14.6% under such conditions and to 17.2% in terms of selective findings on the labour force. A more marked drop in unemployment is prevented mainly by the increased retirement age.  

The greatest influence on the development of the annual rate of inflation in 2004 was once more the adjustment of regulated prices and the introduction of uniform VAT rates (to the level of 19%) seen at the beginning of the year. For this reason, consumer prices rose in January 2004 by 4.4% month-to month. The year 2004 is the last year in which any major increase in regulated prices should occur. Pursuant to the expectations of the Ministry of Finance SR, annual inflation in the first half of 2004 developed in a similar way as in January; from August the annual CPI growth should, however, slow to the level under 8%. In the second half of the year food prices and overall inflation are affected slightly also by the adoption of the common agricultural policy of the EU. No dramatic price hikes in this area should be seen however. The Ministry of Finance SR projects the average annual rate of inflation to reach 7.8% in 2004, which is 0.3 of a percentage point down over the level projected when compiling the budget.

The development of short-term interest rates will depend on price stability and development of the real economy. A further reduction in the public finance deficit and the continuation of structural reforms could create scope for a further drop in the rates over the medium term. The Slovak koruna exchange rate should see relatively stable development, corresponding to the performance of the economy. However, shifts in the exchange rate against Euro could be affected also by political events and by the movement of short-term capital. The Ministry of Finance SR projects the mean exchange rate for 2004 to be 40.0 SKK/EUR and 32.9 SKK/USD.

3.2. Macroeconomic framework for compiling the draft state budget for 2005 – 2007

The prognosis of macroeconomic development for the years 2005 - 2007 projects with renewed growth of the global economy, increased competitiveness and performance of the Slovak economy, ongoing consolidation of public finances, and a gradual improvement regarding the situation on the labour market.

3.2.1 Development of the external environment

According to the most recent estimates of the OECD and the European Commission (which presents only an outlook for one year in advance), it is possible to predict that the revival of the world economy will continue also in the coming years, although the course of development in individual countries and their groupings will not be equal. 

Projected economic growth in selected countries	
	2003	2004	2005	2006-09	
SLOVAKIA	4.2	4.3	4.8	5.2	
USA	3.1	4.7	3.7	3.3	
Japan	2.7	3.0	2.8	0.9	
Eurozone	0.5	1.6	2.4	2.4	
     Germany	-0.1	1.1	2.1	2.3	
     France	0.5	2.0	2.6	2.5	
Czech Republic	2.9	3.1	3.4	2.9	
Poland	3.7	4.7	4.5	4.2	
Hungary	2.9	3.3	3.8	3.8	
Source: The OECD Economic Outlook No.75 (June 2004)	

Renewed growth of the global economy should be boosted above all by accelerated economic growth in the USA, which was apparently assisted by the monetary and fiscal stimuli from the FED and the government in the shape of record low interest rates, tax cuts and increased expenditure on defence. As a result of the abundant stimuli, the growth of both labour productivity and employment is on the rise in the USA. A clear sign of positive development can be seen by the fact that the FED tightened the monetary policy.

Estimates of the OECD project accelerated economic growth in the eurozone from 0.5% in 2003 to 2.4% in 2005. The speedy growth should be driven forward by increased foreign demand, and by a growth in private consumption supported by low interest rates. Development of the eurozone will be affected chiefly by the development of its two largest economies, Germany and France; their economies should increase slightly in 2004 and in 2006 – 2009 should reach the average year-to-year level of approximately 2.3%. However, to ensure sustainable growth of the eurozone economies the EC sees the need for structural reforms in several countries, above all with regard to pension and social system reforms, but also in terms of the health service and education systems in connection with changes in the manner of labour market functioning.

Apart from the eurozone, the economy of the Slovak Republic will react sensitively also to the development of other economies in the region of Central Europe, in particular in respect of the Czech Republic. Despite the fairly weak performance of the world economy, economic growth in these countries preserves its dynamic. Their openness indicates that the anticipated revival in the eurozone could lead to these economies seeing even faster growth in the coming years. In addition, the ongoing reforms in several countries should create an environment that is attractive for investors and so speed up the process of catching up with other European countries. In the Czech Republic, which in recent years has posted fairly weak economic growth, the economy has been chiefly pulled forward recently by domestic consumption supported by a growth in real available earnings and lower interest rates. The anticipated acceleration of growth will very much depend on revival of the eurozone economies especially that of Germany, as well as on the impacts of the adopted package of austerity measures.

3.2.2 Prognosis of Ministry of Finance SR for 2005 – 2007

The aforementioned assumptions concerning the external environment together with the anticipated positive effects of structural reforms should ensure strong and sustainable economic growth of the Slovak economy also in the years to come. The Ministry of Finance SR does not expect the robust growth of the economy to induce any major inflation pressures or any dramatic deepening of the current account deficit. The inflow of DFI combined with structural reforms and the use of budgetary funds of the EU should boost structural employment and also gradually reduce the number of people out of work. Key macroeconomic projections are given in the following table. 
Indicator	Unit of measurement	Actual	Prognosis	
		2002	2003	2004	2005	2006	2007	
Gross domestic product in current prices	SKK bn	1,096.4	1,195.8	1,310.8	1,408.0	1,515.4	1,628.8	
GDP tempo of growth in fixed prices	%	4.4	4.2	4.7	4.5	5.1	5.4	
Mean annual rate of inflation	%	3.3	8.5	7.8	3.3	2.8	2.5	
Labour productivity (real growth)	%	4.3	3.4	4.4	3.7	4.4	4.4	
Mean rate of unemployment	%	17.9	15.2	14.6	14.4	13.7	13.0	

Other indicators of importance primarily for compiling the budget are shown in the following table:
Item	Indicator	Unit	 	Current year	Prognosis	
			2003	2004	2005	2006	2007	
1	GDP:   - in current prices	SKK bn	1,195.8	1,310.8	1,408.0	1,515.4	1,628.8	
2	             - real growth	%	4.2	4.7	4.5	5.1	5.4	
3	Household final consumption:   real growth	%	-0.6	2.7	4.2	3.9	4.0	
4	                                                 nominal growth	%	7.1	9.8	7.2	6.6	6.6	
5	Average national monthly wage (nomin. growth)	%	6.3	8.6	6.5	5.8	5.6	
6	Average growth in employment, under selective findings on the labour force	%	1.8	0.2	0.6	0.6	0.9	
7	         according to official count 	%	0.8	0.3	0.7	0.7	1.0	
8	Average rate of unemployment, according to selective findings on the labour force	%	17.4	17.2	16.6	16.2	15.8	
9	Consumer price index (average growth)	%	8.5	7.8	3.3	2.8	2.5	
10	Index of domestic producer prices (average growth)	%	8.3	3.2	2.6	2.2	2	
11	Current account balance (proportion of GDP*)	%	-0.9	-1.1	-1.6	-0.3	1.1	
12	Final consumption of public administration (real growth)	%	2.9	0.5	1.5	2.2	1.5	
13	Formation of gross fixed capital (real growth)	%	-1.2	3.0	7.5	6.0	3.3	
14	Export of goods and services (real growth)	%	22.6	13.3	7.8	12.1	12.3	
15	Import of goods and services (real growth)	%	13.8	11.6	9.1	11.5	10.0	
 *) Excluding reinvested profit							

According to the prognoses of the Ministry of Finance SR, strong economic growth in Slovakia will continue. Next year a slight slowdown in the dynamic is expected, from 4.7% in 2004 to 4.5% (a GDP of SKK 1,408.0 bn in current prices should be generated). The main reason for this is that the growth in 2004 is supported by a greater number of business days (with the effect of 0.2 of a percentage point). In subsequent years the dynamic could increase to as high as a level slightly over 5%. Unlike in 2003, real GDP growth will be drawn forward in the monitored period not only by foreign demand, but also by domestic demand. The contribution of domestic demand to GDP growth will rise especially in 2005, when a temporary slight decline in export growth is expected. Domestic demand should reflect the stable growth in real wages and pensions, increased employment and investment activities related to positive changes to the business environment.
Sustainability of economic growth

According to the analyses of the Ministry of Finance SR, the current negative production gap will gradually fall to reach a slightly positive value of 0.2% and 0.5% in 2006 and 2007 respectively. High economic growth will comes as a result of structural changes on the supply side (above all in the automotive industry) and will reflect in higher growth in the potential product. The stated values of the production gaps do not represent a serious risk to the monetary policy, and the fiscal policy should have a restricting effect in those years due to efforts to meet the Maastricht criteria in 2007 at the latest.

The table above shows the main structural problem of the Slovak economy in recent years. Every more significant increase in domestic demand in the past was accompanied by a high deficit in the current account, which threatened overall macroeconomic stablity. The sustainability of current trends lies also in the fact that structural changes contributed to a situation where despite projected high growth in domestic demand current estimates in the current account deficit reach well into the band of over financing.

Domestic demand over the monitored period will be supported primarily by a growth in household final consumption, which may be in the range of around 4%. The falling rate of inflation, real growth in labour productivity, falling interest rates and the positive economic results of companies will all combine to create the requisites for a growth in average wages, employment and available pensions. Especially in 2005 marked acceleration of growth in average real wages is anticipated, probably to the level of 3.1% (from 0.7% in 2004) with the growth in real wages expected to continue at the same pace also in the following years. Over the whole time horizon real wage growth is not expected to exceed the growth in labour productivity, and so no inflation pressures are expected in connection with excessive demand. 

In the 2005 - 2007 period the Ministry of Finance SR expects to see increased growth in the formation of gross fixed capital; as a result of preparations for new production in the automotive and mechanical engineering sectors investments in 2005 - 2006 could grow by an annual tempo of around 7%.  The increased growth will be driven by direct foreign investments and foreign know-how, government investment programmes (financing also from the budget funds of the European Community), low interest burden and charge of tax on companies, growth in their profitability, and so also by favourable conditions for drawing new loans for development purposes.

Development of final consumption of public administration will be affected by attainment of the main fiscal objective for the given time horizon – to reduce the public finance deficit to the level of the reference value of the Maastricht criteria, i.e. 3% of GDP. For this reason, no major increase in public consumption is considered. The highest level of growth can be expected in the election year of 2006, this by 2.2%. 

The positive trend in development of foreign trade is expected to continue. Exports will be influenced by the projected growth in foreign demand, positive changes in the production sphere and in the competitiveness of the Slovak Republic. Imports to Slovakia will react to the level of the import demands of exports, investments and consumption, as well as the development of the prices of imports, especially in reference to energy raw materials. A strongly positive impact from net export on real growth of the GDP is projected for the years 2006 and 2007, when the export of new car production is expected. In current prices the balance of foreign trade with goods and services will probably remain negative until 2006, whereby in 2004 and 2005 the interim deficit will slightly deepen as a result of a relatively weaker growth in export and a revival of domestic demand. 
Development of consumer prices after 2004 will continue to be influenced by the regulatory framework of network regulator URSO. In January 2004 however, the last major adjustment of regulated prices was applied, and so in the coming years their dynamic and impact on inflation should weaken. The regulator URSO expects increases of regulated prices to the following extent:

Projected adjustment of regulated prices*	
	2005	2006	2007	
Electricity	2.1%	0.94%	0.73%	
Thermal energy	3.63%	1.91%	1.46%	
Natural gas	2.54%	1.49%	1.15%	
Water	18.0%	12.14%	2.2%	
Sewerage	30.0%	28.0%	18.28%	
Source: Office for regulation of network industries (URSO)	
	   * With other regulated prices under the jurisdiction of pertinent departments no marked growth in prices is projected

From the overview it is clear that in the period from 2005 through 2007 no further major deregulation should take place, and so energy prices should then only reflect admissible costs and reasonable profit of producers. The projected growth for water and sewage only slightly reflects on overall inflation due to their small share in the structure of the consumption basket of households. Prices on world markets will however continue to act on the future development of energy prices. The Ministry of Finance SR does not anticipate any further major growth in oil prices on the world markets, which means the influence on fuel prices will probably be most evident this year. Inflation development in 2005 and 2006 will influence also the ongoing process of harmonising legislation with the standards of the European Union in the area of excise duty (cigarettes).

With the ongoing process of deregulation and liberalisation the dynamic of consumer prices in 2005 through 2007 will mostly be affected by the prices of tradable goods and market services. The growth in prices should be partially mitigated by the slight appreciation of the Slovak koruna and the developed competitive environment, while other inflation factors such as real wage growth, employment and better credit opportunities, should not constitute any serious risk of demand-driven inflation under the given conditions. Over the medium term horizon we expect to see the following development in consumer prices:

Projected development of consumer prices 	
	2004	2005	2006	2007	
Average overall inflation	7.8	3.3	2.8	2.5	
Average net inflation 	3.1	2.2	2.2	2.2	
Source: MoF SR	

The consumer price index is a relevant indicator especially for the behaviour of households and the prediction of private consumption. For the prediction of public consumption, or from the perspective of valorisation of expenses for goods and services in public finances, the index of producer prices is of particular importance however. In the coming years the prices of industrial producers should no longer be affected by cost factors to the same extent as seen in the past. In 2004 the last deregulation of prices for energies for manufacturing consumption took place. In the upcoming period producers should now have greater possibilities to choose a supplier of their choice, which could represent another factor in slowing down price increases. The anticipated drop and subsequent stabilisation of oil prices on the world markets to slightly under USD 30 a barrel should have a positive effect on industrial prices (which is projected by the MoF SR for the years 2005 through 2007).

Projected development of producer price index  (PPI)	
	2004	2005	2006	2007	
Average producer price index	3.2	2.6	2.2	2.0	
Source: MoF SR	

The projected development of macroeconomic indicators in the 2005 - 2007 period creates the requisites also for favourable development of the exchange rate of the Slovak currency against the euro. In the coming years we can expect to see a gradual real appreciation of the koruna supported above all by a growth in labour productivity. By 2005 the exchange rate of the Slovak koruna could nominally appreciate to 39.4 SKK/EUR and in 2006 and 2007 could be in the average range of 39 SKK/EUR. This development is subject to completion of reforms in the fiscal area and to a stable political situation.

Projected development of mean exchange rate of SKK	
	2004	2005	2006	2007	
Exchange rate SKK/EUR	40.0	39.4	39.0	39.0	
Exchange rate SKK/USD	32.9	32.1	32.5	32.5	
Source: MoF SR	
Note: prognoses of exchange rates are solely for orientation

In connection with the anticipated development of the exchange rate, overall inflation and other macroeconomic indicators, as well as the fiscal deficit and foreign trade, over the medium term conditions should be created for a further drop in balanced short-term interest rates toward the values in the eurozone. 

If the projections for the internal and external environments prove correct, the deficit in the current account of the balance of payments (without reinvested profit) could still be on low levels in 2004 and 2005, 1.1% and 1.6% of the GDP. Under the assumption that the trade balance value in the other years will improve (a surplus of approx 1.2% of GDP in 2007) and with a conservative estimate of relative stable development of the balance of services and revenues, with slight improvement in the positive contribution of the balance of transfers, it is possible to anticipate in 2007 even a slight relative surplus in the current account of around 1% of the GDP. The existing slight deficit in the current account will be covered by the surplus of the financial account thanks primarily to the increased inflow of direct foreign investment.

In the development of employment it is possible to anticipate a further slight progress. Employment growth should be supported by the generation of new jobs in connection with growing investments and a growth in aggregate demand, as well as the application of an active labour market policy and relevant reforms. Work and investment activity will be greatly supported in the coming years by the implemented tax reform and by an improved social and pension system. A lack of accord in the education structure on the side of supply and demand, together with regional differences in the generation of work opportunities, may only be eliminated gradually however. The labour market will also be affected slightly by the demographic factor – slower increment in the economically active segment of the population – which nevertheless poses no serious risk as yet in Slovakia compared with the countries of the EU. The unemployment rate will gradually fall, although it will remain in double figures; the average unemployment rate, which is important from the perspective of the development of public finances, should reach 14.4% in 2005 and by 2007 could fall to 13.0%.

3.2.3 Main risks of prognoses of MoF SR

The medium term scenario of macroeconomic development, which is the basis for compiling the budget, presents the development of the Slovak economy that the Ministry of Finance SR regards as most probable at the present time. However, there are certain factors present that could cause changes to the projected development of certain parameters of internal, and above all external, conditions, with consequent shift in the development of certain economic indicators from the presented predictions.  

A significant change in the course of the economic policy with the implementation of bold reforms may be regarded as a risk in the development of the internal environment at the present time. This would subsequently lead to increased costs for their complete implementation and a delay in anticipated positive effects, which the macroeconomic scenario takes into account.  

The external environment may surprise chiefly by price shocks (e.g. oil prices), but also by lower foreign demand than is projected by the macroeconomic scenario. Furthermore, entry to the European Union and preparation for adoption of a common European currency may also greatly influence the course of the Slovak economy. These new phenomena are extremely difficult to incorporate into the projections of economic development in Slovakia at present, and so they could represent an additional factor of potential risk to the submitted prognoses.

3.2.4. Estimates of other institutions

The presented expectations of the medium term development of the Slovak economy are based on the supposition of successful completion and maintenance of key reforms. Reforms are the impulse for increasing the performance and competitiveness of the economy of the Slovak Republic, which certain institutions believe may also have a more significant impact on development of the economy than that estimated by the Ministry of Finance SR. 

In 2004 the Ministry of Finance SR set up the Council for macroeconomic prognosis, which should increase the level of transparency when compiling macroeconomic projections of the budget, as well as reduce the risk of unrealistic or inconsistent prognoses being produced. The second session of the Council was held in July 2004 with the following findings: the prognoses of the Ministry of Finance SR are perceived as realistic to slightly conservative. 

The medium term macroeconomic prognosis of the Ministry of Finance SR, which is the basis for creating the inputs of the several year budget for the 2005 – 2007 period, is :

•	conservative (ING Bank)
•	conservative (SlSP)
•	slightly conservative (Tatra banka)
•	realistic (Infostat)
•	realistic (NBS)
•	realistic to slightly conservative (VÚB)
•	realistic (25% of parameters realistic; 37% conservative and 38% optimistic) (SAV)

Average estimates for the entire 2004 to 2007 period for institutions that are members of the Council for macroeconomic prognosis (6 institutions without the MoF SR), are given in the following table:

Item	Indicator	Unit	 	Current year	Prognosis	
			2003	2004	2005	2006	2007	
1	GDP;   - in current prices	SKK bn	1,195.8	1,321.1	1,430.6	1,549.6	1,684.1	
2	             - real growth	%	4.2	4.8	4.9	5.4	5.7	
3	Household final consumption;   real growth	%	-0.6	3.0	4.6	4.3	4.2	
4	                                                nominal growth	%	7.1	9.8	7.9	7.4	7.2	
5	Average national monthly wage (nomin. growth)	%	6.6	9.1	7.5	7.1	6.7	
6	Average growth in employment, under selective findings on the labour force	%	1.8	0.6	0.9	0.9	1.0	
7	                                   according to registered number	%	2.0	0.7	0.8	0.9	1.0	
8	Average unemployment rate, under selective findings on the labour force	%	17.4	17.0	16.0	15.4	14.7	
9	Consumer price index (average growth)	%	8.5	7.8	3.5	3.1	2.9	
10	Producer price index (average growth)	%	8.3	3.2	2.5	2.3	2.2	
11	Current account deficit (share of GDP)	%	-0.9	-1.5	-2.7	-2.0	0.3	
12	Final consumption of public administration (real growth)	%	2.9	2.0	2.9	3.2	1.2	
13	Formation of gross fixed capital (real growth)	%	-1.2	4.5	9.3	8.0	5.8	
14	Export of goods and services (real growth)	%	22.6	12.8	9.6	14.0	14.9	
15	Import of goods and services (real growth)	%	13.8	12.4	10.7	13.6	13.1	

	Development in Slovakia is closely monitored and evaluated also by various international institutions; their estimates for 2005 are given in the table below:

Indicator for 2005	MoF SR	NBS	EC	IMF	OECD	Council	
GDP current prices, SKK bn	1,408.0	1,393.5	-	1,389	-	1,430.6	
GDP, real growth	4.5%	4.1%	4.1 %	4.3%	4.8 %	4.9%	
Household final consumption,
real growth	4.2%	4.1%	3.9 %	4.0%	4.2 %	4.6%	
Household final consumption,
nominal growth	7.2%	6.5%	-	-	-	7.9%	
Average monthly wages, nominal growth	6.5%	5.3%	6.0 %	5.8%	5.4%	7.5%	
Average growth in employment, selective findings on the labour force	0.6%	-	0.7 %	1.6%	1.3 %	0.9%	
Average unemployment rate,
selective findings on the labour force	16.6%	15.6%	15.9 %	15.6%	15.5 %	16.0%	
Consumer price index,
average growth	3.3%	3.0%	4.5 %	3.6%	3.0 %	3.5%	
Producer price index, average growth	2.6%	2.1%	-	
-	-	2.5%	
Balance of current account of balance of payments, % of GDP	-1.6%	-2.7%	-4.0 %	-	-2.9 %	-2.7%	
Final consumption of public administration,
real growth	1.5%	1.6%	1.3 %	2.7%	1.2 %	2.9%	
Formation of gross fixed capital,
real growth	7.5%	8.5%	7.0 %	11.6%	8.4 %	9.3%	
Export of products and services,
real growth	7.8%	7.6%	9.0 %	2.9%	10.9 %	9.6%	
Import of products and services,
real growth	9.1%	8.2%	9.8 %	4.4%	11.1 %	10.7%	
Source:	Council = Council for macroeconomic prognosis average for 6 institutions (July 2004); EC – Economic Forecasts Spring (April 2004), OECD – OECD Economic Outlook No. 75 (June 2004); IMF (May 2004) estimates of EC, IMF and OECD did not yet take into account macroeconomic development in Slovakia for the 1st quarter of 2004

3.2.5 Parameters affecting the living standard

	The table below contains indicators that have an immediate connection to the life of the common citizen. From the overview we can see that domestic institutions predict stable growth in the living standard for the period 2005 through 2007. 

Indicator	Institution	2004	2005	2006	2007	
Growth in real wages (in %) *	MoF SR	0.7	3.1	2.9	3.0	
 	average of 6	1.2	3.9	3.9	3.7	
Growth in real pensions (in %) *	MoF SR	0.8	3.2	3.6	2.0	
 	average of 6	0.9	3.2	3.7	2.4	
Growth in employment (in %, according to statistical reporting)	MoF SR	0.3	0.7	0.7	1.0	
 	average of 6	0.7	0.8	0.9	1.0	
Real growth in household consumption (in %) *	MoF SR	2.7	4.2	3.9	4.0	
 	average of 6	3.0	4.6	4.3	4.2	
 * Calculated through average growth of CPI						
 Note: in 2005 to 2007 the CPI will practically be identical to inflation for pensioners; in 2004 a growth in real pensions of 0.3% is expected also when taking into account a different development of prices for pensioners

4. Base framework for public administration budget for 2005 - 2007 
          
4.1. Framework for compiling the public administration budget

	The principal goals of the fiscal policy pursuant to the Government Policy Statement of the Slovak Government, is to support growth in the economy, to achieve the long-term sustainable position of public finances, reduce the level of redistribution via public finances and to satisfy the Maastricht criteria. Based on these objectives and economic conditions, the framework for compiling the public administration budget for 2005 - 2007 is determined in a targeted manner in a way that the deficit in the public administration budget expressed using ESA 95 methodology is given without the effect of the introduction of the 2nd pillar of the pension system in 2005 at the level of 3.4% of GDP, in 2006 at the level of 2.9% of GDP and in 2007 at the level of 1.9% of the GDP. Pursuant to the decision of Eurostat from September 2004 an interim period till March 2007 was determined for implementation of the decision of Eurostat to classify pension systems from March 2004, which for the Slovak Republic means that for the said period the influence of 2nd pillar is not to be calculated to the posted deficit.

	The basic framework for development of public finances comprises estimated revenues, of which the greatest influence comes from tax income in the broader sense, including premiums. In dependence on the projected revenues and on the real determined development of the deficit, with the aim of attaining medium term fiscal goals, it is possible to determine the framework for expenses.  

Based on the aforementioned projected development of macroeconomic indicators, without the influence of 2nd pillar, after reflecting the effect of the financial relationship to the budget of the European Community and subject to continuation of the process of structural reforms, it is possibly to determine the following basic parameters of public administration development by using the common method of designating subsidised organisations to the sector of public administration according to the so-called 50 % criterion.

Framework of public administration budget
   In SKK bn (under ESA 95 methodology on consolidated base)	2 003*	2 004*	2005 	2006	2007	
Public administration revenues 	431.8	467.4	521.7	555.1	595.3	
Public administration revenues (in % of GDP)	36.1	35.7	37.1	36.6	36.5	
Public administration deficit 	-41.5	-52.0	-47.9	-44.0	-30.9	
Pubic administration deficit (in % of GDP)	3.5	4.0	3.4	2.9	1.9	
Public administration expenditure	473.3	519.4	569.6	599.1	626.2	
Public administration expenditure (in % of GDP)	39.6	39.6	40.5	39.5	38.4	
*Data take into account the use of the uniform method of designating subsidised organisations to the sector of public administration using the so-called 50% criterion equally for the public administration budget for 2005 - 2007 

The feasibility of the public administration budget for the years 2005 through 2007 is greatly reliant on the need to change the new Act on the Environmental Fund by approval of the government draft revision of Act 73/1998 Coll. on state service of members of the Police Force, the Slovak Information Service (SIS), the Prison and Judicial Guard Corps SR and the Railway Police, as amended and by a change to other legislative regulations undergoing legislative proceedings at present. 

4.2. Framework for compiling the budget of other entities of public administration 

	After defining the overall framework of the pubic administration budget it is important to determine the framework for compiling the budget of other entities of public administration where the government does not possess complete control over financial flows. On the one hand this is caused by the decentralisation of powers, and on the other by differing regulatory frameworks. The effectiveness of handling public funds in such cases is, apart from legislative conditions, also primarily secured by strict budgetary restrictions and adequate control. A strong influence on the deficit of the public administration budget under ESA 95 methodology is produced by the budgets of other entities of public administration, in particular that of social insurance agency Sociálna Poisťovňa and National Property Fund SR. 

Framework budgets of other entities in public administration
  in SKK bn 	2 003*	2 004*	2005 	2006	2007	
   Revenues on cash base	307.0	310.5	355.8	369.2	369.5	
Expenditure on cash base	303.7	303.5	334.8	358.5	372.8	
Deficit/surplus on cash base	3.3	7.0	21.0	10.7	-3.3	
   Modifying factors 	14.8	-4.6	-11.6	 2.1	25.9	
   Deficit/surplus under ESA 95 methodology	18.1	2.4	9.4	12.8	22.6	
*Data take into account the use of a uniform method of allocating subsidised organisations to the sector of public administration using the so-called 50% criteria the same as with the public administration budget for 2005 - 2007 

4.3. Framework for compiling the State budget

The deficit in total public finances and the deficit in other entities of public administration are restricting factors to the State budget deficit on an accrual base. Due to the fact that the State budget is compiled on a cash base, the deficit according to ESA 95 methodology must firstly be transformed with the help of modifying factors of the cash base balance.

The deficit thus determined in the State budget on a cash base, and the estimated cash revenues of the State budget, combined to create space for the budgeting of expenses. The reform aims and priorities of the government on the side of expenses must accept such a determined expense framework.

Part of State budget expenditure for the years 2006 and 2007 also includes the retained reserve of the government for priority projects, which upon the preparation of the next multi-year budget will be allocated among individual budgetary chapters.  
State budget framework
   in SKK bn 	2 003*	2 004*	2005 	2006	2007	
Deficit in public administration under ESA 95 methodology 	-41.5	-52.0	-47.9	-44.0	-30.9	
Deficit/surplus of other entities under ESA 95 methodology	18.1	2.4	9.4	12.8	22.6	
Deficit in the State budget under ESA 95 methodology 	-59.6 	-54.4	-57.3	-56.8	-53.5	
Modifying factors 	-3.6	24.1	4.2	4.7	2.0	
Deficit in the State budget on a cash base	-56.0	-78.5	-61.5	-61.5	-55.5	
State budget revenues on a cash base	233.1	232.0	258.6	275.0	297.3	
State budget expenditures on a cash base	289.1	310.5	320.1	336.5	352.8	
* Data take into account the use of a uniform method of allocating subsidised organisations to the sector of public administration using the so-called 50% criteria the same as with the public administration budget for 2005 - 2007 

4.4. Public debt

Public debt of the Slovak Republic in the course of the budgeted period will stabilise and reach the level of 45.0% of GDP at the end of 2007, which is well below the level set out by the Maastricht criteria for public debt, i.e. 60% of the GDP. The favourable development of debt is the result of a combination of healthy economic growth and policies targeted at reducing the deficit in public finances. The nominal drop in State guarantees contributes greatly to stabilising the debt, which is thanks primarily to the policy aimed at the non-provision of additional risky State guarantees, this being positive both in terms of sustainability and the transparency of public finances. From the individual components of public finances, only the deficit in the economics of the State budget will contribute to a growth in public debt. Other elements of public administration will report a balanced or surplus budget on a cash base for the years 2004 through 2007. 

Indicator	Actual 	Prognosis	
	2001	2002	2003	2004	2005	2006	2007	
Public debt (in % of GDP)	48.7	43.3	42.8	44.4	44.9	45.3	45.0	
Public debt (in SKK mill.)	492,186	474,895	512,144	582,584	632,666	686,698	732,780	
   of which: State guarantees	60,415	65,351	63,089	42,251	30,808	23,262	13,887	

5. Budgeting revenues of the State budget

State budget revenues comprise tax revenues, non-tax revenues and grants and transfers. The share of tax revenues in the overall income of the State budget in the budgetary framework for 2005 - 2007 will decline slightly from 78.1% in 2005 and 2006 to the level of 77.8% in 2007. In 2005 a growth in tax revenues by 0.25% will be seen over the projected level set for 2004. This low level of growth is caused by the fact that in connection with the approved project of financial decentralisation the manner of redistributing tax revenues among entities of public administration will have changed compared to 2004. In 2006 and 2007, the year-to-year growth in tax revenues should amount to 6.3% and 7.7% respectively. The second most important revenue of the State budget comes from grants and transfers, which comprise mainly income from budgetary funds of the European Communities. The development of non-tax revenues depends on the development of revenues in individual budgetary chapters.

The structure of individual types of State budget revenues is shown in the following table 

			2003	2004	2005	2006	2007	
(in SKK mill.)	Actual 	Approved budget	Estimate	Draft budget	Draft budget	Draft budget	
Tax revenues	200,150	195,238	201,499	201,993	214,654	231,198	
Non-tax revenues	17,312	13,007	15,257	17,044	17,476	17,741	
Grants and transfers	12,192	22,537	25,294	39,519	42,861	48,407	
Income from repayment of loans and financial transfers and from the sale of shareholder interests	3,417	1,176	2,028	 –– *	–– * 	–– *	
 	 	 	 	 	 	 	 	 	
TOTAL	233,071	231,958	244,078	258,556	274,991	297,346	
As share of GDP (in %)	19.49	17.94	18.62	18.36	18.15	18.26	
*Accounting for the new Act on Budgetary Rules in Public Administration, the principal category “Income from repayment of loans and financial transfers, and from the sale of shareholder interests” is not calculated to State budget revenues, as they will constitute part of the financial operations of financial assets of the State.

5.1. Budgeting tax revenues
The prognosis for tax revenues is based on the macroeconomic prognoses presented in part 3 of this document. A presupposition for the prognosis of taxes is unchanged legislation, with the exception of income tax of natural persons from employment, property tax and excise duty from tobacco products. The yield from income tax of natural persons from employment will be influenced by the planned increased in the tax bonus by an additional SKK 50 to SKK 450 per month from 1.9.2005. This tax bonus increase will cause an outage in the yield from income tax of natural persons from employment in 2005 of SKK 234 million. With property tax, this is based on the supposition that municipalities will have increased powers to adjust individual rates as part of fiscal decentralisation, which if increased in 2005 could mean an additional SKK 1.1 bn to their budgets. Regarding excise duty from tobacco products, additional income of almost SKK 500 mill. is counted with in 2007, when an increase in rates is expected in order to satisfy the requirements of the EU directive, which sets out minimum rates for excise taxes. By 1.1.2007 at the latest, excise duty from tobacco products in the Slovak Republic must reach the level of 43 EUR/1,000 cigarettes, which translates as roughly 1.72 SKK/cigarette.

According to the EU directive, as of 1 January 2007 the Slovak Republic must also tax electricity and gas used as a heating fuel by at least 50% of the relevant minimum tax rates applied in the EU. Likewise, the same will apply to taxation of solid fuels, where Slovakia must once more respect the minimum 50% level applied in the EU starting from 1 January 2007. In this phase the ecology taxes for 2007 are not budgeted, even though the obligation to have them introduced in 2007 is well known. This is because just like in all the countries of the EU the process of implementing directives is still ongoing, this being linked to identification of the tax base, rate setting and so on. The tax estimate is based on the assumption that the government will not increase the tax burden in future and so if new taxes are created, the rates of other taxes will have to be reduced for the sake of compensation. The ecology taxes will therefore have a neutral impact on the overall budget.

Pursuant to the approved project of fiscal decentralisation, compared with 2004 there will be a change to the method of redistributing tax revenues among public administration organisations. The shared tax in 2005 will be income tax of natural persons, with the exception of revenues taxed at source. Municipalities will therefore gain 70.3%, Upper-tier Territorial Units (UTU) 23.5%, with a mere 6.2% of the total tax revenue being left for the State budget. At the same time, the SFV chapter will be abolished, which by providing subsidies helped resolve the financing of the original competences of municipalities and UTU to date. Road tax is being converted to a local tax (motor vehicles tax) and will be the income solely of the UTU. Changes arising from fiscal decentralisation have a neutral effect on the tax revenues of public finances because it is only their distribution between central government and local government that will change. In addition to the stated taxes, from other tax revenues in 2005 – 2007 also property tax and taxes from specific services will fall to the budgets of municipalities. 

The reliability of the estimate of tax revenues for the budgeting period 2005 – 2007 will depend to a large extent on attainment of the 2004 budget. Tax revenues in 2004 were marked by a great degree of uncertainty, which came in connection with quantification of the impact of tax reforms on the budget and entry to the EU. Development of tax collection for the first half of 2004 as yet shows no serious threat to meeting the budgeted tax revenues. In July 2004 the tax estimate for 2004 was revised and tax revenues for the 2005 – 2007 budget are consistent with this revision.

Income tax from employment is determined by development of employment and wage increases. In addition to macroeconomic projections, parametric changes were also used to estimate the yield. The year-on-year growth in the living minimum in 2005 will be 8.8% higher, with a growth of 3% projected for the following years. The living minimum is linked by a fixed multiple to the tax allowance of the tax base. The amount of the living minimum changes by law always as of 1 July of the given year, but for the purposes of setting the tax allowance of the tax base a change does not occur until 1 January of the following year. From 1.9.2005 an increased tax bonus from SKK 400 to SKK 450 per month is planned for each minor for one of the employed parents. Increasing the tax bonus by a further SKK 50 per month will see an outage in the tax yield of SKK 234 mill. in 2005 and of SKK 702 mill. in the years 2006 – 2007.

Business income tax should be positively affected by the tax reform from 2004 and the projected development of small business operations in the environment of robust economic growth.

Corporation tax should benefit from a sharp reduction in the tax burden seen in the past few years, from the anticipated inflow of direct foreign investments, relatively low interest rates and the overall financial consolidation of companies, which is related to the ongoing process of restructuring in the business sector, also in respect of natural monopolies.

Regarding withholding tax, a slight growth in yield is estimated with the gradual stabilisation of nominal interest rates and mild growth in savings.

Property tax will not fall to the State budget because from 1.1.2005 the tax from the conveyance and transfer of real estate is to be abolished.  

A growth in the yield from value added tax will be seen in line with an increased tempo of growth in nominal consumption of households, the public sector and also investment expenditure of the government.

Excise duties will rise in line with the tempo of growth of household consumption in constant prices. In 2007 the yield will be affected by an increased duty rate for cigarettes.

Domestic taxes on goods and services also budget with taxes that in terms of the overall yield are negligible and so are not stipulated separately in the table. This concerns tax from payments for mining areas and tax from payments for the storage of gases and liquids.

Taxes on international trade and transactions are influenced by entry to the EU, with only the share of levied financial resources of the EU being preserved. This comprises 25% of the amount of traditional own resources of the EU pertaining to import duty and brings in SKK 728 mill. per annum to the State budget.

The estimate for local taxes – property tax, motor vehicles tax, and taxes for specific services – is only indicative. These concern taxes that fall exclusively to the budgets of municipalities and UTU. Local governments have the powers to determine the rates within the scope defined by law and budget them independently in their own budgets. 

Tax revenues on a cash base are presented in the following table.

 	(in SKK mill.)	2003	2004	2004	2005	2006	2007	
 	 	Actual	budget	estimate	budget	budget	budget	
A.	Tax revenues	218,056	213,638	220,379	243,120	257,918	277,877	
 	Comprising: To State budget	200,150	195,238	201,499	201,993	214,654	231,198	
 	To budget of municipalities	17,809	18,400	18,880	30,829	32,417	34,965	
 	To budget of UTU	0	0	0	10 298	10 846	11 714	
A.1	Taxes on income, profits and capital gains	79,581	62,183	67,200	69,650	74,474	82,762	
 	Comprising: Personal income tax	39,793	27,083	32,200	33,184	35,302	38,784	
 	of which: From employment and emoluments 	34,980	23,283	29,000	29,786	31,604	34,685	
 	To the State budget (6.2%)*	27,080	14,820	20,537	1,847	1,959	2,150	
 	To budget of municipalities (70.3%)	7,803	8,463	8,463	20,939	22,217	24,384	
 	To budget of UTU (23.5%)	0	0	0	7,000	7,427	8,151	
 	From business and other self-employing activities	4,812	3,800	3,200	3,399	3,698	4,098	
 	To State budget (6.2%)	0	0	0	211	229	254	
 	To budget of municipalities (70.3%)	0	0	0	2,389	2,600	2,881	
 	To budget of UTU (23.5%)	0	0	0	799	869	963	
 	Corporate income tax	30,645	23,700	28,800	30,066	32,471	36,978	
 	To State budget (100%)	29,060	22,000	26,735	30,066	32,471	36,978	
 	To budget of municipalities	1,586	1,700	2,065	0	0	0	
 	Withholding tax (to State budget)	9,143	11,400	6,200	6,400	6,700	7,000	
A.2	Property tax	6,458	5,171	6,271	4,900	5,000	5,100	
 	To State budget	2,664	1,500	2,600	0	0	0	
 	To budget of municipalities	3,794	3,671	3,671	4,900	5,000	5,100	
A.3	Domestic taxes on goods and services	124,374	141,098	140,852	165,242	175,116	186,687	
 	Comprising: Value added tax (to State budget)	83,795	97,700	96,750	117,339	125,380	135,020	
 	Excise taxes (to State budget)	38,047	40,896	41,600	45,371	47,154	49,037	
 	Road tax, of which:	2,470	2,500	2,500	2,500	2,550	2,600	
 	To State budget	1,423	1,490	1,375	0	0	0	
 	To budget of municipalities	1,047	1,010	1,125	0	0	0	
 	To budget of UTU (100%)	0	0	0	2,500	2,550	2,600	
A.4	Taxes on international trade and transactions (to State budget)	4,064	1,630	2,500	728	728	728	
 	Comprising: Import duty	4,064	1,250	1,500	0	0	0	
 	Share in levied finances 	0	380	950	728	728	728	
A.5	Taxes for specific services (to budget of municipalities)	3,579	3,556	3,556	2,600	2,600	2,600	
* Figures stipulated in brackets represent the percentage share of yields of individual taxes as per approved fiscal decentralisation from 2005	

5.2. Accrual taxes for the 2005 – 2007 State budget

The ESA 95 methodology provides an analytically truthful picture of the economics of public administration, and is therefore used for international comparisons and contains the formulated fiscal goals and rules of the EU. For the purposes of compiling the balance of public finances under ESA 95 methodology, it is essential that the estimate of tax revenues is also included in this methodology. So far sufficient capacities do not exist to be able to satisfy this task, as at present the method and its trial application to the actual tax collection of recent years is still being worked on. For complete implementation of the ESA 95 methodology, the introduction of the accounting of public finances on an accrual base is also still missing in the budgeting process. The prognosis of taxes for the purposes of a budget prepared on a cash base therefore serves as the basis for an estimate on an accrual basis, i.e. under ESA 95 methodology.

The tax yield on an accrual base in any given year in principle is based on the taxation of value added and excise taxes generated in the given year. On the contrary, tax revenues on a cash base appear in the budget only once they are in fact paid, or designated to the budget. The difference therefore consists of a time gap. 

In this phase of preparing the budget it was possible to quantify one aspect that brings with it the accrual of taxes. This is related to the method of settling taxes and the filing of tax returns of entities for the tax period. For this reason, a certain time shift occurs when accruing taxes because with the majority of taxes the tax for the preceding tax period, usually December, is not paid until January. As the tax base usually increases on an annual basis (wages, consumption and so on), the consequence of the time gap is that accrual tax is higher than tax on a cash base. Quantification of this effect is taken into account in the prognosis of modifying factors for both taxed and levied revenues. The following table shows the positive effect of accruing taxes and social levies in the 2005 – 2007 period.

(in SKK mill.)	2005	2006	2007	
Taxes	1,406	1,490	1,579	
Levies	1,296	1,373 	1,447	

There are also several other reasons that lead to deviations between cash and accrual tax revenues however, which were not quantified in this phase. One of the reasons for this could be legislative changes, as in the case of tax reforms. The difference between the accrual yield and the cash yield essentially depends on whether the tax burden is increased or reduced at the turn of the year.  

Tax revenues on an accrual base (ESA 95 methodology) are shown in the following table.

 	(in SKK mill.)	2003	2004	2004	2005	2006	2007	
 	 	actual	budget	estimate	budget	budget	budget	
A.	Tax revenues	217,217	232,042	234,679	244,526	259,408	279,456	
 	Comprising: to State budget	199,177	213,642	215,799	203,229	215,961	232,576	
 	To budget of municipalities	18,041	18,400	18,880	30,957	32,555	35,116	
 	To budget of UTU	0	0	0	10,341	10,892	11,765	
A.1	Tax from income, profits and capital gains	80,839	62,183	66,400	69,766	74,598	82,898	
 	Comprising: personal income tax	39,680	27,083	31,400	33,366	35,498	38,998	
 	of which: from employment and emoluments	35,871	23,283	28,200	29,966	31,798	34,898	
 	To State budget (6.2%)*	27,836	14,820	19,737	1,858	1,971	2,164	
 	To budget of municipalities (70.3%)	8,035	8,463	8,463	21,066	22,354	24,533	
 	To budget of UTU (23.5%)	0	0	0	7,042	7,473	8,201	
 	From business and other self-employing activities	3,809	3,800	3,200	3,400	3,700	4,100	
 	To State budget (6.2%)	0	0	0	211	229	254	
 	To budget of municipalities (70.3%)	0	0	0	2,390	2,601	2,882	
 	To budget of UTU (23.5%)	0	0	0	799	870	964	
 	Corporate income tax	32,016	23,700	28,800	30,000	32,400	36,900	
 	To State budget (100%)	30,430	22,000	26,735	30,000	32,400	36,900	
 	To budget of municipalities	1,586	1,700	2,065	0	0	0	
 	Withholding tax (to State budget)	9,143	11,400	6,200	6,400	6,700	7,000	
A.2	Property tax	5,283	5,171	4,971	4,900	5,000	5,100	
 	To State budget	1,489	1,500	1,300	0	0	0	
 	To budget of municipalities	3,794	3,671	3,671	4,900	5,000	5,100	
A.3	Domestic taxes on goods and services	123,452	159,502	157,252	166,532	176,482	188,130	
 	Comprising: value added tax (to State budget)	80,455	113,800	110,750	118,200	126,300	136,000	
 	Excise taxes (to State budget)	40,527	43,200	44,000	45,800	47,600	49,500	
 	Road tax, of which:	2,470	2,500	2,500	2,500	2,550	2,600	
 	To State budget	1,423	1,490	1,375	0	0	0	
 	To budget of municipalities	1,047	1,010	1,125	0	0	0	
 	To budget of UTU (100%)	0	0	0	2,500	2,550	2,600	
A.4	Taxes on international trade and transactions (to State budget)	4,064	1,630	2,500	728	728	728	
 	Comprising: import duty	4,064	1,250	1,500	0	0	0	
 	Share in levied finances	0	380	950	728	728	728	
A.5	Taxes on specific services (to budget of municipalities)	3,579	3,556	3,556	2,600	2,600	2,600	
 	Tax burden in % of GDP	18.2	17.7	17.9	17.4	17.1	17.2	
* Figures stipulated in brackets represent the percentage share of yields of individual taxes as per approved fiscal decentralisation from 2005	

The positive influence of accruing taxes lies in the fact that tax yields on an accrual base are higher than the one yield on a cash base. When compiling the budget for 2004 a thesis was adopted whereby the estimated revenues on a cash base equal the revenues on an accrual base. Exceptions to this concerned excise tax and VAT, for which the effects related to a change of legislation and entry to the EU were quantified separately. These were reflected in the State budget for 2004. Based on the stated suppositions, in 2005 – 2007 no major changes of legislation should be seen. Therefore, for this period the quantification only of the “January” effect was made both for tax revenues and social levies. 

5.3. Budgeting revenues other than tax revenues

Pursuant to the budgetary classification, revenues other than tax revenues include non-tax revenues, grants and transfers. From the perspective of comparing the year-to-year tempo of growth of this type of revenue, a growth of 39.5% is posted in 2005 compared with the projected development in 2004. This growth comes primarily from the growing volume of financial resources that the Slovak Republic may draw from the post-entry funds of the European Union. In 2006 and 2007 the tempo of growth is projected to be relatively constant, when in 2006 it is projected on the level of 6.7% and in 2007 on the level of 9.6%. 

(in SKK in thousands)	2003	2004	2005	2006	2007	
	Actual 	Approved budget	Estimate	Draft budget	Draft budget	Draft budget	
I.	NON-TAX REVENUES	17,312,472	13,006,822	15,257,000	17,043,798	17,476,178	17,741,038	
II.	GRANTS AND TRANSFERS	12,192,006	22,536,963	25,294,162	39,518,749	42,860,901	48,407,183	
 	 	 	 	 	 	 	 	 	 	
TOTAL	29,504,478	35,543,785	40,551,162	56,562,547	60,337,079	66,148,221	
As share of GDP (in %)	2.47	2.75	3.09	4.02	3.98	4.06	

5.3.1. Budgeting non-tax revenues

The volume of total non-tax revenues in the years 2005 - 2007 is projected on the level of approximately SKK 17.0 - 17.7 bn. In 2005, when compared to the level projected for 2004, the growth in total non-tax revenues is 11.7%. This development is affected above all by three key changes with an overall impact of SKK 2.1 bn.

1)	A growth in revenues from State funds concentrated in the singular account in the State Treasury.
2)	The introduction of new passports for the Slovak Republic according to the format of the European Union 
3)	The establishment of a company for administration of motorways and roads

As part of the budgetary framework of 2005 - 2007 a year-to-year growth in total non-tax revenues is anticipated at the level of 2.5%, or 1.5% per annum. Individual years are shown in more detail in the following table in a structure by individual categories:

				2003	2004	2005	2006	2007	
(in SKK in thousands)	 	 	Actual	Approved budget	Estimate	Draft budget	Draft budget	Draft budget	
 	NON-TAX REVENUES	17,312,472	13,006,822	15,257,000	17,043,798	17,476,178	17,741,038	
A.	Revenues from business and from property title 	612,683	466,272	1,115,000	1,119,675	1,133,128	1,165,534	
B.	Administrative and other fees and payments	7,300,878	8,235,314	8,906,000	8,456,483	8,726,631	9,024,868	
C.	Capital revenues 	602,469	76,955	81,000	95,900	123,634	121,828	
D.	Interest from domestic and foreign loans, transfers and deposits	1,781,476	903,536	1,270,000	3,553,844	3,497,395	3,465,089	
E.	Other non-tax revenues	7,014,966	3,324,745	3,885,000	3,817,896	3,995,390	3,963,719	

A.	Revenues from business and property title are determined above all by the amount of rent for the lease of land, buildings, objects and premises owned by the State, which are under the administration of individual budgetary chapters, and from the anticipated amount of dividends gained from stakes held by the State under the representation of pertinent ministries in joint stock companies.

Revenues from business constitute dividends from the ownership of shares in joint stock companies where the State holds an interest. 

	2003	2004	2005	2006	2007	
( in SKK in thousands)	Actual 	Approved budget	Draft budget	Draft budget	Draft budget	
Ministry of Finance SR	21,837	44,000	27,500	32,000	32,000	
Ministry of Foreign Affairs SR	1,703	20,000	28,000	56,000	70,000	
Ministry of Economy SR	86,700	43,350	51,000	55,000	60,000	
Ministry of Transport, Post and Telecommunications SR	–-	55,250	700,000	700,000	700,000	

Stakes of the State in joint stock companies where the State holds an interest mostly concern dividends from the company Transpetrol a.s. (under the jurisdiction of the Ministry of Economy SR), the company TIPOS a.s. (Ministry of Finance SR), the company Slovak Telecom a.s. (Ministry of Transport, Post and Telecommunications SR) and from the Diplomatic Corps Services (Ministry of Foreign Affairs SR).

Revenues from property title represent revenues from the rental of land, buildings, premises and objects (including facilities and flats). This category budgets also with revenues from mined minerals, which constitute income of the chapter “General Treasury Administration”. 

B.	With administrative and other fees and payments, the amount of revenues depends on the number of individual acts carried out in the year, in particular with regard to revenue stamps, legal and administrative charges. 

Two major influences will act on development of revenues of the State budget from administrative and other fees and payments. One of them is the creation of a company for administration of motorways and roads, which will lead to a year-to-year outage in revenues of the State budget from the sale of motorway stamps comprising approximately SKK 1.0 bn. Instead these will constitute revenues of the so-called Motorway Company. The second influence will be increased State budget revenues from the sale of revenue stamps worth approximately SKK 950.0 million. The increase will mainly come in connection with the introduction of new passports for the Slovak Republic in the format of the European Union, from which State budget revenues should be boosted by an additional SKK 600.0 million. In the end, with the projected development the stated influences should be covered to a large extent, and so the outage in State budget revenues would be eliminated.

Within departments, the greatest portion of revenues from administrative fees and payments for the budgetary framework 2005 - 2007 will be ensured by the chapters of the General Treasury Administration, the Ministry of the Environment SR, the Ministry of Interior SR, the Ministry of Transport, Post and Telecommunications SR, the Ministry of Labour, Social Affairs and Family SR and the Ministry of Agriculture SR.

	2003	2004	2005	2006	2007	
(in SKK in thousands)	Actual 	Approved budget	Draft budget	Draft budget	Draft budget	
General Treasury Administration 	
Legal charges	395,400	450,000	470,000	490,000	510,000	
Revenues from sale of revenue stamps	1,901,700	1,950,000	3,100,000	3,200,000	3,300,000	
Other (notary and administrative)	895,300	930,000	940,000	950,000	960,000	
Ministry of Environment SR	
Fees for discharge of waste waters 	214,333	219,000	266,000	284,360	304,470	
Fees for use of underground waters	303,193	481,700	430,000	459,790	492,300	
Fees for atmospheric pollution	635,120	600,000	611,300	653,650	699,900	
Ministry of Interior SR	
Administrative and other fees and payments	610,685	648,303	797,163	766,063	788,340	
Ministry of Transport, Post and Telecommunications SR	
Administrative and other fees and payments	1,054,472	1,372,741	431,770	460,970	490,770	
Ministry of Labour, Social Affairs and Family SR	
Administrative and other fees and payments	28,001	237,980	278,435	280,432	283,766	
Ministry of Agriculture SR	
Fees for inspections of abattoirs, veterinary checks at borders, etc.	117,539	258,703	238,968	233,925	236,625	
* - In 2003 fees for use of underground waters were revenues of the Ministry of Agriculture SR. In 2004 a change of jurisdiction for water management took place from the Ministry of Agriculture to the Ministry of Environment.

C.	The amount of capital revenues is dependent on the volume of assets administered by individual budgetary chapters (financial assets, land, buildings and other intangible assets), which will be the subject of sale in the pertinent budgetary year. In the years 2005 - 2007 a slight growth in capital revenues is expected. 

Future development may be affected by non-budgeted sales of assets administered by individual budgetary chapters, which could lead to non-standard development of this type of State budget revenue.

D.	Interest from domestic and foreign credits, loans and deposits

Interest revenue from domestic credit, loans and deposits come mainly from interest on granted loans, returnable financial transfers and credit interest from the balance of funds of the State concentrated in the singular account of the State Treasury. In relation to the launch of the State Treasury system and the start of the debt and liquidity management process via the Agency for Management of Debt and Liquidity, in individual years of the budgetary framework 2005 – 2007 a substantial growth occurs in the income of the State concentrated in the singular account of the State Treasury, which is proposed at SKK 2.5 bn. State Treasury revenues, which are linked to the settlement of invoices of individual organisations and the maintenance of accounts in the State Treasury, will constitute income of the chapter of the Ministry of Finance SR. In the 2005 – 2007 budgetary framework SKK 0.6 bn is proposed for budgeting. Concurrently, in the stated period a falling tendency in domestic interest revenues can be expected, above all because of a drop in the balance of granted loans from former specific funds of the State, a drop in interest revenue from returnable financial transfers and from granted loans.

Interest revenue from foreign credits, loans and deposits comprise mostly interest from government loans granted abroad. These interest revenues fall to State debt and the Ministry of Foreign Affairs SR. With State debt this concerns interest revenues from government loans granted abroad, which in 1993 were transferred to the jurisdiction of the Slovak Republic. As part of the chapter of the Ministry of Foreign Affairs SR this relates to credit interest on the accounts of individual representatives offices of the Slovak Republic abroad.

E.	As part of the budgetary framework 2005 - 2007 only a mild year-to-year growth is expected regarding other non-tax revenues, with even a slight drop projected for 2005 over the projected level of 2004. In 2006 a growth of 4.6% is anticipated in these revenues, while in 2007 we project a drop of 0.8%, which is primarily down to the development of revenues from the proceeds of lotteries and other betting activities.

The largest influence on the total volume of other non-tax revenues comes from gains from lotteries and other betting activities, which make up the greatest share of other non-tax revenues. The new Betting Act is set for adoption, and should enter into effect on 1 February 2005, with levies arising from it due to be collected as of 1 July 2005. The new law proposes a different method and different rates than those at present, which will have an impact on State budget revenues mainly in 2005 and 2006. From 2007 this type of State budget revenue is expected to stabilise around SKK 1.5 bn.

The volume of other non-tax revenues could be affected by the volume of returned illegitimately used and retained State budget funds, income from reimbursement of insurance benefits, income from levies after financial settlement and other revenues. The actual amount of other non-tax revenues may also be affected by the volume of budget resource refunds – i.e. any returned or unused funds of the State budget, and so they could produce a different volume in reality than that which is budgeted. 

5.3.2. Budgeting grants and transfers

In 2005 – 2007 the proportion of grants and transfers accounts for 69.9 – 73.2% of all revenues other than tax revenues. Compared with the projected level of 2004, in 2005 a growth of 56.2% in these revenues is expected. In 2006 and 2007 their year-to-year growth should reach 8.5% and 12.9% respectively. This growth is mostly down to a growth in funds from the budget of the European Union. 

The volume of domestic grants and transfers comprises above all the chapter “General Treasury Administration”, which includes revenues from dividends from companies where the State holds an interest, whereby the volume of dividends naturally depends on the development of profit in these companies. These are revenues that are realised by the National Property Fund SR (as it holds title to the shares), and which become revenues of the State budget after the supplementing of State financial assets.

Foreign transfers represent funds from the budget of the European Union. The structure and use of EU budget funds is described in more detail in Annex 6 to the document. The stated revenues from the European Union budget should be distributed as follows in the budgetary chapters:

(in SKK in thousands)	 	
European Union budget funding	
Budgetary chapter	2004	2005	2006	2007	
Ministry of Environment SR	567,450	2,545,821	5,061,924	5,629,502	
Ministry of Education SR	300,100	667,515	646,121	902,529	
Ministry of Labour, Social Affairs and Family SR	1,273,430	2,195,989	2,430,439	3,691,729	
Ministry of Economy SR	685,900	1,303,542	1,368,922	1,823,434	
Ministry of Agriculture SR	6,760,750	11,361,920	13,268,882	15,305,145	
Ministry of Construction and Regional Development SR	670,280	1,406,188	1 572,356	2,155,328	
Ministry of Transport, Post and Telecommunications SR	1,034,500	6,519,079	6,499,633	6,394,330	
General Treasury Administration 	2,940,000	507,620	507,620	––- 	
TOTAL	14,232,410	26,507,674	31,355,897	35,901,997	

6. Budgeting expenditure of the State budget

6.1. Quantification of expenses of the State budget

In the 2005 – 2007 budgetary framework, State budget expenses for 2005 are budgeted on the level of SKK 320.1 bn, SKK 336.6 bn for 2006, and SKK 352.8 bn for 2007. When quantifying expenses, the specification of individual budgetary chapters was applied. Compared with 2004, when expenses of the State budget were budgeted at SKK 290.9 bn (without the chapter “Summary transfers to municipalities and UTU”), budgeted expenses for 2005 display a growth of 10.0%. In the years 2005 - 2007 a year-to-year growth of 5.0% and 4.8% in total expenditure of the State budget is planned.

A. Current expenditures

Current expenditures in 2005 - 2007 display a rising trend. In 2006 and 2007 these expenditures will include the retained reserve of the government for priority projects, which will partially affect the overall volume.  

A.1. Quantification of employment costs of the State budget

The development of employment in public administration underwent major transformation in the previous period between individual elements of central administration and local administration, or funds. Foremost this concerned changes to the internal structure without any major impact on the overall count of employees. The most important changes include the transformation of universities and reform of public administration. Other changes came in connection with the adoption of laws and resolutions of the Slovak Government pursuant to rationalisation of State administration, arrangement of the administrative requirements of the European Union, transformation of the National Labour Office to the chapter of the Ministry of Labour, Social Affairs and Family SR, and so on.

Development of workforce numbers in the public administration sector
	2001	2002	2003	2004	
Count of employees   *)	412,452	414,626	410,354	408,849	
% of year-to-year change	-	0.53	-1.03	-0.37	

Note:  *) including funds, local self-governments and social insurance and health insurance funds

From analysis of individual systems of remuneration of employees in the public administration sector, it follows that on average employees of this sector are appreciated adequately via the public administration budget. The average wage in the sector of public administration over the previous period was in the range of the average national wage. 

Development of average wages in public administration

	2001	2002	2003	 2004	
Average wage in SKK         *)  	11,595	13,188	14,550	15,283	
National average wage in Slovak Republic in SKK	12,365	13,511	14,365	15,485	
% of national average wage 	93.77	97.61	101.29	98.70	
       Note:  *) including funds, local self-government and social insurance and health insurance funds 

The draft public administration budget for the years 2005 – 2007 in the area of employment, which takes account of the quantification of employment costs (wage expenses plus insurance contributions) for organisations under the jurisdiction of budgetary chapters, including transferred competences, proposes applying the following principles:

•	not to increase the number of employees of budgetary chapters (with the exception of already adopted decisions),
•	to strengthen the payroll fund to improve the remuneration of employees as a consequence of cutting staff numbers, whereby the volume of expenses for wages and salaries will remain available for budgetary chapters under reduced staff numbers for the purposes of improving remuneration at least until 2007.

The draft budget of public expenditures for the years 2005 - 2007 takes into account a growth in the wages of employees in the public sphere approximately on the level of the growth in nominal wages in the national economy for the years 2005 - 2007.

Growth in wage expenditure and inflation for 2005 – 2007 in percentage terms, excluding regional education
I n d i c a t o r  (in %)	2005	 2006	  2007	
Inflation                               	3.3	2.8	2.5	
Employment costs         	         6.6      *)	5.5	5.5	
*) With the exception of professional soldiers and employees remunerated in line with a separate pay tariff scale of university teachers, research and development workers and healthcare workers, for whom no increase in pay was made in 2004

The volume of budgetary funds determined for employment costs corresponds to valorisation of 5% from 1.7.2005, 6% from 1.7.2006 and 5% from 1.7.2007.

Valorisation of the salaries of professional soldiers is financially resolved by funds that are budgeted in the chapter of the Ministry of Defence SR comprising 1.9% of the GDP for individual years. If the new Act on State Service of Professional Soldiers of the Armed Forces of the Slovak Republic is passed, which sets out new beneficial rank pay, valorisation for soldiers will not be made for the year 2005.

With State employees remunerated according to Act 312/2001 Coll. on the State Service, as amended, due to the application of increased wage tariffs based on service merit from 1.7.2005, for the year 2005 the percentage of wage tariff increases is adequately adjusted by 4% so that on average State employees receive the same percentage of growth in salaries of 5%.

The volume of wage and salary expenditures budgeted to the budgetary chapters in 2006 and 2007 is preliminarily set at the level of the inputs of the public administration budget for the years 2005 - 2007 whereby financial resources to the proposed level of valorisation are secured in the budgetary chapter “General Treasury Administration”. The changes, with the exception of changes of jurisdiction and other shifts, carried out in budgetary chapters following approval of the inputs of the public administration budget for 2005 – 2007, incorporate the financial impact of the said changes, inclusive of proposed valorisation.

The draft budget includes the results of talks on the National General Collective Agreement for 2005 for employees whose remuneration is determined by separate regulation (Act 553/2003 Coll. on Remuneration of Certain Employees Working in the Public Interest).

The draft budget for 2005 budgets with employment costs for two groups of employees encompassing 329,551 people, i.e. employment costs for State regional education and employment costs for other employees worth a total of SKK 90.1 bn, of which SKK 67.5% bn went to wages and salaries, with average wage expenses of SKK 17,065.

    A. Employees of regional education

A breakdown of financial resources for State regional education for the calendar year for individual entities under the jurisdiction of the administrator is based on normative determined volumes of funds per pupil. The volume of payroll expenses is not monitored separately, but is part of the normative financing of schools and school facilities.

This manner of financing considers:
•	the objectives of the government in relation to rationalisation of schools and school facilities – an annual reduction in the number of employees in regional education by 3%, while the drop in pupil numbers is far greater
•	the projected year-to-year growth in average salaries compared with the budget of 2004 by 6.6% for 2005, 5.5% for 2006 and 5.5% for 2007,
•	improved remuneration of employees in regional education by the use of funds acquired by savings as a result of greater cuts in staff numbers than the said 3%  cut, 
•	the newly proposed method of determining tariff salaries of pedagogical employees with the aim of boosting their remuneration, especially that of young pedagogues. For pedagogical employees the new salary tariff on the level of current pay scale 5 will increase by 1% for each year of professional service up to a maximum of 16 years, as of 1 July of the calendar year. For each year of professional service from 17 to 32 years the salary tariff will increase by 0.5%,
•	the fact that budget funds of regional education budgeted up to 2004 in the chapter “Summary transfers” will become one of the sources of fiscal decentralisation from 2005 due to the abolition of this chapter.

B.	Other employees

After deducting employment costs of regional education financed in line with Act 597/2003 Coll. on the Financing of Elementary Schools, Secondary Schools and School Facilities, employment costs for other employees for 2005 are budgeted at SKK 60.1 bn, of which payroll accounts for SKK 45.2 bn. 

This chiefly concerns budgetary and subsidised organisations, public universities, transferred competences of the State to UTU and municipalities with a total count of 196,347 employees and average wage expenses of SKK 19,177 in 2005. 

Compared with 2004 this means an absolute increase of 122 employees. 

Development of employment costs without regional education
(in SKK in thousands)
	2004	2005	%
2005/2004	2006	%
2006/2005	2007	
%
2007/2006
	
Employment costs 	56,362,119	60,047,446	106.54	63,116,887	105.11	66,739,764	105.74	
Comprising:
wage expenses	42,313,520	45,184,957	106.79	47,896,874	106.00	50,286,991	104.99	
Employees 	196,225	196,347	100.06	196,200	99.93	196,167	99.98	
		
The valorisation of salaries of employees without the transfer of competences in 2005 - 2007 corresponds to the volume of payroll funds comprising SKK 968,231,000 in 2005, SKK 1,606,347,000 in 2006 and SKK 2,623,175,000 in 2007. The said volumes reflect also the specific approach applied when increasing the salaries of employees that in terms of remuneration are linked to Act 120/1993 Coll. and their salary growth is deduced from the growth in national average wage in Slovakia. 

In respect of the pertinent State service acts, in crucial indicators the division of the count of employees and the volume of payroll expenses for the salaries of State employees (systematisation) and other employees of the budgetary chapter is applied. 

The public administration budget for the area of employment concurrently includes the quantification of payroll expenses of category 610 – Wages, salaries, service income and other personal compensations as a crucial indicator of the State budget, the amount of which for 2005 to 2007 is proposed as follows:
		
I n d i c a t o r	2005	2006	2007	
Category 610 – Wages, salaries, service income and other personal compensations 
(in SKK in thousands)  	35,739,985	37,660,475	39,614,484	
Number of employees (persons)       	139,498	139,351	139,318	
Average payroll expenses (SKK)     *)	20,772	21,561	22,126	
Note: *) without reflecting valorisation

A. 2. Insurance premiums and employer contributions to insurance 

When quantifying expenses for premiums and employer contributions to insurance companies, the basic arrangement of 34.95% of payroll funds was used, whereby other specific circumstances in relation to armed forces, the courts, procurators and the foreign service were taken into account according to the breakdown of budgetary chapters.
	(in SKK in thousands)
I n d i c a t o r	2005	 2006	 2007	
Levies      	11,540,761	11,656,737	12,737,446	

A.3. Goods and services

Based on specified limits of individual budgetary chapters for the years 2005 - 2007 expenses for goods and services amount to SKK 42.2 bn, SKK 48.7 bn and SKK 47.5 bn respectively, which also includes the standard growth in expenses considered by projected development of prices and inflation. Costs for travelling expenses, energy, water, communication, transport, maintenance, rentals and services all belong here. 

From the stated expenses, the largest portions in 2005 comprise expenses for energy, water and communication – 13.7%, material – 30.1% and services – 33.5%. The growth is most evident in budgetary chapters that will utilise funding of post-entry funds, as the greatest proportion of these funds is budgeted for goods and services. 

A.4. Current transfers

In 2005 - 2007 a total of SKK 157.9 bn, SKK 161.1 bn and SKK 165.9 bn is budgeted respectively, whereby each year a year-to-year increment of 2% is achieved. 

Current transfers budget with transfers within the sector of public administration, transfers of individuals and non-profit legal entities, subsidies for non-financial entities – legal and natural entities – businesses and transfers abroad.

Transfers within the sector of public administration are budgeted in 2005 at the level of SKK 46.2 bn. From this amount, SKK 2.8 bn accounts for the transfer to the State Housing Development Fund (SFRB), SKK 9.7 bn to public universities, SKK 18.1 bn to municipalities and a total of SKK 9.7 bn to UTU.

Transfers to individuals and non-profit legal entities in 2005 are budgeted at SKK 74.9 bn. The largest part of the said amount represents settled premiums for groups of persons prescribed by law and State social allowances. In 2005 premiums paid by the State for groups prescribed by law are budgeted at SKK 26.2 bn, which represents a year-to-year growth over 2004 of SKK 2.7 bn, i.e. 11.5%. Premiums paid by the State for health insurance are budgeted at SKK 21.1 bn in 2005, which is a SKK 3.1 bn hike over 2004, i.e. a growth of 6.6%. With regard to social allowances and contributions, in 2005 finances of SKK 33.1 bn are budgeted with, which compared with 2004 is more than SKK 1.1 bn, i.e. 3.3%.

Subsidies to non-financial entities – legal and natural entities – businesses, have SKK 23.0 bn budgeted for 2005, SKK 22.7 bn for 2006 and SKK 24.3 bn for 2007. The greatest volume of subsidies will be released through the chapters of the Ministry of Agriculture SR and the Ministry of Transport, Post and Telecommunications SR.

Part of current transfers includes also levies to the budget of the European Union. In 2005 these comprise SKK 13.1 bn, in 2006 SKK 13.6 bn and in 2007 they come to SKK 14.1 bn. 

A.5. Settlement of interest and other credit-related payments	

Interest payments and other credit-related payments are budgeted at SKK 30.3 bn in 2005, SKK 32.0 bn in 2006 and SKK 40.4 bn in 2007.

 
B.	Capital expenditure

Capital expenses for 2005 are budgeted at SKK 42.4 bn, of which SKK 29.4 bn are from the State budget and SKK 13 bn from the budget of the European Union. From State budget expenditure, funds for co-financing account for SKK 6.0 bn. 

	As part of the proposed volume of capital expenses in 2005, expenses for procurement of capital assets account for SKK 21.8 bn and capital transfers for SKK 20.6 bn. 

In finances for procurement of capital assets, the largest share with SKK 15.0 bn comprises expenses for realisation of buildings and their technical appreciation, from which a significant portion comprising SKK 11.4 bn is budgeted in the chapter of the Ministry of Transport, Post and Telecommunications SR. 

Capital transfers are budgeted to the amount of SKK 20.6 bn. These include the budgeting of transfers within the public administration sector and transfers to individuals and non-profit legal entities amounting to SKK 9.8 bn and transfers to non-financial organisations and natural person business undertakings of SKK 10.8 bn. 

Transfers within the sector of public administration represent expenses of subsidised organisations, public universities, individuals and non-profit legal entities, municipalities, UTU and non-financial organisations and natural person business undertakings. 

6.2. Budgeting of expenses in selected sectors

A. Health sector

	The budget of health insurance companies, the revitalisation company Veriteľ, a.s. and the chapter of the Ministry of Health SR is prepared under the conditions created by the package of reform laws, which have a fundamental impact on the functioning of the system and the volume of financial flows in the sector. Implementation of reform processes in the context of the proposed State budget creates the prerequisites for effective functioning of the health sector.

From the perspective of the public administration budget, in 2005 a total of around SKK 75.7 bn in public funding is earmarked for the health sector, after the projected settlement of instalments of returnable financial transfers and loans worth SKK 0.52 bn. In 2006 available public funds for financing of the health sector will amount to SKK 78.3 bn and a total of SKK 85.0 bn in 2007. The volume of public resources in the health sector will therefore increase by 10.8% in 2005, 3.4% in 2006 and 8.6% in 2007.

Budgeted public funding in the health sector

(in SKK bn)	2003	2004	2005	2006	2007	
A. Sources of health insurance companies in total	61.2	62.9	72.1	77.0	81.8	
 - Of which repayment of returnable financial transfers (to the state financial assets and Veriteľ, a.s.)	2.2	0.2	0.5	2.0	0.0	
B. Available funds of health insurance companies 	59.0	62.7	71.6	75.0	81.8	
C. Ministry of Health SR (without premiums paid by the State)	4.3	5.1*	 3.6*	2.8	2.7	
D. Other budgetary chapters	0.4	0.5	0.5	0.5	0.5	
Total available resources in the health sector (B+C+D)	63.7	68.3	75.7	78.3	85.0	
year-to-year change (in %)	-	7.2	10.8	3.4	8.6	
* Including capital expenses for UTU and municipalities

Realisation of reform processes greatly affects the system of public health insurance. A change of assessment bases for the economically active segment of the population, as well as the clear definition of insurance contributions paid by the State, leads to an overall increase in the volume of funds in the system of public health insurance in 2005 by approximately SKK 5.0 bn compared to the estimate of its development under the current legislative environment, taking it to around SKK 72.1 bn in 2005. The stated growth in resources comes from increased insurance payments made by the State for its insured by approximately SKK 2.6 bn, other revenues by approx. SKK 0.5 bn, with a further SKK 1.9 bn representing increased revenues from economically active insured, which is influenced above all by the change in the levels of the minimum and maximum assessment bases for insurance contributions, as well as by an extension to its practical definition.  
 
 	Starting from 2005, the insurance premium paid by the State is quantified under the conditions of new legislation. It is determined by the rate of 4% of the average monthly wage for the calendar year two years previous to the calendar year in which the State is to pay the insurance contributions. The year-to-year growth in the amount of insurance premium paid by the State over 2004 amounts to approx. SKK 3.1 bn, i.e. 16.9%.

Development of insurance premium paid by the State

(in SKK bn)	2003	2004	2005	2006	2007	
Premium paid by the State 	16.1	18.1	21.1	22.9	24.3	
Number of insured of the State*	3,303,355	3,103,000	3,055,000	3,053,514	3,051,909	
* From 2005 the number of insured is determined based on data from the Central Register of Insured and includes a projection for migrating persons within the EU

Total expenses of the budgetary chapter of the Ministry of Health SR for 2005 are budgeted as SKK 24.6 bn. The said amount is 8.0% up over the budget for 2004. For the years 2006 and 2007 the projected year-to-year increase in expenditure of the chapter is 4.6% and 5.4% respectively.

	The budgetary chapter of the Ministry of Health SR is used to finance programmes carried out foremost via budgetary organisations, the most absorbing of which is the Office of Public Health with a budget of around SKK 1.1 bn. By way of financial transfers the State budget is also linked to research and development organisations and educational organisations, as well as other non-profit organisations operating in the sector. The draft budget of current expenditure of the sector also accounts for funds for implementation of part of the project financed from a World Bank loan - TAL (Technical Assistance Loan) worth SKK 140.0 million in total. 
	
Capital expenses of SKK 1.2 bn are set out in the budgetary chapter of the sector in 2005. A total of SKK 0.7 bn is allocated for expenses of budgetary organisations and to cover instalments of subsidised organisations from the previous period. Part of the budgeted amount pertains to capital expenses for securing implementation of the Healthcare System Modernisation Project, which is financed from a World Bank loan worth SKK 0.5 bn. For 2006 capital expenses are budgeted in a similar structure, while the drawing of a World Bank loan is not anticipated in 2007.

Development of capital expenditure of the chapter of Ministry of Health SR

(in SKK bn)	2003	2004	2005	2006	2007	
Capital expenses (including UTU and municipalities)	2.4	1.9	1.2	0.8	0.2	
comprising: World Bank loan	-	0.6	0.5	0.5	-	

The State budget also contributes to the financing of the health service by budgeting resources in the chapters of the Ministry of Defence SR, the Ministry of Interior SR and the Ministry of Justice SR, amounting to around SKK 0.5 bn.
	
Further conditions are created also for support of development activities of the sector in 2005 - 2007. Substantial space is created for the restructuring of assets in the sector. Regarding the sale of real estate, the gained proceeds are expected to be retained for capital investments into the health service. Part of the funds from compulsory motor third party liability insurance is determined for improving the technical equipment of emergency medical units. This represents approximately SKK 95.0 mill. for 2004, including around SKK 15.0 mill. earmarked for the air rescue service with sharp growth anticipated in the coming years. The funds from the World Bank loan will be used in the Healthcare System Modernisation Project for implementation of reforms for the financing of healthcare, support of hospital autonomy, comprehensive improvement of quality and monitoring in the health service, for the financing of social care and long-term healthcare, and for improving the management and implementation of complex information systems for managing the health service.    

Off-budget funds from pre-entry funds of the EU are also available for the health sector for the years 2005 - 2007 worth up to SKK 140.0 mill. inclusive of co-financing. Entities operating in the health sector also have access to funding from the EU funds via the Ministry of Construction and Regional Development SR in the form of technical assistance for the establishment and development of local healthcare infrastructure, which amounts to SKK  192.5 mill. for 2005, SKK 196.5 mill. for 2006 and SKK 270.4 mill. for 2007, inclusive of co-financing. 

B. Employment and welfare

B.1. Contributions of the State for old-age and disability insurance for groups prescribed by law 

The quantification of payments of the State also takes into account a drop in the number of insured of the State due to a reduction in the birth rate and also thanks to the effect of the national average monthly wage, which pursuant to Act 461/2003 Coll. on Social Insurance comprises the basis for calculating the insurance contribution.

	2004	2005	2006	2007	
Insurance contributions of the State (in SKK in thousands)	5,389,019	5,037,526	4,983,672	5,288,897	
Number of insured (number of persons)	195,000	178,000	165,141	165,141 	
year-to-year change in number of insured (in %)	-	-8.7	-7.2	0.0	

A drop of around 17,000 in the number of insured of the State is expected in 2005 from the current count of 195,000 to 178,000, i.e. down 8.7%. When quantifying the count of individual groups of insured of the State, a decline in the number of people caring for children under the age of 6 was taken into account as a result of a falling birth rate and it was also projected that a certain percentage of insured of the State would not satisfy the new reporting obligation toward social insurance agency Sociálna Poisťovňa as per the Social Insurance Act. The impact of creating a professional army is also reflected in the draft of contributions paid by the State for its insured.

B.2. Social assistance and support

Extensive reform of the social system was carried out in 2004, the aim of which was to increase the active participation of citizens in resolving their own social situation. The goal of the reform was also to introduce a system where merit with regard to allowances would not be assessed by the State, but instead by the citizen in question via the willingness to activation. By increasing focus and limiting system abuse, the foundations have been laid for notable support for citizens left behind in the system. New forms of support for citizens in material distress (poverty) are gradually being introduced, such as subsidies for meals and school materials for pupils of elementary school in material distress and so on. Once the new system has stabilised, a year-to-year drop in expenditure for allowances and contributions in material distress is expected. Existing forms of family support were extended to include also a tax bonus and a cut in the levy obligation by 0.5% for old-age pensions for one of the parents for each minor. Once consideration is given to the projected legislative changes, in 2005 there will be a sharp increase in overall family support compared with the projected status for 2004 by approximately SKK 1.2 bn, i.e. 5.6%.

The budget for 2005 - 2007 assumes legislative stability, including changes implemented in the first half of 2004 and the declared valorisation of allowances. The anticipated positive macroeconomic development in 2004 creates sufficient space for a more generous approach when covering the basic living requirements of socially dependent groups of the population.

When budgeting assistance in material distress it was assumed that the system of assistance in material distress will be running at a balanced level in the third quarter of 2004. The trend level in the number of people receiving allowances should oscillate around the level of 180,000. Therefore, compared to projected drawing of allowances in 2004, drawn funds for assistance in material distress in 2005 are estimated to rise by 20.3%, i.e. up SKK 1.6 bn. The growth springs from the fact that in 2005 savings will no longer be generated from the launch of the system, with the hike also being strongly driven by the notable valorisation of allowances starting 1.9.2004, including increased housing allowances by 25% and the concurrent introduction of new support programmes for people in material distress. In the subsequent years a drop in the number of people receiving allowances is expected at the same dynamic as the drop in the level of registered unemployed, with calculations also including blanket valorisation of allowances for the purposes of preserving their real level. The sum for assistance in material distress includes also subsidies for a specific beneficiary of an allowance in material distress, subsidies for meals and school materials for elementary schools for pupils in material distress, which for 2005 are budgeted at approximately SKK 517.5 million. Apart from the stated subsidies, the budgeted amount also includes subsidies for stipends for pupils of elementary and special schools. The aim of such a subsidy is to motivate pupils from families in material distress to achieve better study results, thereby increasing the chances of this group of the population going on to further education and of finding work. A total of SKK 167.0 mill. has been allocated for this purposes in the budget for 2005. 

When quantifying expenditures aimed at family support, where a stable number of children is anticipated, the valorisation mechanism was applied with the aim of preserving the real value of allowances and contributions. Quantification of expenses for 2005 worth SKK 15.9 bn represents a year-to-year growth of 5.3% over the projected status for 2004. In 2006 the drawing of budgeted resources is projected at the level of around SKK 16.4 bn and SKK 17.0 bn in 2007.

When quantifying expenses for compensation of the consequences of a serious physical handicap, the currently applicable legal status is used, inclusive of changes adopted in the first half of 2004 with the aim of increasing the level of assistance for certain groups of seriously physically handicapped. When quantifying expenses for the period 2005 - 2007 the same mechanism of valorisation was used as with family support. The budgeted sum for 2005 comprising approx. SKK 5.7 bn represents a growth of approximately SKK 0.4 bn over the sum budgeted in 2004, i.e. a hike of 6.8%, and a hike of 2.3% compared to the projected actual status for 2004. The year-round impact of changes adopted in 2004 and the estimated slight increase in the number of citizens with a serious physical handicap are also reflected in the draft. Expenditures for compensation of the consequences of serious physical handicaps in the next period increase year-to-year, with the sum of approx. SKK 5.9 bn proposed for 2006 and SKK 6.0 bn for 2007.

Allowances of social assistance and support

(in SKK in thousands)	2004*	2005	2006	2007	
1. Assistance in material distress	8,013,010	9,640,816	9,554,823	9,301,708	
2. Family support – expenses of the chapter of Ministry of Labour, Welfare and Family	15,126,498	15,934,556	16,444,815	16,978,511	
3. Compensation of serious physical handicaps	5,583,900	5,713,101	5,873,068	6,019,895	
Total (1+2+3)	28,723,409	31,288,473	31,872,706	32,300,114	
year-to-year change (1+2+3)	-	8.93%	1.87%	1.34%	
* Actual estimate for 2004

Additional financial resources for the creation and development of social infrastructure from the sources of the EU and co-financing from the State budget comprising approximately SKK 64.8 mill. for 2005, SKK 79.8 mill. for 2006 and SKK 105.3 mill. for 2007 are budgeted in the chapter of the Ministry of Construction and Regional Development SR. Financial resources should be used primarily for the reconstruction and renovation of social care buildings and facilities.

B.3. Active Labour Market Policy

The active labour market policy is legislatively governed by Act 5/2004 Coll. on Employment Services, which set up the legal framework for the provision of employment services on a new qualitatively higher level in line with the goals and objectives of the European Employment Strategy. The principal goal of the adopted reform measures is to increase employment with an emphasis on select groups of unemployed and to provide effective assistance to people seeking employment by way of quality employment services.

 (in SKK in thousands)	2004*	2005	2006	2007	
EU sources	1,273,430	2,195,989	2,430,439	3,691,729	
Co-financing from State budget	481,500	819,887	  906,160	1,376,416	
State budget funds – national programme of Active Labour Market Policy 	1,818,500	1,685,159	1,527,932	    755   789 	
Total resources	3,573,430	4,701,035	4,864,531	5,823,934 	
year-to-year change	-	31.56%	3.48 %	19.72 %	
      *Adjusted budget

Despite the projected gradual reduction in the registered unemployment rate, the overall volume of budgeted funds for the active labour market policy in 2005 - 2007 increases dynamically year on year. The intensity of assistance per one job-seeker will therefore increase year-to-year.

With the entry of Slovakia to the European Union, important changes take place with regard to the financing of the active labour market policy and employment. Pursuant to the approved sectoral programme documents and sectoral operational programmes, an increase in the inflow of finances from the EU is predicted for the years 2005 - 2007.

In connection with the projected macroeconomic development of the Slovak Republic, while accounting for actual development from the previous period, for the 2005 and 2006 period the stabilisation of State budget expenditure is planned for co-financing and the national programme of active labour market policy at the level of approx. SKK 2.4 bn p.a. As part of these resources, the chapter of the Slovak labour ministry counts with a shift of expenses to the programme of the active labour market policy from the chapter of the Ministry of Economy SR in connection with support for key investments in the automotive industry.  

(in SKK mill.)	2004	2005	2006	2007	
PSA Peugeot Citroen	300.0	177.7	249.3	-	
KIA Motors Co. and HYUNDAI Mobis	-	108.2	336.9	294.7	
TOTAL	300.0	285.9	586.2	294.7	

Financial resources will be used above all for the retraining of workers. A reduction in the volume of finances for the national programme is compensated by increased funds of the State budget earmarked for co-financing of resources provided by the EU, which arises pursuant to the projected overall growth in EU funding.

C. Education, science and research, culture
 
The draft budget of the Ministry of Education SR is based on the budget of the chapter for 2004, i.e. it has been prepared under the conditions of current legislation. The budget of expenses for education in 2004 was compiled with the assumption of stability and balanced economic results being established, and as an assessment base for the future period. 

C.1. Regional education

In the period from 1989 to 2003 the number of pupils declined progressively, while conversely the number of teachers rose. The outcome was a sharp reduction in the number of pupils per teacher, which speaks about the ineffective use of capacities in regional education. In 1989 there were about 18 pupils per teacher, while in 2003 this figure had fallen to just 13. Over employment in regional education reflected in the ratio of pupils per teacher from 1989 falling by 27.8%. Despite the said decline in effectiveness however, the year 2004 acts as an assessment base for the financing of regional education for the years to come. As of 1.1.2004 the assets of the State were transferred to municipalities and UTU. Funds gained from the sale of movable assets and property will be retained by individual administrators for further renewal and reconstruction of remaining facilities with the aim of increasing their quality. Under the assumption that internal reserves of the system will be used, sufficient finances are therefore secured in regional education for increasing the remuneration of teachers and for investment in the renewal of property.

In 2004 financial resources of SKK 38.9 bn were approved for regional education, with this amount having been adjusted by the budgeted valorisation of wages with the amount of SKK 826.6 mill. for 2004. In 2005 State budget funds worth SKK 42.3 bn are proposed to be spent on regional education. Compared with the adjusted budget for 2004 the pertinent expenses will rise by 6.15% despite the ongoing decline in the number of pupils.

(in SKK in thousands)	2004	2005	
Number of pupils of elementary and secondary schools *	931,541	899,955	
Year-to-year change in number of pupils (%)	-	-3.4	
Volume of funds for regional education 	39,831,395	42,277,831	
Year-to-year change in expenses per pupil (%)	-	9.9	
Estimated rate of inflation (%)	8.1	3.3	
* Source: Ministry of Education SR

From the proposed volume of expenses for regional education of SKK 42.3 bn in 2005, employment costs account for SKK 31.8 bn, with material expenses of SKK 8.3 bn and capital expenses of SKK 2.2 bn. This division of costs is only indicative however, taking account of the normative financing of regional education.

With the financing of regional education, financing is applied using the normative per pupil. The predominant part of expenses for regional education passes through the chapter of the Ministry of Education SR for transferred jurisdictions of State administration comprising SKK 31.2 bn. In the years 2006 and 2007 these expenses amount to SKK 31.4 bn and SKK 31.2 bn. The proposed volume of current expenses of SKK 30.7 bn includes, in addition to the operation of all types of schools, also expenses for books and the operation of the Infovek project, a range of specific costs such as transport costs, Roma assistants and reserves for stipends for secondary school students. Capital expenses of the chapter “Ministry of Education SR” are proposed each year at the level of approximately SKK 430 mill. These are determined for buildings in need of repair and for nationwide and supra-regional projects. 

 (in SKK in thousands)	2005	2006	2007	
Number of pupils of elementary and secondary schools *	899,955	872,823	843,216	
Year-to-year change in number of pupils (%)	-	-3.0	-3.4	
Volume of funds for regional education via Ministry of Education SR	31,171,527	31,361,068	31,217,085	
Year-to-year change in expenses per pupil (%)	-	3.7	3.0	
Estimated rate of inflation (%)	3.3	2.8	2.5	
* Source: Ministry of Education SR

Pursuant to the adopted Act on budgetary determination of income tax revenues of local self-government and on the amendment and supplementing of certain acts, we predict that the financing of school facilities under the jurisdiction of municipalities and UTU in 2005 will come to SKK 11.1 bn. In 2006 and 2007 the projected increase in revenues of municipalities and UTU is in the range of 7% to 9%. With this in mind, expenses of local government determined for regional education are also therefore expected to rise adequately.

In addition to financial resources of SKK 42.3 bn from the budgetary chapter of the Ministry of Education SR, the budgets of municipalities and UTU have earmarked further public funds of approx. SKK 1,082.6 mill. for regional education in 2005. In the coming years this figure is expected to increase dynamically due to increased possibilities of drawing on EU budget funds.

(in SKK mill.)	2005	2006	2007	
Funds from the chapter of Ministry of Interior SR	310.0	310.0	310.0	
Structural funds of Ministry of Education SR	272.0	330.5	463.1	
Structural funds of Ministry of Construction and Regional Development SR	182.7	239.0	248.0	
Share of regional education in the programme 
Policy creation and implementation 	317.9	318.7	338.8	
Total additional resources	1,082.6	1,198.2	1,359.9	

For the years 2005 - 2007 three police training secondary vocational schools and one fire protection secondary vocational school will be financed via the chapter of the Ministry of Interior SR. All types of schools and school facilities in regional education may draw on funds from the EU Structural Funds for their projects in 2005 budgeted in the chapter of the Ministry of Education SR, as well as on EU funds determined for regional development via the chapter of the Ministry of Construction and Regional Development SR. 

C.2. University education

(in SKK in thousands)	2004	2005	2006	2007	
Ministry of Education SR*	9,473,823	10,736,073	11,899,495	12,693,070	
Funds from the EU and from the Agency in Support of Science and Technology (APVT)	  386,000	    800,000	  1,100,000	  1,350,000	
Other budget chapters 	1,160,436	 1,168,915	  1,086,106	  1,050,421	
Share of public universities in the programme of Policy creation and implementation 	141,100	106,120	121,435	135,876	
Total	11,161,359	12,811,108	14,207,036	15,229,367	
Share of GDP	0.85%	0.91%	0.94%	0.93%	
                * Including SKK 300 mill. earmarked for reform of public universities in 2005 - 2007
	
The budget for 2005 considers State transfers for 20 public universities worth SKK 10.7 bn, which represents an increase of SKK 1.3 bn over the approved budget for 2004, i.e. up 13.3%. In 2006 an increase in financial transfers to universities is projected to reach the level of SKK 11.9 bn and in 2007 to SKK 12.7 bn. As part of the proposed volume of expenses, science and research in universities is also supported. In the chapter of General Treasury Administration specific expenses for public universities worth SKK 300 mill. are budgeted. Pursuant to the adoption of reforms, university education will be moved to the budgetary chapter of the Ministry of Education SR. 

Financing of State universities via other budgetary chapters with the amount of around SKK 1.2 bn is counted with in 2005.

Public universities have the possibility of applying for grants for research activities from the sources of the EU as part of internal measures (SKK 1.5 - 2.6 bn per annum), which is not included in expenses of the State budget or the Agency for Support of Science and Technology (SKK 0.5 – 0.75 bn per annum). It is possible to predict that universities will make use of at least SKK 0.8 bn from these two sources of financing in 2005, SKK 1.1 bn in 2006 and SKK 1.35 bn in 2007. 

From the perspective of the public administration budget it is assumed that university education will receive public funding of SKK 12.8 bn in 2005. The proposed volume of  expenses for university education in 2005 will therefore represent 0.91% of the GDP.

University education is one of the key priorities of the Slovak Government. Financing of this area for the period from 2000 to 2004 in current prices and in fixed prices in 2000 is shown in the following table.

(in SKK mill.)	2000	2001	2002	2003	2004	
Expenses for university education from State budget	5,109	6,196	7,456	8,361	9,440	
Year-to-year growth	 -	1,087	1,260	905	1,079	
Growth over 2000	 -	1,087	2,347	3,252	4,331	
Growth over 2000 in %	-	21.3	45.9	63.7	84.8	
Share of expenses for university education over GDP in %	0.56	0.63	0.69	0.71	0.73	
Increase in expenses per student in % (fixed prices in 2000)	 	9.4	23.2	20.5	24.2	
* Source: Ministry of Education SR						

C. 3. Science and technology

	The financing of science and technology in 2005 under the conditions of the Slovak Republic is done using various public sources:

	The most significant expense item for science and technology comprises expenses of the Ministry of Education SR worth SKK 1,917 mill. (approx. 30.4% of all expenditure for science and technology). Almost two thirds of these expenses head toward science and technology in universities, which accounts for SKK 1,079 million. However, this sum does not include payroll expenses for pedagogical staff of universities, whose job description not only encompasses pedagogic activities, but also scientific work (300 – 500 hours of scientific work per year). This means that approximately one fifth of all payroll costs of pedagogical staff of universities (approx. SKK 520 mill.) goes to the field of science and technology. The Agency for Support of Science and Technology (APVT) with a budget of SKK 485 mill. represents the second most important expense item for the Ministry of Education. The agency is responsible for supporting research and development on a bottom-up principle, i.e. research managed by the offer of research organisations. 
	
Slovak Academy of Sciences (SAV), as the most important envoy of basic research in the Slovak Republic, represents the second largest expense item in total expenses for science and technology, accounting for SKK 1,395.5  mill. (approx. 22.1% of total expenses for science and technology). 

A major portion of total expenses to science and technology arise from the inter-departmental programme “National Research and Development Programme” which absorbs SKK 657.9 million. This sum includes also national research and development programmes administered by the Ministry of Education worth SKK 103.9 mill. and the Slovak Academy of Sciences worth SKK 96 million. The sum of SKK 458 mill. is earmarked for other chapters that administer national programmes (Ministry of Economy, Ministry of Construction and Regional Development, Ministry of Agriculture, Ministry of Labour, Welfare and Family), which is approximately 7.3% of total expenditure 

In the chapter of the General Treasury Administration specific expenses for science and technology are budgeted at SKK 200 million. In connection with the adoption of the new Act on Science and Technology, these funds will be shifted to the budgetary chapter of the Ministry of Education. 

The total sum of expenses includes also scientific research and development work carried out by other departments worth a total of SKK 920 million.

The drawing of finances from internal measures of the EU for 2005 is projected at SKK 1,485 mill., of which science and technology is expected to account for roughly 60%, i.e. the approximate sum of SKK 900 million. In addition to the said finances, it will also be possible in the coming years to use funds from the EU Structural Funds.

Total expenses for science and technology in 2005 from public resources comprise approximately SKK 6,310.5 mill., which represents 0.45% of the projected GDP. 

At the present time the construction of the Slovak Cyclotronic Centre is ongoing with financing from the chapter of the Slovak Office of Standards, Metrology and Testing (UNMS SR) and from the funds of the outstanding debt of the Russian Federation toward the Slovak Republic. In the chapter of the UNMS SR finances of SKK 338.1 mill. are allocated in 2005 for the Slovak Cyclotronic Centre and SKK 366.8 mill. in 2006. It is anticipated that the Slovak Republic will offset Russian debt worth USD 25.4 mill. (approx. SKK 840 mill.) for the Cyclonic Centre in 2005 and 2006. From title of the construction of the Cyclonic Centre, expenses for science and technology in 2005 therefore increase by approximately SKK 1.2 bn and in 2006 by approx. SKK 0.4 bn. 

C.4. Culture 

The limit of expenditure of the chapter Ministry of Culture SR for 2005 is budgeted at SKK 3.8 bn (SKK 3.7 bn in 2006 and SKK 3.8 bn in 2007), of which SKK 0.9 bn is earmarked for churches and religious societies. In the area of culture a total of SKK 2.0 bn is budgeted for institutional support of State budgetary and subsidised organisations and SKK 0.5 bn for the grant system.

	The budget of the chapter for 2005 secures finances for completion of the reconstruction of the University Library in Bratislava with SKK 40.7 million. The sum of SKK 105 mill. is set aside for the project referred to as Let’s Renew our Home, which together with projected support from private sources will create a good base for multiplying the number of projects supported from this grant mechanism.

	For the creation and development of cultural infrastructure, a total of SKK 64.4 mill. is projected for 2005 in the chapter of the Ministry of Construction and Regional Development from the sources of the EU, including co-financing, with SKK 79.7 mill. earmarked for 2006 and SKK 105.3 mill. for 2007.

D. Transport, construction and regional development

D.1. Transport and transport infrastructure

With regard to the financing of road infrastructure construction, key changes are planned for the upcoming period. Starting from 2005 the start of financing of the construction of motorways and expressways is expected using the new three-pillar system, i.e.:
•	from State budget resources,
•	from EU resources
•	from funds of the so-called Motorway Company.

It is projected that in 2005 a total of SKK 17,7 bn will be available for the construction of motorways and expressways, with SKK 19.5 bn in 2006 and SKK 20.8 bn in 2007. State budget funding worth SKK 3,300 mill. in 2005, SKK 4,300 mill. in 2006 and SKK 3,280 mill. in 2007 may only be used however, if the receivable toward the EU budget is approved and confirmed.

(in SKK mill.)	2004	2005	2006	2007	
State budget resources	8,766.1	7,372.7	9,552.0	10,206.2	
EU financial resources	1,176.8	4,809.0	4,250.0	4,270.8	
Revenues of the Motorway Company (tolls and so on)	0.0	1,500.0	1,700.0	2,323.0	
Loans of Motorway Company 	0.0	4,000.0	4,000.0	4,000.0	
Total resources for motorway construction	9,942. 9	17,681.7	19,502.0	20,800.0	
year-to-year change in %	-	77.8	10.3	6.7	

As can be seen from the above table, compared with 2004 a substantial growth should occur in the volume of funds determined for motorway construction, which will be available in the event that the loan for the Motorway Company is approved and secured and the Ministry of Transport, Post and Telecommunications ST fully utilises the funds from the EU budget. With the effective use of progressive forms of public procurement and under the assumption of increased competition among construction companies, it will be possible to reduce expenses for individual constructions and so go ahead with the construction of more kilometres of motorway using the said volume of funds.

As of 1.1.2005 the new company Spoločnosť pre diaľnice a cesty pre motorové vozidlá, a.s. (hereinafter “Motorway Company”) will be established, which will secure the preparation and implementation of repairs and construction of motorways based on the programmes of the Ministry of Transport, Post and Telecommunications SR, government approved programmes, including joint programmes of the Slovak Republic and the EU and from international contracts. Revenues of the Motorway Company will comprise finances gained from:
a) the State budget,
b) loans,
c) the sale of motorway stamps and layer electronically collected toll fees,
d) other sources (rentals, interest and so on) 
A gradual increase in the revenues of the Motorway Company is anticipated, this by increasing the price of motorway stamps and the introduction of electronic toll collection. 

Expenses of almost SKK 1.5 bn are budgeted in 2005 for the completion of other roads, approximately SKK 1.3 bn in 2006 and SKK 1 bn in 2007. Expenses comprising approx. SKK 1.8 bn are projected for the administration, maintenance and repair of motorways and class A roads.

Expenditure of the State budget directed at railways are designated for the financing of services in the public interest and for modernisation of the rail transport network.

For financing services in the public interest, expenses for 2005, 2006 and 2007 are proposed at SKK 8.1 bn, which compared with 2004 is an increase of SKK 1.5 bn, i.e. a rise of 22%. The proposed volume of expenses will secure the operation of railways without the generation of losses from services provided in the public interest and new debt. 

The modernisation of the rail transport network will be supported in 2005 exclusively from funds of the Structural Funds, the Cohesion Fund and from pre-entry funds, which together with co-financing from the State budget amounts to almost SKK 5.5 bn. Compared with 2004 this translates as a 12% growth in expenditure. In 2006, in addition to EU resources and their co-financing from the State budget worth SKK 5.7 bn, additional funds from the State budget are also budgeted, comprising SKK 0.6 bn. In 2007 a total of SKK 2.7 bn in additional State budget funding is budgeted together with EU resources and their co-financing from the State budget worth SKK 5.5 bn.

 (in SKK mill.)	2004	2005	2006	2007	
Rail subsidies for public interest services	6,630.0	8,100.0	8,100.0	8,100.0	
Rail investments 	4,881.0	5,469.6	6,259.7	8,225.2	
Total for rail*	11,531.0	13,589.6	14,379.7	16,345.2	
   * The sum includes also expenses for financing of combined inter-modal transport worth SKK 20 mill. p.a.

D.2. Housing construction
 
Expenses covered by public funding for implementation of the housing policy are projected at more than SKK 8.3 bn in 2005. The structure of State support for housing is greatly influenced by the projected zero State bonus on interest rates of mortgage loans, as well as by a change to the method of determining the level of State premium on building savings. This will lead to a large part of budgeted resources that was originally earmarked for general housing support eventually going to selective support for disadvantaged and socially weaker groups of the population.

State support for housing construction

(SKK mill.)	2004	2005	2006	2007	
Housing development programme (Ministry of Construction and Regional Development SR)	1,275.0	1,574.7	1,440.8	1,161.2	
State premium on building savings	2,550.0	1,930.0	2,077.0	2,174.0	
State contribution to mortgage loans	745.0	670.0	 650.0	 640.0	
Subsidies from the State budget for the State Housing Development Fund (SHDF)	2,519.4	2,814.7	2,768.3	2,654.0	
Revenues of SHDF	1,197.7	1,358.0	1,512.2	1,660.3	
Total housing support	8,287.1	8,347.4	8,448.3	8,289.5	

Assuming 17,000 or so flats are completed per year, State support for the construction of one flat in 2005 to 2007 would represent almost SKK 500,000. A cut in interest rates seen in the recent period will to a large extent positively influence the use of credit sources by the private sector. 

 D.3. Regional development 
	
In 2005 a total of SKK 3.6 bn is proposed for expenditure in regional development. The majority of support represents funds from the EU Structural Funds and PHARE. These funds together with co-financing make up more than 99% of all support in this area. For 2006 the total volume of public funding determined for regional development comes to SKK 2.4 bn and for 2007 the projected figure is around SKK 3.1 bn. 

Public expenditure on regional development

(in SKK mill.)	2003	2004	2005	2006	2007	
EU funding	1,447.7	2,001.9	2,650.4	1,747.5	2,155.3	
Co-financing from State budget	263.0	844.4	939.3	650.9	937.2	
State budget expenditure	21.0	29.5	34.5	36.5	36.5	
Total for regional development	1,731.7	2,875.8	3,624.2	2,434.9	3,129.0	

Expenditure on regional development is intended for housing support and for development of local infrastructure (e.g. education, healthcare, social and cultural purposes, renovation and renewal of municipalities), for support of economic activities and for sustainable development of the target territory and for cross-border co-operation. Around SKK 0.2 bn will be available for the creation and development of education infrastructure from resources of the EU together with co-financing, with the same amount being considered also for the creation and development of healthcare infrastructure, and approx. SKK 0.1 bn for the creation and development of culture infrastructure. The creation and development of social infrastructure and employment should see around SKK 0.2 bn, the same amount again is set aside for transport infrastructure, with the amount of SKK 0.8 bn being considered for support of economic activities, SKK 0.7 bn for support of the environment, almost SKK 0.3 bn for renovation of municipalities, about SKK 0.2 bn for projects of the Ministry of Construction and Regional Development SR, with a further SKK 0.7 bn to be reserved for other projects. 

A temporary reduction in the level of support for regional development in 2006 is influenced by a drop in the volume of resources arising from the EU budget, as the end of funding from pre-entry fund PHARE is planned for this period, which will not be completely replaced by other financial instruments of the Union however. Support for regional development from the EU is expected to increase once more in the subsequent period.

E. Economy

E.1. Ministry of Economy SR

The budget of the Ministry of Economy SR in the years 2005 - 2007 is mainly affected by the EU funds for the Sectoral Operational Programme Industry and Services, by the need to provide for corresponding funds for its co-financing from the State budget, as well as by financing of important investment projects of PSA Peugeot-Citroen and KIA Motors Co. + HYUNDAI Mobis.

Overview of expenditures of the chapter of the Ministry of Economy SR

 (SKK mill.)	2003	2004	2005	2006	2007	
PSA Peugeot-Citroen 	2,520.3	1,742.5	908.6	-	-	
KIA Motors Co. + HYUNDAI Mobis	-	773.0*	2,211.7	2,222.0	416.5	
Other expenditures of the MoE SR	1,992.1	3,384.3	4,482.8	4,879.6	4,815.1	
Total expenditures of the MoE SR 	4,512.4	5,126.8	7,603.1	7,101.6	5,231.6	
* With Government Resolution No. 355/2004, financing of the expenditures on this investment project in the sum of SKK 1,600 mill. from the State budget was adopted, the sum included returnable financial assistance of SKK 827 mill. to the city of Žilina and SKK 773 mill. for an increase in the expenditures of the chapter of the MoE SR.

	The budgeted finances of the chapter of the MoE SR in 2005 without support to key investment projects of almost SKK 4.5 bn are mainly allocated for the programme Development of Industry and Support to Enterprise in the amount of SKK 2.8 bn. Within this program, SKK 0.9 bn will be allocated for the re-structuring of industries, SKK 0.2 bn. for support to enterprise, more than SKK 0.7 bn. for development of tourism, and almost  SKK 1.0 bn. for development of international cooperation, trade and investments. There is an important year-to-year increase in the expenditures on the re-structuring of industries (increase of 50%), development of international cooperation, trade and investments (increase of 42 %) and development of tourism (increase of 34 %). 

Expenditures that are not part of the limit of the chapter itself, the total sum of which is SKK 774 mill., are also budgeted for the activities in the competence of the Ministry of Economy SR in 2005. This concerns EU funds (PHARE, transition fund and INTERREG III C) in the total amount of SKK 273 mill. and the General Treasury Administration chapter for co-financing from the State budget in the sum of SKK 83 mill.  and for supporting important investment projects in the automobile industry in the amount of almost SKK 418 mill. 

	The supporting of enterprise in 2005 will also be financed from funds budgeted under the chapter of the Ministry of Construction and Regional Development SR for pre-accession and post-accession EU programmes in total of SKK 850 mill. For the PHARE programme, there are the EU funds and co-financing from the State budget available in the sum of SKK 263 mill. and for the post-accession programmes (EU and co-financing from the SB) in SKK 587 mill. The funds are primarily determined for economic development, support to small and medium enterprises and tourism. 

	Financing of State budget expenditures with regard to support to important investments in the automobile industry is provided for in particular chapters in accordance with the sphere of their competence. The quantification of the expenditures follows from the agreements concluded between the Slovak Republic, particular investors and municipalities. Specifically, they are mainly dedicated to the provision of support to regions, which represents 15% of admissible expenses of the investor, supporting education and training of employees, subsidies for the creation of new jobs, building of infrastructure up to the borders of the estates in question and settlement of other expenditures incurred pursuant to the investment project.

Overview of expenditures for PSA Peugeot Citroen

(SKK mill.)	2003	2004	2005	2006	Total	
MoE SR	2,520.3	1,742.5	908.6	-	5,171.4	
General Treasury Adm.	-	-	176.9	-	176.9	
Ministry of Labour, Social Affairs and Family SR	-	300.0	177.7	249.3	727.0	
Total	2,520.3	2,042.5	1,263.2	249.3	6,075.3	

Overview of expenditures for KIA Motors Co. + HYUNDAI   Mobis
                       
 (SKK mill. )	2004	2005	2006	2007	2008	Total	
ME SR	1,712.3 	2,211.7	2,222.0	416.5	-	6,562.5	
General Treasury Adm.	-	240.8	486.2	135.1	14.6	876.7	
Ministry of Labour, Social Affairs and Family SR	-	108.2	336.9	294.7	77.0	816.8	
Total	1,712.3	2,560.7	3,045.1	846.3	91.6	8,256.0	

E.2. Slovak Office of Standards, Metrology and Testing

In the chapter of the Slovak Office of Standards, Metrology and Testing, the funds for the Cyclotron Centre of the Slovak Republic are provided for, worth SKK 338.1 mill. in 2005, out of which SKK 258.1 mill. is dedicated for the payment of VAT and customs duty, SKK 366.8 mill. in 2006, out of which SKK 296.8 mill. is budgeted for the payment of VAT and customs duty.

 The provision of funds for the Cyclotron Centre of the Slovak Republic amounting to SKK 704.9 mill. from the State budget in the years 2005 and 2006 will fully cover its financing from the budget funds. Concurrently, the conditions for the completion of its construction will be created by the end of 2006 at the latest, and  conditions for its use within a new legal entity, into which assets of completed functional units will gradually be transferred.

E.3. Material, Mobilisation and Contingency Reserves

Expenditures cover the management of national material reserves, mobilisation reserves pursuant to the approved emergency plans and, in line with the plan for the resolution of emergency situations of a non-military nature, contingency reserves of oil and oil products at the same level as in 2004. A modest rise in expenditures is budgeted with regard to the anticipated development of prices and inflation. Capital expenditures are based on the current register of investments of the sector. Expenditures for the realisation of constructions are maintained at the level of 2004. 

In 2005, restructuring of national material reserves is planned, i.e. a reduction in the level of other material reserves through their sale and preferential provision for contingency reserves of oil and oil products at the level of 64 days supplies. Thus a new structure of material reserves will be created in 2006. Based on conceptual documents on the situation in the sphere of national material reserves, which will be submitted to the Security Council of the Slovak Republic and subsequently to the Government of the Slovak Republic for consideration, the decision on the method of resolving the above mentioned issue will be adopted, so that 90-day reserves of oil and oil products are provided for in line with the EU requirements until 2008.

F. Agriculture and Environment 

F.1. Agriculture
	
Upon the accession of the Slovak Republic to the European Union (EU), important changes in the financing of agriculture occurred. In 2004, the volume of finance in agriculture increased by almost 44 % compared to 2003. This trend is associated with the EU Common Agricultural Policy (CAP), which, due to the negotiated position of Slovakia, limits manoeuvrability in the sphere of chapter expenditures. The proportion of European funds in total expenditures on agriculture will be more than 62% in 2005. Together with the increased financing from the EU Rural Development Funds, structural funds and pre-accession funds, the need for domestic co-financing will increase. 

With regard to the aforementioned trends, the total expenditures on agriculture will rise in the following years. Total funds in 2005 will increase by 16.2 % compared to 2004. 

Funds dedicated to agriculture

(SKK mill.)	2003*	2004*	2005	2006	2007	
Own resources of chapter 	12,158	4,054	4,104	3,829	3,847	
EU funds  (post-accession funds)**	0	9,953	11,837	13,909	15,954	
Co-financing from the State budget 	0	3,876	3,695	 2,050	2,442	
Chapter total	12,158	17,883	19,636	19,788	22,243	
EU funds  (pre-accession funds)	523	377	1,544	451	0	
Co-financing from the State budget	173	231	308	150	0	
Total resources	12,854	18,491	21,488	20,389	22,243	
Year-to-year increase  %	-	43.9	16.2	-5.1	9.1	
* In 2003, chapter expenditures are without the delimited water management of SKK 0.8 bn. and in 2004 by SKK 0.5 bn.
** Including the receivable covered from EU funds

In the Draft Budget for the years 2005 - 2007, there is an obvious increase in funds received from the EU budget. In 2005, the volume of funds received from the EU will increase by 29.5% compared to 2004. A more moderate increase is anticipated for the following years.

	With respect to the priorities of the European Agricultural Policy, the funds are directed at three areas. The volume of funds for market-oriented expenditures that support the export of agricultural products outside the territory of the EU will be higher by 43 % in 2005 compared to the preceding year. These expenditures are fully covered from the EU funds and the level is adjusted by the European Commission (EC) based on the development on the agricultural production market. 

As for direct payments to agricultural producers, the EU applies a policy of annual increases in contributions for new member states by 5 % of the average direct payments in the EU 15. Slovakia will also use the opportunity to transfer the Rural Development funds to direct payments. In 2005, direct payments are budgeted at the level of 54% of average direct payments of the EU 15. Total funds in agriculture will thus increase year-to-year by SKK 2.997 billion (16.2%). An increase of the national contribution on direct payments by 1 % would result in additional requirements of the State budget of approximately SKK 130.1 mill. in 2005. 

Rural Development is another important sphere mostly financed from EU funds. A gradual increase in financing from the EU funds may also be anticipated with regard to the Structural Funds. 

Financing of Agriculture from EU Post-Accession Funds

(SKK bn.)	2004	2005	2006	2007	
I. EAGGF guarantee section (A+B+C)	12,679	13,497	14,113	15,350	
 - EAGGF guarantee section (EC funds)+ receivable	9,007	10,369	12,585	13,775	
 -Co-financing to EAGGF (EC funds)	3,672	3,128	1,528	1, 575	
A) Direct payments*	7,395	7,027	5,705	5,203	
 - Direct payments (EC funds)+ receivable	4,624	4,969	5,411	5,193	
 - Co-financing +  national additional payment	2,771	2058	294	10	
B) Rural Development	4,486	5,329	6,147	7,796	
 - Rural development (EC funds)	3,585	4,259	4,913	6,231	
 -Co-financing	901	1,070	1,234	1,565	
C) Market-oriented expenditures	798	1,141	2,261	2,351	
 - Market-oriented expenditures(EC funds)	798	1,141	2,261	2,351	
 - Co-financing	0	0	0	0	
II. EAGGF direction section**	1,150	2,035	1,846	3,046	
 - EAGGF direction section (EC funds)	946	1,468	1,324	2,179	
 - Co-financing to EAGGF u.s.	204	567	522	867	
Total CAP funds (I + II)	13,829	15,532	15,959	18,396	
Year-to-year increase  %	-	12.3	2.7	15.3	
* The level of direct payments in 2004 - 2006 is increased with the sum of 25/20/15% of Rural Development transferred thereof. Calculation of direct payments includes the receivable towards the EU. National balancing payment is calculated together with the co-financing of funds from the Rural Development Plan 
** Structural funds

F.2. Environment

	The environment is one of the areas with the biggest anticipated inflow of funds from the EU in the years 2005 - 2007. This fact will be reflected in a considerable increase in chapter expenditures, the majority of which will be project-bound. In 2005, environment expenditures will rise by more than 73% compared to the preceding year. An increase of almost 20% is anticipated in the subsequent year. With the increase in financing from the European funds, the higher demands for co-financing are included in the draft budget in the chapter of the Ministry of Environment SR.	

Environment Expenditures
 (SKK bn)	2003	2004*	2005	2006	2007	
State budget**	3,300	3,488	4,026	4,063	4,011	
EU funds	1,149	1,665	4,989	6,742	6,376	
Total	4,449	5,153	9,015	10,805	10,387	
Year-to-year increase  %	-	15.8	75.0	19.9	-3.9	
* The draft budget of the chapter of the Ministry of Environment SR has been affected by the delimitation of the water management
** The sum of actual State budget expenditures and expenditures for co-financing 

	Other funds for financing investments into the environment are budgeted from the PHARE pre-accession fund, including the co-financing from the General Treasury Administration. In 2005, funds in the total amount of SKK 84 mill. are budgeted for environmental protection projects and SKK 108.8 mill. for environmental projects.

F.3. The Office of Land Surveying, Cartography and Cadastre SR
	
	In 2004, specific financial support is specially budgeted for the Office of Land Surveying, Cartography and Cadastre SR. Additional funds are allocated in the given year, with the aim of increasing the number of cadastre staff. These expenditures are also incorporated in the draft budget for public administration in the years 2005 - 2007. The expenditures are increased so that delays are eliminated and the entry of records in the cadastre are dealt with by the deadlines stipulated by law, all this in the course of 2005. 

G. Finance and State Debt

	In respect of the newly adopted Act on Budgetary Rules for Public Administration, with effect as of 1 January 2005, the chapter of the Ministry of Finance SR includes, besides expenditures dedicated to the fulfilment of tasks under the competence of the Ministry of Finance SR, also expenditures for State debt servicing. Thus total expenditures of the MF SR in 2005 are approximately SKK 38.3 bn., of which about SKK 30.3 bn comprise expenditures on State debt servicing. For 2006, almost SKK 40.0 bn is budgeted, of which debt servicing represents approximately SKK 32.0 bn and in 2007 the chapter of the MF SR is approximately SKK 48.3 bn, of which debt servicing accounts for about SKK 40.4 bn. 

G.1. State Debt

The amount of State debt expenditures in subsequent years is determined primarily by three basic factors:

•	Increase in the nominal State debt due to the annual State budget deficit
•	Moderate decrease in interest rates, mainly in 2005 and 
•	One-off increase in expenditures in 2005 due to the start of the State treasury system, which is compensated for by an increase in State debt revenues.

Budgeting of Expenditures for State Debt Servicing

 (SKK mill.)	2003	2004	2005	2006	2007	
Cash base 	30,293	30,267	30,296	31,995	40,382	
ESA 95 methodology	27,603	30,224	35,486	36,437	39,518	

Crucial indicators for the assessment of expenditures for State debt financing are accrued expenses, i.e. expenses under the ESA 95 methodology. In contrast to cash base expenditures, they match the expenditures with the period in which they actually arise and not with the period in which they are paid. There are considerable differences between the date an liability arises and the date it is settled.

G.2. Ministry of Finance SR
	
Expenditures for the fulfilment of tasks under the jurisdiction of the MF SR in 2005 are budgeted in the amount of approximately SKK 8.0 bn, which is an increase of 8.6 % compared to the budget approved for 2004. The funds of the sector, including PHARE, transition funds and their co-financing budgeted in the chapter of the General Treasury Administration, come to more than SKK 8.4 bn. 

About SKK 3.1 bn of the proposed expenditure limit is budgeted for the financing of tax collection and administration. SKK 300 million of the stated expenditures is dedicated to the Tax Information System development project. Its implementation will ensure a system of effective control and administration of taxes based on the principle of individual accounts of tax entities. Expenditures for the provision of customs administration duties represent approximately SKK 2.6 bn. 

  In relation to the operation of the State Treasury, an increase in annual income of the MF SR by SKK 600 mill. is budgeted, which creates space for covering increased expenditures associated with its operation. These expenditures of the budget represent more than SKK 800 mill., of which about SKK 100 mill. comprise capital expenditures. The mentioned funds are dedicated mainly for the operation of communication-technology infrastructure, the Budget Information System, operation and maintenance of the State Treasury information system and for software modifications. 

The sum of SKK 150 mill. is budgeted for expenditures for the distribution of revenue stamps, i.e. SKK 60 mill. more than the approved budget for 2004. The aforementioned increase is directly associated with projected revenues from the sale of revenue stamps to approximately SKK 3.0 bn. 

In 2006, available funds of the MF SR in the amount of approximately SKK 8.0 bn are anticipated, out of which EU funds – PHARE and the Transition Fund account for approximately SKK 120 mill. Funds that are approximately on the same level as in 2006 are budgeted for 2007, out of which EU funds – the Transition Fund, comprise SKK 36 mill. Compared to 2005, expenditures of the MF SR in the years 2006 and 2007 will basically remain on the level of 2005. The fall in the total available funds lies in the decrease of EU funds and co-financing.

H. Defence

Total expenditures on defence in particular years are budgeted in the sum of 1.9% of the GDP, including expenditures of other budget chapters within the inter-departmental programmes Defence Support and Economic Mobilisation. 

Defence Expenditures

(SKK in thousands)	2005	2006	2007	
Ministry of Defence SR	25,589,992	28,245,073	30,428,050	
Anticipated transfer from 2004	608,237	-	-	
Defence Support	314,996	305,679	274,754	
Economic Mobilisation	238,395	241,468	244,966	
Total	26,751,620	28,792,220	30,947,770	
% of GDP	1.9	1.9	1.9	

In the calculation, changes to the budget associated with the implementation of the Long-term Development Plan by 2010 have been reflected. Foreign debt liquidation for use of the chapter is not anticipated in 2005-2007. The budget for 2005 incorporates the transfer of funds not used within the chapter in 2004 in the sum of SKK 608.2 mill. for repairs of aircraft equipment and the purchase of components. The funds in the chapter of the MoD SR will increase by 11.1% year-to-year. If such a volume of funds for defence is provided for, conditions are created for a fully professional army by 2006. 

I. Security and Public Administration

The extent of the proposed expenditure of the chapter of the Ministry of Interior SR is based on the approved budget for 2004 reduced by the expenditure approved by the National Council SR, particularly expenditure for material and technological equipment of the Police Force (PF) in 2004 and by one-off expenditure for the purchase of helicopters for the PF and modernisation of TU-154 and JAK29. Subsequently, a moderate rise in expenditure is budgeted, with the exception of some types of transfers. Expenditure for local elections to self-governing regions to be held in 2005, as well as elections to the National Council of the Slovak Republic and to the bodies of self-governing municipalities to be held in 2006 is budgeted separately. 

The draft budget of the sector of the Ministry of Interior contains an expenditure limit increased by SKK 600 mill. per annum for the purposes of introducing passports in the EU format, in relation to the prepared amendment to Act 381/1997 Coll. on Travel Documents as  approved by Slovak Government resolution no. 717/2004. The increase in expenditure will be compensated in such a way that the mentioned amendment will adjust the Act on Administrative Fees in the sphere of an increase in administrative fees for the issue of passports at the relevant rate of inflation. Thereby, the issuance of documents under the EU standards will be provided for. According to data of the Ministry of Interior SR, total expenditure required for the introduction of documents in the EU format will be SKK 2,663 mill. in 2004 - 2007, without the inclusion of employment costs and expenditure for blank documents. For the purposes of the purchase of blank documents, the draft budget of the sector for 2005 is increased by SKK 230 mill. as part of priority expenditure items.

In respect of chapter expenditures, the implementation of the Construction of the State Administration Radio-Communications Network SITNO is budgeted at the total amount of SKK 600 mill. for 2005 – 2007, whereby the total completion of the Construction of the State Administration Radio-Communications Network in 2007 is provided for, without further demands concerning public finance. In addition, the establishment of the Analysis and Coordination Centre of the Police Force for the Fight against Organised Crime and Corruption has the total sum of SKK 300 mill. budgeted for 2005 - 2007.

The measures concerning the new EU external borders, by which the Schengen acquis and external border checks will be implemented, will be financed from a grant from the Schengen Transition Fund which together with the funds from the State budget amount to SKK 891 mill. in 2005.

In the chapter of the Ministry of Interior SR, increased demands of tasks of the asylum policy are budgeted separately in individual years. Together with the funds from the European Refugees Fund, in 2005 these expenditures will be almost SKK 400 mill. 

SKK 192.3 mill. is allocated in 2005 to cover the increased salaries of fire brigades. Expenditures for the fire and rescue corps are budgeted at the current level of budgetary financing, with regard to anticipated inflation development as well as full financing of registered investment projects. The obligatory contribution of 8% of payments collected from contractual compulsory motor insurance in the preceding year, which will be dedicated to the compensation of expenses for the acquisition, maintenance and operation of facilities needed for saving human lives and material values in road transport will make the sum of SKK 960 mill. for 2005. In subsequent years, the level of contributions will depend on the development of compulsory motor insurance rates and the number of registered motor vehicles. This scope, after amendment of Act 95/2002 Coll. on Insurance as amended, should fully cover all the demands and requirements not only of the fire and rescue corps, but also for the creation of the Integrated Rescue System of the Slovak Republic. 

The overview of actual and estimated amounts of contributions from compulsory motor insurance is presented in the following table.

 (SKK in thousands)	2003	2004	2005*	2006*	2007*	
 8 % of premium	98,436	678,998	960,000	1,296,000	1,555,200	
* The anticipated payments to the Ministry of Interior SR also include funds that will be provided through the budgetary chapter of the Ministry of Health SR. The exact proportion is annually determined based on negotiations of an interdepartmental committee.   

The draft budget for the Ministry of Interior includes increased rank pays for police officers by 10% compared to the approved Amendment of Act 73/1998 Coll. The draft budget of the Ministry of Interior will thereby increase with regard to employment costs by SKK 109.4 mill. per annum for 2005 - 2007. The draft budget of the Ministry of Interior also includes funds required by the Ministry to cover the deficit of the special account for deficit management in 2005 worth a total of SKK 400 mill. Other funds needed for possible coverage of the deficit of the special account will be provided for by the Ministry of Interior through transfers within the budget of its own budgetary chapter, mainly from vacancies in police bodies in the same way as it has been done till now. 

The draft budget for the budgetary chapter of the National Security Office (NSO) provides gradual implementation of tasks associated with membership in the EU and NATO. The increase in expenditures of the budgetary chapter of the Slovak Information Service (SIS), together with funds dedicated for priorities, will be sufficient to cover common operational expenditures related to main activities in the sector.

J. Judiciary and Prison service

Justice is one of the priorities of the current government, which is demonstrated also by the fact that expenditures for judiciary system within the budgetary chapter of the Ministry of Justice SR rise by more than 85% from 2003 to 2005 (comparison without compensation costs). 

The expenditures for the judiciary are incorporated in three different budgetary chapters: the Ministry of Justice SR, the Supreme Court of the Slovak Republic and the Constitutional Court of the Slovak Republic.

In the chapter of the Ministry of Justice SR, expenditures include the continuation of reform steps with an emphasis on court system optimisation, the implementation of judiciary management and the establishment of the Special Court. Capital expenditures enable planned investment activities to be fully covered. Funds for the continuation of the establishment of the Special Court and Special Prosecution Office, District Courts of Žilina, Trnava, Bratislava III, Nitra and Komárno are budgeted as well.

In the chapter of the Supreme Court of the Slovak Republic, funds are budgeted for the Special Court (operation of two Courts of Appeal and a Court of Extraordinary Appeal), which provide staffing and material equipment. The draft budget for the Supreme Court of the Slovak Republic also includes expenditures of the Office of the Judicial Council of the Slovak Republic. Within the funds of the Constitutional Court of the Slovak Republic, the total completion of reconstruction of the residence of the Constitutional Court of the Slovak Republic at Jiskrove Kasárne is covered.

In the budgeting of expenditures of the chapter of the Ministry of Justice, common transfers are proposed with regard to the end of the provision of a one-off financial contribution under Act 105/2002 Coll. in 2004. The judicial reforms under preparation and the increased requirements of reforms currently in progress are covered in the distribution of funds for priority government projects. 

Expenditures on the needs of the prison system resulting from an increased number of convicted and accused offenders are budgeted separately. The expenditures cover the financial backing needed for the execution of arrest and imprisonment with the number of accused and convicted persons and the security and guarding of the objects related thereto as well as provision for order and security in judiciary facilities. A considerable increase in the average number of accused and convicted is expected, compared to the number of 7,758 in 2002 will increase by 2,572 to 10,330 in 2005 (increase by 35%). As part of the creation of a system of prison facilities of the Prison and Judicial Guard Corps, expenditures for registered investment activities are budgeted, while in 2004 the budget accounts for the reconstruction of Leopoldov Prison, as well as the continuing reconstruction of the operating estate at Mlynská Dolina, reconstruction of the Central Military Prison in Bratislava and reconstruction of the former military prison in Sabinov, according to the data from the register of investments in the sector. 

The budget of the General Prosecution Office of the Slovak Republic took into account the effort focusing on the improvements of the activities and efficiency of prosecution supervision in criminal proceedings and increased prosecution supervision aimed at higher quality of the procedure and decision-making of public administration bodies. As part of priority government projects, expenditures are budgeted for facilities and the operation of prosecution bodies.

K. State Administration and Diplomacy
	
K.1. State Administration

Within the budget of the chapter of the Government Office SR for 2005 - 2007 the greater requirements related to the GOVNET information network are reflected specially in the chapter and funds in the sum of SKK 60 mill. are budgeted for its operation, which is a considerable increase of SKK 18 mill. compared to 2004. Furthermore, the chapter provides the extension of administration capacities of the Office of the Government Plenipotentiary SR for Roma Communities, for which the number of staff is increased from the original 11 to 30 employees. The budget category of common transfers includes a transfer to the Anti-Drug Fund, funds for minority cultural policy and for support to Slovaks living abroad, at the same level as in 2004. Capital expenditures cover registered investments and enable the extension and modernisation of the security system of the premises of the Government Office SR, as it is not sufficient in respect of the membership of the Slovak Republic in the EU and NATO. 

The draft budget of the Office of the National Council of the Slovak Republic incorporates expenditures for the fulfilment of functions and the work of members and Committees of the National Council SR, including remuneration of the assistants of deputies and expenditures for the operation of workrooms for deputies in the new premises of the National Council SR, as well as offices in selected municipalities in Slovakia. Expenditures for salaries of members of the European Parliament, operating costs of the permanent representative of the Slovak Republic in the Office of Parliament in Brussels, increased staff numbers at the Office of the National Council SR by a further 5 employees for the new department and Committee of the National Council SR for European Affairs and the Committee of the National Council SR for Inspection activities of the National Security Office and expenditures for membership fees of the National Council SR in NATO. Compared to 2004, chapter expenditures are down by the one-off expenditures approved for the financing of the Spring Summit of NATO. Capital expenditures provide for the gradual reconstruction of facilities at Župné námestie – stage III, so that they may be completed in 2006 and for elimination of breakdown conditions of the load-bearing structure of underground rooms of the building at Leopoldove nádvorie. In 2006, expenditures related to the acquisition of technology required for the enforcement of a deputy mandate will be covered.     

Common expenditures budgeted in the chapter of the Office of the President SR will be used, within priority expenditure types, for a staff increase at the Office of the President SR by 9 employees. Capital expenditures are based on the register of investments and provide for the completion of the building of the historical garden of the Presidential Palace in 2005 and, within  priority expenditure types, the construction of secure fencing and treatment of the soil on the estate of the presidential residence so that this investment project is completed in 2006. 
	
Expenditures for the Supreme Inspection Office of the Slovak Republic and the Statistical Office of the Slovak Republic will be budgeted at the level covering all necessary requisites of these budgetary chapters. In case of the Statistical Office expenditures for elections to the bodies of Upper-tier Territorial Units, the National Council of the Slovak Republic and self-administration bodies that are beyond common requirements are also budgeted for the relevant years. The operation of a new International Trade Statistical System INTRASTAT and implementation of tasks from the ECB and EUROSTAT Action Plan and the provision of requirements concerning statistical data are budgeted as part of priority expenses.

K.2. Ministry of Foreign Affairs SR

In the budgetary chapter of the Ministry of Foreign Affairs SR for 2005 - 2007 expenditures are budgeted in relation to the new tasks arising from membership of the Slovak Republic in the EU and NATO, as well as from the positive development of the exchange rate of the Slovak currency. Expenditures cover the functions of the Ministry of Foreign Affairs SR in the sphere of foreign policy, including expenditures for the operation of ambassadorial office and Slovak Cultural Institutes in other countries, the operation of the Schengen Information System, official development aid etc. 
	
Expenditures of the chapter of the Ministry of Foreign Affairs SR have increased since 2002, which has been primarily due to new tasks arising from the fulfilment of the strategic goal of the Slovak Republic to become a member of the EU and NATO, through an increase in payments to international organisations and in 2004 also due to the amendment of the Income Tax Act, as it necessitated the compensation of increased expenditures for the salaries of diplomatic staff and the corresponding rise in insurance premiums and contributions worth a total of SKK 354 mill. Expenditures for ambassadorial offices of the Slovak Republic in other countries have been increasing since 2002 too, which is associated with fulfilment of the strategic objectives of the Slovak Republic.  

(SKK mill.)	2002	2003	2004	2005	
Expenditures of the chapter of the Ministry of Foreign Affairs SR	2,474.4	2,813.4	3,336.7	3,407.7	
Expenditures for ambassadorial offices of the Slovak Republic	1,727.4	1,964.2	2,287.4	2,326.6	

Common expenditures for 2005 - 2007 in the category of expenditures for goods and services incorporate a standard rise in expenses with regard to the anticipated development of prices and inflation, with the exception of expenses for the operation of ambassadorial offices of the Slovak Republic and Slovak Cultural Institutes in other countries in 2005, which are budgeted at the same level as 2004 because of the anticipated positive development of exchange-rate differences in respect of the strengthening of the Slovak currency against foreign currencies. 

	2002	2003	2004	2005	Appreciation of SKK	
USD/SKK Exchange rate	45.3	36.8	32.9	32.1	29.2 %	
EUR/SKK Exchange rate	42.7	41.5	40.0	39.4	7.7 %	

In respect of the high number of ambassadorial offices of the Slovak Republic that are under construction or reconstruction, capital expenditures are budgeted for 2005 - 2007 approximately on the level of 2004. An increase in expenditures is specially budgeted in the category of common transfers for payments of the Slovak Republic to international organisations in relation to membership of the Slovak Republic in the EU and NATO.

 (SKK mill.)	2002	2003	2004	2005-7	
Payments of the Slovak Republic to international organisations	283.6	304.1	327.7	390.4 	

As for the chapter revenues, an increase is anticipated especially from dividends. In 2004 the Ministry of Foreign Affairs SR will fail to fulfil the task arising from Government SR resolution no. 444/2003, clause C.9, under which it is to provide for the payment of dividends from the joint-stock company Správa Služieb Diplomatickému Zboru (Diplomatic Corps Services) to the State budget comprising 70% of net profit, SKK 20 mill. at least, whereby the Ministry finds this task to be unrealistic. We find the budgeted dividends of the Diplomatic Corps Services to be reasonable, with assets of the company estimated by expert appraisal at approximately SKK 1,520 mill. and we expect their increase from SKK 28 mill. in 2005 to SKK 59 mill. in 2007. 

7.  State Financial Assets - Financial Operations

Pursuant to the new Act on Budgetary Rules for Public Administration, State financial assets shall be construed as:

-	State funds generated from the results of budgetary management of the State budget in the preceding years
-	Financial assets of the State from the repayment of principal sums of granted returnable financial transfers, credits and loans
-	Share interests of the State
-	Securities held by the State
-	State receivables from provided returnable financial transfers, credits and loans
-	Other funds based on the decision of the government or the National Council

Pursuant to the new Act on Budgetary Rules for Public Administration, financial operations that have an impact on the status of State financial assets both on the income and expense side are to be excluded from the revenues and expenditures of the State budget. 

(SKK mill.)	2005	2006	2007	
				
Budgetary Operations of State Financial Assets (SFA)				
				
1. Revenues – increase in SFA 	17,347.3	17,361.4	19,369.9	
1.1. Dividends from the NPF and other transfers	13,000.0	11,500.0	12,500.0	
1.2. Collected interest (pension reform)	2,417.0	2,536.7	2,420.0	
1.3. Collected repayments of State loans and State receivables from abroad (FT)	259.0	250.0	295.0	
1.4. Revenues from repayments of credits and loans – returnable financial transfers (FT)	1,351.3	1,074.7	1,154.9	
1.5. Revenues from Veriteľ, a.s.	320.0	2,000.0	0.0	
1.6. Net income from cancelled bearer deposits	0.0	0.0	3,000.0	
				
2. Expenditure – decrease of SFA 	14,288.6	15,406.3	24,678.6	
2.1. Transfer of funds from the NPF from dividends to  budget revenues	13,000.0	11,500.0	12,500.0	
2.2. Withholding tax from the pension reform account	459.2	482.0	459.8	
2.3. Granted credits and loans., membership in international organisations (FT)	829.4	612.0	932.4	
2.4. Transfer of funds to social insurance agency Sociálna Poisťovňa 	0.0	2,812.3	10,786.4	
				
Balance of budgetary operations 	3,058.7	1,955.1	-5,308.7	
				
Exclusion of financial transactions	-780.9	-712.7	-517.5	
      Financial transactions excluded from revenues	-1.610.3	-1.324.7	-1.449.9	
      Financial transactions excluded from expenditures	829.4	612.0	932.4	
				
Balance of budgetary operations excl. FT 	2,277.8	1,242.4	-5,826.2	
(impact on public budget according to ESA 95)				

7.1.	 Revenue Operations

With regard to financial volumes, revenues from the National Property Fund SR from dividends are among the most important revenue operations of State financial assets; in 2005 they are budgeted at the amount of SKK 13,000 mill. and in 2006 and 2007 at SKK 11,500 mill. and SKK 12,500 mill. respectively.
 
Revenues from the time account of funds earmarked for pension reform are budgeted at the volume of SKK 2,417.0 mill. for 2005, SKK 2,582.4 mill. in 2006 and SKK 2,553.6 mill. in 2007. The anticipated development of the balance of the time account of funds earmarked for pension reform is shown in the following table:

			(SKK mill.)	
 	2005	2006	2007	
Account balance as of 1 January of given year	70,109.2	72,067.0	74,158.7	
Gross interest	2,417.0	2,536.7	2,420.0	
Withholding tax (19%)	459.2	482.0	459.8	
Net interest	1,957.8	2,054.7	1,960.2	
Planned drawing of funds from the account	0.0	-2,812.3	-10,786.4	
Account balance as of 31 December of given year	72,067.0	71,309.4	62,483.2	

Revenues from enforcement of foreign claims that the Slovak Republic obtained upon the division of the assets of the former Czechoslovak Federal Republic are budgeted in the range of SKK 250 mill. to 295 mill. for 2005 – 2007, based on the results of negotiations held so far with the debtor countries and the current status of contractual documentation. 

 Financial operations on the income side also include revenues from the repayment of provided credits and loans – principal and returnable financial transfers. 

	2005	2006	2007	
(SKK in thousands)	Draft Budget	Draft Budget	Draft Budget	
Ministry of Environment SR 	51,500	50,000	50,000	
Ministry of Finance SR	600	500	500	
Ministry of Agriculture SR	464,190	344,214	284,351	
General Budget Administration	610,000	460,000	600,000	
of which :	 	 	 	
From public institutions and health insurance companies of the sector	200,000	* ––- 	* ––- 	
From non-financial entities	410,000	460,000	600,000	
* - For 2006 and 2007, revenues from returnable financial transfers provided to health insurance companies are not budgeted, as in 2005 their last instalment is to be paid. 

The competence under the chapters of the Ministry of Environment SR and Ministry of Agriculture SR covers the revenues from the repayment of returnable financial transfers provided by abolished State funds. Revenues from State guarantees provided by non-financial entities and from returnable financial transfers provided to health insurance companies are included in the chapter of the General Treasury Administration and in line with the instalment calendars are budgeted for particular years of the 2005 - 2007 budget at the volumes as stated in the table.

Revenues from Veriteľ, a.s., through which the process of elimination of debts in the health sector is provided for, are budgeted at the volume of SKK 320 mill. in 2005 and SKK 2,000.0 mill. in 2006. The stated revenues are repayments of a loan provided from State financial assets worth SKK 5,200.0 mill. to Veriteľ, a.s. in 2003. 

In relation to the prepared revision of the Commercial Code, net revenues of State financial assets are budgeted at SKK 3 bn. in 2007. These funds are from the transferred balances of bearer deposits with commercial banks that have were claimed and identified by 31 December 2006, including interest and other title benefits related to the deposits. However, the obligation of the State will concurrently arise to pay compensations for balances of cancelled deposits to the benefit of those entitled persons (depositors, their heirs or other legal successors), who would otherwise be left with entitlement to payment of balances of the cancelled bearer deposits that lapsed due to limitation of action. Nevertheless, the volume of this type of liability and the volume of revenues under this title cannot be quantified at the present time. The financial effects of this operation will be specified in the upcoming period.  

7.2.	  Expenditure operations

Revenues from the National Property Fund SR from dividends in particular years of the 2005 - 2007 Budget will be transferred to budget revenues in the same volume in which they appear in the revenues of State assets. This means that in respect of the balance of State financial assets, this operation is neutral.

In relation to revenues from the term account of funds earmarked for pension reform on the side of expenditure operations of State assets, there is the payment of withholding tax of SKK 459.2 mill. in 2005, SKK 490.7 mill. in 2006 and SKK 485.2 mill. in 2007.

The category of financial operations on the expenditure side also includes the granting of credits and loans, share interests and the repayment of sums of principal. They are budgeted in the years 2005 - 2007 in the amounts specified below.

(SKK in thousands)	2005	2006	2007	
EBOR* – capital deposit	49,200
	0	0	
 MIGA Agency* – reserve payable upon request for increase in share capital	50,000	50,000	50,000	
IDA* – reserve for fund supplementing	40,000	40,000	40,000	
EIB  - payable capital and reserve fund	371,176	371,176	742,351	
IBRD*  – reserve for SR share valorisation	100,000	100,000	100,000	
Project “Social Benefits Reform” – returnable financial transfers to Sociálna Poisťovňa	219,000	50,800	––	
TOTAL	829,376	611,976	932,351	
         * - Official development aid

Within the 2nd pillar of the pension reform, the transfer of funds worth SKK 2,812.3 mill. from State financial assets to Sociálna Poisťovňa is budgeted in 2006 and SKK 10,786.4 mill. in 2007 on the same grounds. 

8. Budgeting of revenues and expenditures of public administration bodies under ESA 95 methodology

Compared to the draft budget in the preceding parts of the document on a cash base, this part contains the draft budget of public administration based on the accrual base, in line with the unified methodology applicable in the European Union (ESA 95 methodology). The ESA 95 methodology applies an accrual principle, i.e. time differentiation of operations. The reporting of the accrual basis is methodologically governed by the guideline entitled European System of Accounts - ESA 95, which forms an Annex to Council Regulation (EC) No. 2223/96. The accrual principle means that flows are recorded on the principle of tracking an operation to the time of title origination, i.e. when the economic value is created, transformed or adjusted, or when the claims and obligations arise, are transformed or cancelled. This means that an operation is traced to the moment of its origination and not to the moment it is paid. Compared to the cash base, the balancing of public administration budget revenues and expenditures of a current year pursuant to the ESA 95 methodology excludes any financial operations from the balance of revenues and expenditures.   

The preparation and processing of the draft budget of public administration is carried out in line with new procedures, the quantification of surpluses or deficits of individual entities of the public administration budget under ESA 95 methodology. 

8.1. State Budget
 
From the perspective of the ESA 95 methodology, the draft State budget explained in the preceding parts of the document is as follows:
       (SKK mill.)
 	Year 2005	Year 2006	Year 2007	
State budget deficit on cash base	-61,523.9	-61,578.3
	-55,456.7
	
Modifying factors	4,187.9	4,739.2	1,973.2	
of which:				
•	Balance of budgeted transactions of State financial assets excl. financial operations 	2,277.8	1,242.4	,-5,826.2,	
Accruals included
of which: 	1,910.1	3,496.8
	7,799.4	
              Accrued interests paid and received	-4,316.4	-3,742.6	+1,564.2	
              Year-to-year change in balance (increase of EU receivables)	+4,420.5	+5,749.4	+4,656.2	
              Year-to-year increase in time exclusions 	+400.0	0.0	0.0	
              Accrued tax revenues	+1,406.0	+1,490.0	+1,579.0	
State budget deficit (ESA 95)	-57,336.0	-56,839.1	-53,483.5	
 
	The deficit of the State budget on a cash base is affected by modifying factors that represent the difference between the budgeting on cash and an accrual principle (ESA 95 methodology). The modifying factors include the balance of budget operations in State financial assets excluding financial operations (Part 7: Financial Operations of State Financial Assets) and including accruals.

 State budget accruals comprise the effect of time differentiation of interests paid and received (difference in the volume of cash and accrual interests) related to the State debt (section 6.3. Budgeting of expenditures by selected areas, part G. Finance and State Debt), the positive effect of a change of EU receivables to direct payments, pre-accession funds and the Cohesive Fund (Annex 6 – Budgetary Relations of the Slovak Republic and the EU) and the accrual of tax revenues (section 5.2. Accrual Taxes for the State Budget in 2005 - 2007). The last factor affecting the amount of accruals of the State budget is the increase in the number of time exclusions. In 2003, time exclusions of SKK 9.8 bn. were provided and the same volume is anticipated in 2004. In respect of the legislative change, based on which the administrators of State budgetary chapters will have the possibility of automatically transferring unused capital expenditures, EU funds and State budget funds determined for co-financing of common projects of the Slovak Republic and the EU to the subsequent budget year, an increase in the volume of unused funds transferred to the subsequent year is estimated at approximately SKK 0.4 bn.

The accrual of the State budget is performed:
-	Without any impact of Veriteľ a.s. on the State budget or State assets as a result of possible elimination of the indebtedness of the health sector
-	Under the condition of zero change to the status of receivables and payables of non-profit (budgetary) organisations
-	Without regard to the change of status of non-budgetary accounts of State non-profit organisations, with the exception of the impact of time exclusions

8.2. Municipalities and Upper-tier Territorial Units

	The draft budget for local self-government in 2005 - 2007 is prepared in relation to the changes resulting from fiscal decentralisation. 
	
The drafting of the budget was based on the principle that the competences under the transferred jurisdiction of State administration bodies will be financed through subsidies from the chapter of the relevant central body and self-administration jurisdiction (original) will be financed from the tax revenues of municipalities and Upper-tier Territorial Units. Some specific and individual requirements of municipalities and Upper-tier Territorial Units (UTU) will be financed in the form of subsidies from the State budget that are budgeted in the chapter “General Treasury Administration”. 

Municipalities

	It is estimated that in 2005 municipalities will have total revenues of SKK 76,953.8 mill. and total expenditures of SKK 75,153.8 mill.  

Tax Revenues are anticipated to the amount of SKK 31,000.5 mill. Municipalities will acquire the amount from personal income tax, property tax and specific service tax (local resident tax and municipal waste charges). Revenues from personal income tax are anticipated to bring the sum of SKK 23,500.5 mill. into municipal budgets, of which the financing of the self-administration competences of municipalities will be provided for. This concerns former subsidies from the chapter “Summary Financial Relations to municipalities and UTU” in the education sector (SKK 9,381.6 mill.), social welfare – care service (SKK 1,050.8 mill.), municipal public transport (SKK 714.7 mill.), performance of self-governance of municipalities with fewer than 3,000 residents (SKK 626.9 mill.) and other self-administration functions (SKK 11,726.5 mill.). 
 	
With respect to non-tax revenues, the budget anticipates with municipal revenues of SKK 14,000.0 mill. This concerns revenues from business activities and property title worth SKK 4,500.0 mill., mainly from the rental of leased land, buildings, machinery and equipment, with SKK 3,000.0 mill. from administrative and other fees and payments (administrative fees, fees for boarding and lodging, tickets, programmes on local radio stations etc.). Capital revenues are budgeted to reach the level of SKK 4,200.0 mill., mainly from the sale of buildings, flats, land and the sale of bonds. Revenues from interests on domestic credits, loans and deposits are budgeted to SKK 200.0 mill. and the budgeted sum of other non-tax revenues is SKK 2,100.0 mill. 

Grants and Transfers from the State budget are budgeted to the volume of SKK 24,253.3 mill. from these chapters:

- Ministry of Education SR – SKK 15,005.1 mill. will be used to secure transferred jurisdiction for State administration for financing the operation of elementary schools with SKK 14,942.5 mill., further education and the operation of common municipal offices in the education sector.

- Ministry of Interior SR with SKK 184.8 mill. In respect of transferred jurisdiction for State administration, funds for the operation of a civil registry are determined in the amount of SKK 137.3 mill. 
Other transfers are budgeted for the organisation of elections to the bodies of self-governing regions and new elections to municipal bodies in the amount of SKK 3.0 mill., with SKK 10.5 mill. for the repair and maintenance of war graves, and SKK 28.7 mill. for the repair of war graves due to the 60th anniversary of the end of World War II, and SKK 5.3 mill. for granting asylums and for integration of asylum holders into the community. 

- Ministry of Transport, Post and Telecommunications SR - SKK 6.9 mill. is determined for municipalities for financing transferred jurisdiction for State administration in the sector of thoroughfares – special building authorities.

- Ministry of Construction and Regional Development SR – a total of SKK 2,190.1 mill. The common transfer of SKK 131.8 mill. is budgeted for financing  transferred jurisdiction for State administration in the sector of building proceedings and expropriation proceedings and SKK 30.2 mill. for transferred jurisdiction for State administration for 79 municipalities in relation to arrangement of the activities associated with the State Housing Development Fund. 
Other transfers are budgeted to be provided to municipalities from the Housing Development Support programme to the amount of SKK 1,140.0 mill. and for regional development and co-financing of projects from EU funds worth SKK 888.1 mill. 

- Ministry of Environment SR – total of SKK 924.7 mill. Subsidies will be given to support the implementation of environmental measures, investment projects in the sphere of municipal water resources, sewage and sewage tanks, water-supply systems, waste management, waste disposal management, support for the separate collection of waste and for co-financing projects from the EU funds.

- Ministry of Economy SR – funds amounting to SKK 3,317.6 mill. will be provided for municipal budgets. This concerns funds for support of the implementation of important investments in the automobile industry of PSA Peugeot Citroen and Kia + Hyundai (SKK 3,060.3 mill.), the development and establishment of industrial parks (SKK 132.0 mill.) and implementation of measures under the Sectoral Operational Programme - Industry and Services, in order to encourage the creation and reconstruction of infrastructure, including tourism with SKK 125.3 mill. 

- Ministry of Labour, Social Affairs and Family SR - SKK 422.0 mill. that will be provided to municipalities for meals for children in material distress, activities of a special beneficiary and for school materials for children in material distress.

- Ministry of Culture SR - SKK 30.0 mill. will be given to municipal budgets for financing reconstruction of national cultural monuments, cultural activities in the sphere of art and for support to libraries.

- General Treasury Administration – SKK 2,152.1 mill. This concerns funds for financing individual needs of municipalities (SKK 81.0 mill.), financing construction projects of healthcare facilities (SKK 11.5 mill.), construction of the Košická bridge (SKK 83.3 mill.), preservation of historical monuments (SKK 53.9 mill.), financing of social services institutions (SKK 576.5 mill.), reserves for municipalities due to an outage in tax revenues caused by increased tax bonus (SKK 219.5 mill.),  a reserve to cover fiscal decentralisation risks (SKK 300.0 mill.) and co-financing of projects related to environmental protection – the construction of sewage tanks and sewage systems as part of the pre-accession fund ISPA (SKK 826.4 mill.). 

Total municipal expenditures in 2005 are budgeted in the amount of SKK 75,153.8 mill. 

Municipalities will use SKK 54,462.9 mill. for common expenditure. SKK 20,516.8 mill. is budgeted for wages, salaries, service emoluments and other remuneration, for insurance allowances and employer contributions to insurance funds (SKK 7,170.6 mill.), for goods and other services (SKK 17,702.5 mill.) and for common transfers (SKK 8,173.0 mill.). SKK 900.0 mill. is budgeted for payment of interests and other payments related to credits. 

Capital expenditures are budgeted in the sum of SKK 14,790.9 mill. for construction, modernisation and reconstruction of buildings owned by municipalities and the acquisition of equipment, machinery and devices. Expenditures for financial transactions are SKK 5,900.0 mill., out of which SKK 5,800.0 mill. is for repayment of sums of principal.
	
Compared to 2005, an increase of approximately 101.9% in both the revenue and expense part of the budget of municipalities is budgeted for 2006, mainly as a result of an increase in tax revenues associated with fiscal decentralisation and by 102.5% in 2007 compared to 2006. 

The development of the income and expenditure part of the budget of municipalities for the years 2005, 2006 and 2007 is as follows: 
(SKK mill.)
	2005	2006	2007	
Total Revenues of Municipalities	76,953.8	78,389.4	80,327.9	
of which:				
•	Tax Revenues*	31,000.5	32,910.8	35,458.7	
•	Non-tax Revenues	14,000.0	14,400.0	14,700.0	
•	Transfers from the State Budget	24,253.3	24,128.6	23,419.2	
•	Revenues from repayment of credits and loans, and sale of share interest (fin. operation)	150.0	150.0	150.0	
•	Funds from preceding years (fin. operation)	2,550.0	1,800.0	1,600.0	
•	Credits received (fin. operation)	5,000.0	5,000.0	5,000.0	
	
Total Expenditures of Municipalities	75,153.8	76,789.4	78,727.9	
of which:				
•	Common expenditures	54,462.9	56,086.4	57,539.0	
•	Capital expenditures	14,790.9	15,353.0	16,038.9	
•	Credits and share interests  (fin. operation)	100.0	100.0	100.0	
•	Repayment of sums of principal (fin. operation)	5,800.0	5,250.0	5,050.0	
                	
Total surplus of municipalities	1,800.0	1,600.0	1,600.0	
- Financial operations excluded	-1,800.0	-1,600.0	-1,600.0	
of which:				
•	Financial operation revenues excluded	-7,700.0	-6,950.0	-6,750.0	
•	Financial operation expenditures excluded	5,900.0	5,350.0	5,150.0	
Surplus/deficit of municipalities (ESA 95)	0.0	0.0	0.0	
*Without accounting for the increase in the tax bonus

Upper-tier Territorial Units (UTU)

Total revenues and expenditures of Upper-tier Territorial Units are anticipated in the sum of SKK 21,756.9 mill. 

Tax Revenues are anticipated at SKK 10,354.4 mill. UTU will gain tax revenues from personal income tax worth SKK 7,854.4 mill. and motor vehicles tax worth SKK 2,500.0 mill. The competences transferred from State administration to the local self-government of UTU are to be financed from these revenues. This concerns former subsidies from the chapter “Summary Financial Relations with municipalities and UTU” transferred in the sphere of transport (provision of subsidies to carrier providing regular public bus transport) in the sum of SKK 1,052.1 mill., for the maintenance and repair of class II and III roads in the sum of SKK 2,229.8 mill., in culture (SKK 1,081.9 mill.), in the social welfare sector (SKK 3,639.1 mill.), in education (SKK 1,724.7 mill.) and the operation of offices of Upper-tier Territorial Units (SKK 626.7 mill.).

Non-tax Revenues will be obtained from the operation of organisations in the founder competence of UTU in the sectors of social welfare, education and interest from the funds of their own economic activities. Their total sum is estimated at SKK 800.0 mill. and it should be attained mainly in the social welfare sector from payments of citizens in the care of social service institutions worth SKK 730.0 mill. paid for services rendered, such as board, lodging and care, from the education sector from enrolment fees and school fees of primary art schools, for boarding in dormitories, rental fees etc. worth SKK 50.0 mill. and from the economic activities of the offices of self-governing regions (interest on their own funds, revenues from property rental etc.) worth SKK 20.0 mill. 
   
Subsidies from the State budget will be provided in the total amount of SKK 10,532.5 mill., out of which common grants and transfers worth SKK 9,747.0 mill. and capital grants and transfers SKK 785.5 mill. will come from the following budgetary chapters: 

- Ministry of Education SR – SKK 9,420.2 mill. for financing transferred jurisdiction for State administration in the sector of secondary schools, in relation to which the founder function is fulfilled by the UTU, amounting to SKK 9,406.2 mill. and for financing further education. 

- Ministry of Economy SR – in the sum of SKK 451.1 mill. for implementation of measures following from the Sectoral Operational Programme - Industry and Services, with the aim of supporting the construction and reconstruction of infrastructure, including tourism.

- Ministry of Construction and Regional Development SR – in the sum of SKK 308.7 mill. for compensation of expenses related to the preparation of economic plans for regional development, expenses for analyses and studies and the financing of project documentation and other expenses associated with the implementation of sub-programmes of Local infrastructure and JPD NUTS II Bratislava Objective 2. 
 
- Ministry of Interior SR – SKK 136.5 mill. for the organisation and holding of elections to bodies of self-governing regions.

- Ministry of Labour, Welfare and Family SR – SKK 46.2 mill. to cover credit provided by the Council of Europe Development Bank in relation to the implementation of the project “Transformation of Existing Social Services Institutions” in the sum of SKK 29.2 mill. and for children’s recreation in the sum of SKK 17.0 mill. 

- Ministry of Culture SR – SKK 32.0 mill. for financing the reconstruction and repair of cultural monuments and for cultural activities in the sphere of art.

- General Treasury Administration - SKK 137.8 mill. for co-financing of the project “Transformation of Existing Social Services Institutions” (SKK 43.8 mill.) and for healthcare facilities (SKK 94.0 mill.).

In the sphere of expenditure for the operation of self-governing regional offices the funds in the total sum of SKK 656.7 mill. are budgeted out of which common expenditure accounts for SKK 574.6 mill. and capital expenditure SKK 82.1 mill. This sum is budgeted for financing personnel and the operating expenses of offices, the work of local councillors, the operation of commissions, projects related to regional development and the organisation of elections to self-governing bodies of UTU. Subsidies for capital expenditure are supposed to be used for financing the offices of UTU bodies, specifically for the reconstruction of buildings in which the offices of UTU are located and to provide for the technical equipment of the offices (office equipment, IT equipment etc.).

In the transport sector funds will be used for common expenditures amounting to SKK 1,052.1 mill. and are earmarked for the compensation of losses, a part of loss or other compensation to carriers that on the basis of concluded contracts on services in the public interest provide domestic public bus transport services, and for servicing the territory. Other funds in the transport sector comprising SKK 2,279.8 mill. will be used for the maintenance and repair of class II and III roads. 

SKK 94.0 mill. is budgeted for healthcare facilities, specifically for the completion of unfinished constructions and for instalments for appliances and medical equipment.
	
In the sector of cultural institutions, expenses worth SKK 1,120.9 mill. are budgeted, from which the operation of theatres, museums, galleries, community centres, libraries, observatories and other cultural institutions under the jurisdiction of UTU will be financed. SKK 172.1 mill. is budgeted for capital expenditures.

In the sphere of education, funds of SKK 11,189.9 mill. are estimated to be used for common and capital expenditures for secondary schools and school institutions. Activities in the educational sector will be financed from subsidies provided from the chapter of the Ministry of Education SR in respect of the transferred jurisdiction for State administration and from revenues of the UTU in self-governing competence. This concerns the financing of schools and school institutions – secondary grammar schools, secondary technical schools, secondary vocational schools, practical education centres, secondary comprehensive schools and institutions, school canteens, dormitories, art schools, which fall to the jurisdiction of UTU. 

Funds in the sum of SKK 4,533.5 mill. will be used in the social sphere for the services and operation of social services facilities. In this sector, the UTU perform their competences in the provision of care in social services institutions (social services homes, protected living facilities, housing for one-parent families, nursing centres, foster care institutions, hospices, rehabilitation centres). In addition, funds for the provision of contributions to the so-called non-state entities are also budgeted with as part of common expenditures. It is anticipated that a part of the expenditures of social services institutions will be covered from non-tax revenues (payments for services provided from citizens in the care of these institutions). Capital expenditures of SKK 253.9 mill. are budgeted for competences in the sphere of social welfare. This sum also includes financing of the project “Transformation of Existing Social Services Institutions” from the State budget. 

	Compared to 2005, an increase in both the revenues and expense part of the budget of Upper-tier Territorial Units is expected in 2006, mainly due to a rise in tax revenues by 102.4%, and by 104.9% in 2007 compared to 2006. 

The development of the revenues and expenditure part of the budget of Upper-tier Territorial Units for the years 2005, 2006 and 2007 is as follows: 	

						                                                                                                                                                            (SKK mill.)      
	2005	2006	2007	
Total revenues of UTU 	21,756.9	22,283.2	23,374.0 	
of which:	
•	Tax revenues	10,354.4	11,010.9	11,879.2	
•	Non-tax revenues	800.0	830.0	850.0	
•	Transfers from the State budget	10,532.5	10,372.3	10,574.8	
•	Funds from preceding years (fin. operations)	70.0	70.0	70.0	
	
Total expenses of UTU	21,756.9	22,283.2	23,374.0	
of which:		663.1	678.5                                                           	
•	Operation of offices	656.7	685.3	720.7	
•	Transport	3,331.9	3,500.3	3,600.8	
•	Healthcare	94.0	50.0	70.0	
•	Culture	1,120.9	1,200.9	1,300.4	
•	Education	11,189.9	11,044.1	11,296.9	
•	Social welfare	4,533.5	4,831.8	5,115.2,	
•	Regional development	760.0	900.8	1,200.0	
•	Provision of credits and loans, share interest and repayment of sums of principal (fin. operation)	70.0	70.0	70.0	
		0.0	0.0                                        	
Total surplus/deficit  of UTU 	0.0	0.0	0.0 	
- Exclusion of financial operations	0.0	0.0	0.0 	
 of which:		- 70.0	- 70.0        	
•	Financial operation revenues excluded	- 70.0	-70.0	-70.0	
•	Financial operation expenditures excluded	70.0	70.0	70.0	
				
Surplus/deficit  of UTU (ESA 95)	0.0	0.0	0.0	

8.3.  Social Insurance Agency  
 
The reform of the social insurance system was launched by the passing in Parliament of Act 461/2003 Coll. on Social Insurance, effective from 1 January 2004. Another important step in the reform of social insurance was the passing of Act 43/2004 Coll. on Pension Savings, which is to take effect from January 2005. 

The budget of social insurance agency Sociálna Poisťovňa was proposed in two versions due to a great deal of uncertainty about the impact on public finances resulting from the introduction of the 2nd pillar of pension savings. The said situation was also caused by uncertainty over the estimate of the number of inhabitants who are likely to decide to join the pension saving system. Comments on this process have been provided in a separate part to Annex 4 - Impact of pension reform on public finance. Another reason for submitting two budget versions was the fact that as a result of a decision taken by Eurostat,  the fiscal costs of pension reform over the transition period (up to March 2007) will not be included in the public finance deficit.

The draft proposal of the budget for Sociálna Poisťovňa in 2005 - 2007 has included the change in legislation that provides for the transfer of temporarily available funds to the basic funds of Sociálna Poisťovňa.  

8.3.1. Budget of Sociálna Poisťovňa without the impact of the 2nd pillar

(in SKK million)
	2005	2006	2007	
Total income of Sociálna Poisťovňa	140,411.1	153,953.9	167,151.6	
of which:	
•	tax income - income from insurance premiums	122,263.5	131,068.2	138,925.2	
•	non-taxable income (interest and other income)	631.3	694.2	854.8  	
•	balance of previous year (financial transaction)	17,297.3	22,140.7	27,371.6	
•	World Bank loan (financial transaction)	219.0	50.8	0.0	
                                                             	
Total expenses of Sociálna Poisťovňa 	118,270.4	126,582.3	132,742.7	
of which:	
•	insurance expenses	114,553.9	123,014.8	129,012.5             	
•	administration fund expenses	3,713.5	3,564.5	3,727.2	
             - of that, drawn on the loan provided by the World Bank	219.0	50.8	0.0	
•	loan provided from the Guarantee Fund - expected recoverability over the years to come (financial transaction)	3.0	3.0	3.0	
	
 Total surplus of Sociálna Poisťovňa	22,140.7	27,371.6	34,408.9 	
- Exclusion of financial transactions
of which:	-17,513.3
	-22,188.5
	-27,368.6 
	
•	exclusion of income financial transactions	-17,516.3	-22,191.5	-27,371.6	
•	exclusion of expense financial transactions	+3.0	+3.0	+3.0	
+ Inclusion of accruals and deferrals of income from insurance premiums 	811.0	861.0	907.0	
	
Surplus of Sociálna Poisťovňa (ESA 95)	5,438.4	6,044.1	7,947.3	

Total income in 2005 of SKK 140,411.1 million includes the transfer of 2004 funds worth SKK 17,297.3 million. Total income has recorded a year-on-year growth (9.6% and 8.6% in 2006 and 2007, respectively). Overall, the largest portion is represented by the income from collected insurance premiums which made up between 87 and 83% of the total income over the period. This amount includes insurance premiums paid out by the State for the pension and disability insurance on behalf of the group of insured defined by the Act. With consideration of the impact of army professionalization in 2006 and population development; the amount of insurance premiums paid by the State is expected to range between SKK 5.0 and 5.3 billion.

The amount of income based on collected insurance premiums is calculated on the basis of assessment for each group of insurance payers, while taking into account the actual figures from the previous period. Expected taxable income from insurance premiums has included the anticipated improvement in collection of premiums to 95 – 96% between 2005 and 2007. The draft budget is based on a stabilised percentage of people incapable of work, which stands at about 4.25%.

The draft provides for returnable financial assistance, i.e. the World Bank loan to cover the Social Benefit Administration project, in the amount of SKK 219.0 million and SKK 50.8 million in 2005 and 2006, respectively. 

The total expenses in 2005 also provide for the expected valorisation of pensions by 8.2%. In 2006 the valorisation is expected to reach 4.9% and 4.3% in 2007. Pursuant to the Social Insurance Act, the valorisation of pension benefits depends on the year-to-year growth in consumer prices and the growth in the national average wage achieved in the previous calendar year, with a balanced 50:50 ratio of those indicators. The date of the increase in pension benefits has been set as 1 July each year. 

Indicator/year	2005	2006	2007	
Inflation (average growth in %)	3.3	2.8	2.5	
National average monthly wage (nominal growth in %)	6.5	5.8	5.6	
Valorisation of pensions (in %)	8.2	4.9	4.3	

ESA 95 methodology envisages a surplus economy of Sociálna Poisťovňa, with SKK 5,438.4 million surplus in 2005, SKK 6,044.1 million in 2006 and SKK 7,947.3 million in 2007.

            The provision to Act 461/2003 on social insurance has envisaged a surplus economy of Sociálna Poisťovňa in 2004-2007. As a result of the actual development within the new legislative environment, the draft budget proposal expects the current year balance to be much worse than the outlook figures contained in the provision to the Act. 
                                                                                                                                 (in SKK million)
Current year balance/year	2004*	2005	2006	2007	
a) Provision to Act 461/2003 Coll.	3,671.0	8,029.0	11,511.0	12,983.0	
b) Draft budget of Sociálna Poisťovňa**	522.3	4,843.4	5,230.9	7,037.2	
Difference (b - a)	-3,148.7	-3,185.6	-6,208.1	-5,945.8	
* Estimated figures, August 2004
** According to the balance of funds of Sociálna Poisťovňa (does not take into account the ESA 95 methodology)

8.3.2. Impact of the introduction of the 2nd pillar of pension savings
    
Act 43/2004 Coll. on Pension Savings, which is to take effect from 2005, was passed as part of the pension system reform and its aim was to provide long-term financial stability of the pension system and, at the same time, to create the basis for an increase in pensions. 

Once the decision is taken to join the saving pillar, the rate of pension insurance premium will change. The 18% pension insurance rate will be equally divided between the current pillar and the capitalisation pillar. The portion of income which accounts for 9% of the pension saving rate will be administered by the respective pension trust fund. This portion will be paid into the basic fund of payments towards the pension insurance scheme. The collection of payments towards the pension saving scheme will affect the administration costs of Sociálna Poisťovňa equal to 0.5% of  the collected payments towards the pension saving scheme. Pursuant to the government proposal amending the Social Insurance Act, the income and expenses of the basic fund of payments towards the pension saving scheme will be excluded from the budget of Sociálna Poisťovňa, because these are to be paid to the private pension trust funds.

The estimated balance figures of the social insurance system in 2005 - 2006 relied on a steady growth in the productive inhabitants in the Slovak Republic who will choose to switch to the saving pillar, with 35% in 2005 and the remaining 16% in 2006. The Pension Saving Act is likely to have a substantial effect on development in the balance of the social insurance system. Comments to that end are provided in part of Annex 4.

Indicator/year	2005	2006	2007	
Worsened balance due to introduction of 2nd pillar (in SKK in thousands)	5,596,039	15,056,299	17,950,469	
Share of GDP (in %)	0.4	1.0	1.1	

8.3.3. Sociálna Poisťovňa budget with consideration of 2nd pillar

            The deficit of Sociálna Poisťovňa resulting from the introduction of the compulsory capitalisation system will be taken care of through the extension of Article 292 paragraph 2, of Act 461/2003 Coll., which will be effective during the transition period needed to stabilise the system.
            
Pursuant to Article 292, paragraph 2, the surplus resources from the basic fund may be used for financial assistance to another basic fund lacking resources for payment of benefits that should be paid out from such a fund. The draft budget relies on the assumption of a standby reserve in Sociálna Poisťovňa of at least SKK 10 billion over the entire year. As a result, SKK 2,812.3 million and SKK 10,786.4 million are expected to be provided from State financial assets in 2006 and 2007, respectively.

 (in SKK million)
	2005	2006	2007	
Total income of Sociálna Poisťovňa	139,869.2 	150,542.1	159,480.6	
of which:	
•	tax income (income from insurance premiums)	121,796.0	130,565.4	138,391.2	
•	non-taxable income (interest and other income)	556.9	298.6	303.0 	
•	remaining balance of previous year (financial transaction)	17,297.3	16,815.0	10,000.0 	
•	World Bank loan (financial transaction)	219.0	50.8	0.0	
•	transfer from State financial assets	0.0	2,812.3	10,786.4	
	
Total expenses of Sociálna Poisťovňa	123,054.2 	140,542.1	149,480.6	
of which:	
•	insurance expenses	119,680.3	137,566.4	146,428.0	
•	administration fund expenses	3,370.9	2,972.7	3,049.6	
 - of that, draw on the loan provided by the World Bank	219.0	50.8	0.0	
•	loan provided from the Guarantee Fund - expected recoverability over the years to come (financial transaction)	3.0 	3.0 	3.0 	
	
Total balance of Sociálna Poisťovňa	16,815.0	10,000.0 	10,000.0	
-Exclusion of financial transactions	-17,513.3	-16,862.8	-9,997.0	
   of which:				
•	exclusion of income financial transactions	-17,516.3	-16,865.8	-10,000.0	
•	exclusion of expense financial transactions	3.0 	3.0 	3.0 	
+Inclusion of accruals and deferrals of insurance premium income 	         811.0  	861.0 	          907.0 	
	
Surplus/deficit of Sociálna Poisťovňa (ESA 95)	112.7 	-6,001.8	910.0	

As a result of passing the amendment to Act 461/2003 Coll. on Social Insurance, which has been approved by Government resolution no. 919/2004 from 29 September 2004, the shortfall of Sociálna Poisťovňa shall amount to SKK 135 million in 2005, SKK 191 million in 2006 and SKK 233 million in 2007. These amounts were not included in the budget of Sociálna Poisťovňa approved by the supervisory board and the board of directors. This shortfall will be covered by a reduction in the limit for expenses in the budgetary chapter of the Slovak Ministry of Labour, Social Affairs and Family.

8.4. Health insurance companies

	The budget of health insurance companies has been based on the assumption that the expenses will not exceed the income of the insurance company.
 (in SKK million)
	2005	2006	2007	
Total income of health insurance companies	74,653.8	79,539.7	84,376.5    	
of which:	
•	income from insurance premiums	71,116.2	75,997.4	80,821.3  	
•	administrative and other charges	942.3	946.6	959.2                   	
•	grants and transfers	9.7	10.1	10.4	
•	remaining balance of previous year (financial transaction)	2,585.6	2,585.6	2,585.6	
	
Total expenses of health insurance companies	72,068.2	76,954.1	81,790.9                                                        	
of which:	
•	insurance expenses	68,378.3	71,563.8	78,199.7	
•	current administration expenses of the insurance company	2,318.9	2,638.6	2,855.7	
•	capital expenses	563.4	439.2	415.5	
•	transfer to Veriteľ, a.s.	320.0	2,000.0	0.0	
•	other transfers	287.6	312.5	320.0	
•	payment of principals (financial transaction)	200.0	0.0	0.0	
	
Overall surplus of insurance companies	2,585.6	2,585.6	2,585.6       	
- Exclusion of financial transactions	-2,385.6	-2,585.6       	-2,585.6 	
   of which:	
•	exclusion of income financial transactions	-2,585.6	-2,585.6       	-2,585.6 	
•	exclusion of expense financial transactions	200.0	0.0	0.0     	
  + Inclusion of accruals and deferrals of income from insurance premiums	485.0	512.0	540.0	
	
 Surplus  of insurance companies (ESA 95)	 685.0 	 512.0	540.0	

The budget of the health insurance system has been prepared within a changing legislative environment, with a package of reform acts passed which was to substantially modify the cash flow in the system of public health insurance.

The draft Act on Health Insurance Companies and on Supervision over Healthcare brings about a major change in the status of health insurance companies, which will be transformed from public service institutions into joint stock companies. The draft Act on Health Insurance Companies has defined a universal and solidary health insurance system. The redistribution of public health insurance premiums is based on the principle of solidarity, thus changing the minimum and maximum limit of the assessment base for the productive individuals, as well as the scope, rates and amount of the assessment base for the payment of insurance premium paid by the State. The budget expenses of the health insurance companies will be directly affected by the scope of healthcare which has been newly defined in the draft Act, as well as by the business conduct of the health insurance companies.

The overall income in the health insurance system, including the remaining funds from the previous year, are expected to reach SKK 74,653.8 million, SKK 79,539.7 million and SKK 79,539.7 million in 2005, 2006 and 2007 respectively.

	The payment by the State on behalf of insured individuals is expected to come to SKK 21,116.2 million, which accounts for 4% of the assessment base defined by the Act. This represents a growth of SKK 3,056.8 million compared to 2004. The number of individuals insured by the State has been established according to data from the Central Registry of Insured. The number of such individuals is expected to come to 3,055,000.  The amount of insurance premiums paid out by the State has been established at SKK 22,864.7 million and SKK 24,338.1 million in 2006 and 2007 respectively. The income from insurance premiums, including payments by the State, are expected to amount to SKK 71,116.2 million, SKK 75,997.4 million and SKK 80,821.3 in 2005, 2006, and 2007 respectively.

The amount of collected insurance premiums paid by the productive population has been established with regard to the development in the macroeconomic indicators, change in the minimum, maximum limits, average wage and the scope of the assessment base. With regard to the above, it is expected that the amounts collected from the productive population will stand at SKK 50,000.0 million, SKK 53,200.0 million and at SKK 56,500.0 million in 2005, 2006, and 2007 respectively. 

Other incomes in the system of health insurance are expected to reach around SKK 950.0 million a year. A decisive portion of that income is represented by payments for healthcare-related services, the issue of prescriptions and healthcare vouchers, as well as the anticipated payments for dependants in the family of an employee who was insured in another EU member state. The administration expenses of insurance companies were established at a level corresponding to the legislation now in effect.

8.5. State funds

Both State funds, namely the State Housing Development Fund and the State Fund for Decommissioning of Nuclear Power Facilities, and the Treatment of Spent Fuel and Radioactive Wastes are expected to produce a surplus in all three budget years.

8.5.1. State Housing Development Fund

The overall development in the income of the State Housing Development Fund (SHDF) has shown a moderate increase. With the increase in the income from interest on extended loans and deposits in SHDF, the income from payments of loan principal is expected to increase. At the same time, the required transfer from the State budget is likely to decrease. This development is associated with the approved concept of housing development, which relies on the gradual increase of own resources generated by the interest and payment of loan principal provided by SHDF. 

With regard to the expected increase in income, total expenses of SHDF are also likely to record a moderate increase. The largest portion of overall expenses is represented by costs associated with the allocation of housing loans, such as costs linked to the provision of new apartments by private individuals, the construction by municipalities of tenement apartments and social facilities, as well as the costs of housing renovation. Other expenses are associated with the provision of banking services, administration fund, etc.

 (in SKK million)
 	2005	2006	2007	
Total income of SHDF	4,187.7	4,295.5	4,329.3                        	
of which:	
•	interest on domestic credits, loans and deposits	755.4	851.3	943.4	
•	other non-taxable income	10.0	10.0	10.0	
•	State budget transfers	2  814.7	2,768.3	2,654.0           	
•	on credit and loan payments (financial transaction)	602.6	660.9	716.9	
•	balance of previous year (financial transaction)	    5.0	5.0	5.0           	
	
Total expenses of SHDF	4,182.7	4,290.5	4,324.3                                                  	
of which:	
•	current expenses	42.6	35.9	36.2          	
•	capital expenses	6.6	0.1	0.1	
•	allocation of credits and loans (financial transaction)	3,855.5	4,254.5	4,288.0	
•	payment of principal (financial transaction)	278.0	0.0	0.0	
	
Total surplus of SHDF	5.0	5.0	5.0                                        	
- exclusion of financial transactions	3,525.9	3588.6	3,566.1	
 of which:	
•	exclusion of income financial transactions	-607.6	- 665.9        	- 721.9        	
•	exclusion of expense financial transactions	4,133.5	4,254.5       	4,288.0	
	
SHDF surplus (ESA 95)	3,530.9	3593.6       	3,571.1	

The volume of credits provided for housing support has recorded a year-to-year growth. As of 31 December 2002, SHDF was owed SKK 17 427.6 million in unpaid loans.

 (in SKK million)
	2003	2004	2005	2006	2007	
The volume of loans provided by SHDF	2,901.6	3,110.9	3,855.5	4,254.5	4,288.0	
Payments of principal	476.6	542.0	602.6	660.9	716.9	
Unpaid loans as of 31 December 	18,643.0	21,211.9	24,464.8	28,058.4	31,629.5	

8.5.2. State Fund for Decommissioning of Nuclear Power Facilities, and Treatment of Spent Fuel and Radioactive Wastes  

The key portion in the income of the State Fund for Decommissioning of Nuclear Power Facilities, and the Treatment of Spent Fuel and Radioactive Wastes (SFDNF) is represented by the income from payments by the nuclear energy facility owners and remaining resources from the previous year. In 2005-2007, transfers from the State budget are not anticipated.

The key portion of expenses has been budgeted as a contribution of SFDNF to the owner of nuclear energy facilities, namely Slovenské Elektrárne, a.s. (Slovak power plants, joint stock company). These expenses were associated with the shutdown of nuclear energy facilities, the construction of a processing centre at Bohunice, the shutdown of the A-1 unit in Jaslovské Bohunice and its adaptation to a radiation-safe condition. The deep storage of highly active radioactive waste will be constructed in the long run. The accumulated financial resources in the fund will be used to shutdown the nuclear energy facilities after they stop operating in the years to come.

In 2006 and 2007 the expenses of SFDNF will be substantially reduced  as a result of a decline in interest revenue associated with a drop in interest rates and anticipated payments to the Fund by Slovenské Elektrárne, a.s., due to a change in the basis for assessment of payment and due to the planned shutdown of V1 EBO in 2007.

(in SKK million)
	2005	2006	2007	
Total income of SFDNF	15,792.5	17,072.7	18,602.9                        	
of which:	
•	interest on domestic credits, loans and deposits	420.0	400.0	450.0	
•	on collected payments from the owner of NPF	2,656.0	2,244.4	1,861.6	
•	remaining balance of previous year (financial transaction)	12,716.5	14,428.3	16,291.3              	
	
Total expenses of SFDNF	1,364.2	781.4	847.2	
of which:	
•	expenses for SE	1,355.0	773.5	840.3	
•	fund administration expenses	9.2	7.9	6.9	
	
Total surplus of SFDNF 	14,428.3	16,291.3	17,755.7                     	
- exclusion of financial transactions	- 12,716.5	- 14,428.3	- 16,291.3      	
   of which:	
•	exclusion of income financial transactions	- 12,716.5	- 14,428.3	- 16,291.3          	
•	exclusion of expense financial transactions	0.0	0.0	0.0 	
	
SFDNF surplus (ESA 95)	1,711.8	1,863.0	1,464.4        	

8.6.	Slovak Land Fund

Overall, the development of income in the Slovak Land Fund (SLF) shows a slight increase throughout the three budgetary years. The same development was recorded for the income from trade and title to property. The decisive portion of the SLF's income is attributed to income from rental payments associated with land under the SLF's administration. As of 1 January 2005 the rent on land administered by SLF will increase from 0.6 – 1.0% to at least 1.5% of land prices according to ELEU.

The expense part of the proposed budget records a moderate growth. As a result, non-investment expenses are also rising. A dominant position is held by expense titles that are to be funded through the Fund due to legal regulations laying down the provisions of the Fund position and its scope of activities. These include the settlement of restitution claims for beneficiaries and settlement of land title. 

In accordance with Slovak Government Resolution No. 726/2004, SLF is now in the process of re-evaluating its income and expenses. Most importantly, this process involves establishing a realistic amount for rent from leased land under SLF's administration, increased income from sales of assets and re-evaluation of salary expenses.

(in SKK million)
	2005	2006	2007	
Total income of SLF	340.9	391.1	424.8	
of which:	
•	revenues from trade and title to property	186.5	232.7	232.2	
•	capital income	82.4	64.9	67.9	
•	interest on domestic credits, loans and deposits	32.0	29.0	29.0	
•	privatisation income (financial transaction)	38.0	38.0	40.0	
•	other, non-taxable income	2.0	0.5	0.5	
•	remaining balance of previous year (financial transaction)	0.0	26.0	55.2	
	
Total expenses of SLF	314.9	335.9	340.4	
of which:	
•	wages and levies	123.3	133.0	141.5	
•	goods and services	113.9	125.0	120.3	
•	current transfers (restitution and cash refunds)	54.7	54.7	54.6	
•	capital expenses	23.0	23.2	24.0	
                    	
Total surplus of the Slovak Land Fund	26.0	55.2	84.4	
- Exclusion of financial transactions	- 38.0	- 64.0	- 95.2 	
of which:	
•	exclusion of expense financial transactions	- 38.0	- 64.0	- 95.2	
	
 SLF deficit (ESA 95)	- 12.0	- 8.8	- 10.8	

8.7.  Slovenská konsolidačná, a.s. 
		
The draft budget for Slovenská konsolidačná, a.s. (SK, a.s.) for the period from 2005 to 2007 is based on the assumption that the payments of the redistribution loan for permanently revolving stock will be paid out to the National Bank of Slovakia from public finances in 2004. On the income and expense side, the draft budget of SK, a.s. provides for the transfer of classified loans from tax and customs authorities to SK, a. s., in the anticipated amount of about SKK 35 billion.

As regards the volume of anticipated available funds over the budget years, SK, a.s. now considers the plan to leave in retained funds from previous years only the amount of SKK 200 million to cover the risk of passive litigations. Furthermore, the remaining funds will also include the anticipated operating expenses in the first quarter of next year and anticipated net return regarding debt collection, which will be transferred to the Tax and Customs Authority once the annual balancing is complete. Use of the remainder of available resources in 2005 - 2007 is considered for payments of returnable financial transfers provided to SK, a.s. by the Ministry of Finance.

(in SKK million)
	2005	2006	2007	
Income of SK, a. s.  total	745.3	830.1	818.1                        	
of which:	
•	income from title to property	1.5	1.5	1.5	
•	income from interest on loans and deposits 	239.1	289.1	270.2	
•	income from loans and credits-principal (financial transaction)	262.0	242.4	 202.5 	
•	balance of previous year (financial transaction)	242.7	297.1	343.9	
	
Total expenses of SK, a. s.	448.2	486.2	467.9                                                  	
of which:	
•	wages and levies	101.7	96.6	85.3	
•	goods and services (operating expenses)	60.9	56.5	50.5	
•	payment for transferred receivables	52.6	107.1	107.1	
•	capital expenses	8.0	6.0	5.0	
•	payment of principal (financial transaction)	225.0	220.0	220.0	
	
Total surplus of SK, a. s.	297.1	343.9	350.2	
	
- Exclusion of financial transactions	-279.7	-319.5	-326.4	
   of which:	
•	exclusion of income financial transactions 	-504.7	-539.5	-546.4	
•	exclusion of expense financial transactions	225.0	220.0	220.0	
                                                                          	
Surplus of SK, a. s.  (ESA 95)	17.4	24.4	23.8	

8.8.  National Property Fund of the Slovak Republic (NPF)

The income in 2005-2007 of the National Property Fund of the Slovak Republic (NPF) is mostly associated with the amendment of Act 92/1991 Coll. on the Conditions for the Transfer of State Property to Third Parties, as amended, regarding the potential completion of the privatisation of "natural monopolies". As a result, in 2005 - 2007 the NPF will rely on income from privatisation of a 66% stake in power producer Slovenské Elektrárne a.s., i.e. the completion of privatisation of distribution plants, and income from privatisation of heating plants. In addition, the NPF expects to receive income associated with contracts in force. Another important income item is represented by income from dividends, the amount of which depends on the development of the earnings of natural monopolies. In 2005-2007 the income from dividends will be transferred through the State financial assets into the State budget.

In 2005 - 2007, the income from privatisation will be used in compliance with the Government Policy Statement, mostly to reduce the amount of public debt. The payments of public debt will include payments of State guarantees provided for bank loans, payments of NPF bonds, payments of expenses associated with restitution claims and payments associated with the legal liabilities of the NPF under Article 15, and contract liabilities of the NPF under Article 30, of Act 92/1991 Coll., arising from the privatisation contracts concluded in previous years. 

With regard to the low amount of anticipated income from privatisation in 2007, the objective of the proposed NPF budget is to provide for sufficient funding to pay the public debt in 2007. 

		
(in SKK million)
	2004	2005 
	2006
	2007	Total	
Income from privatisation	5,439.8	19,438.8	15,949.8	544.7	41,373.1	
Payment of public debt by NPF	8,054.3	6,445.5	13,440.5	13,803.2	41,743.5	
       The table contains results expected to be achieved in 2004 and the NPF budget for 2005 -2007.

	Other expenses of the NPF include expenses associated with its business and mandatory expenses under Act 92/1991 Coll.  (e.g. refunding costs resulting from contractual withdrawal, refunding costs associated with privatisation, increase of share capital, etc.).
	
In the case of any other funds arising in the process of privatisation beyond the budget framework, these will be used to pay the State debt and in fiscal terms will be a neutral transaction.

(in SKK million)
	2005	2006	2007	
Total income of the NPF	32,787.0	40,024.8	27,413.2                       	
of which:				
•	income from dividends	13,000.0	11,500.0	12,500.0         	
•	other, non-taxable income (interest, other income)	348.2	228.0	133.7	
•	income from privatisation (financial transaction)	19,438.8	15,949.8	   544.7                               	
•	remaining balance of previous year (financial transaction)	0.0	         12,347.0	14,234.8                     	
				
Total expenses of the NPF	20,440.0	25,790.0	26,695.0                                                  	
of which:				
•	transfer to State financial assets	13,000.0	11,500.0	12,500.0  	
•	expenses associated with the business of the NPF	175.0	168.9	165.5                    	
•	payment of privatisation related costs	474.5	437.6	104.3	
•	expenses associated with restitution claims	100.0	80.0	60.0          	
•	payment arising from contractual withdrawals	25.0	23.0	22.0	
•	payments of State guarantees	2,500.0	9,500.0 	11,000.0	
             of which:        interest	1,900.0	1,900.0	1,800.0                                                                       	
                            principal (financial transaction)		600.0	7,600.0	9,300.0                                                                                  	
•	payment of NPF bonds	60.5	60.5	43.2	
             of which:   interest	             15.7	15.7	              11.2                                       	
		     principal (financial transaction)	42.0	42.0	30.0    	
                              tax	2.8	2.8	2.0	
•	expenses of the NPF (Article 15)                                        	200.0	200.0	100.0   	
•	expenses of the NPF (Article 30)                                      	3,585.0	3,600.0	2,500.0	
•	increase in share capital (financial transaction)	320.0	220.0	100.0	
	
Total deficit/surplus of the NPF	12,347.0	14,234.8	718.2                                   	
- Exclusion of financial transactions	-18,476.8	-20,434.8	-5,349.5                          	
   of which:				
•	exclusion of income financial transactions	-19,438.8	-28,296.8   	-14,779.5                                                                            	
•	exclusion of expense financial transactions                               	962.0	7,862.0	          9,430.0     	
+ Inclusion of accrual and deferral items	+3,785.0	+3,800.0	+2,600.0                                  	
•	expense accruals (Article 15)	200.0	200.0	100.0	
•	expense accruals (Article 30)	3,585.0	3,600.0	2,500.0	
				
NPF deficit (ESA 95)	-2,344.8	-2,400.0	-2,031.3  	

8.9. Veriteľ a.s. 

Veriteľ a.s. is a 100% state-owned joint stock company the aim of which is to implement the process of debt clearance in the healthcare sector. 

In 2005 Veriteľ a.s. expects to receive SKK 1.6 million in interest revenues, with SKK 50 million representing the sum of funds retained from 2004. The income also accounts for transfers in 2005 from health insurance companies worth SKK 320.0 million and SKK 2,000.0 million in 2006.
	
The budgeted expenses of this joint stock company needed for its administration and operations amount to SKK 30.0 million. The draft budget comprises only contracted funds and it also anticipates the transfer to State financial assets of SKK 320.0 million and 2,000.0 million in 2005 and 2006 respectively.

The draft budget has been prepared on the assumption that Veriteľ a.s. will cease to operate in 2007.

 		(in SKK million)
	2005	2006	
Total income of Veriteľ, a. s. 	371.6	2,023.2	
of which:	
•	non-taxable income	1.6	1.6	
•	remaining balance of previous year (financial transaction)	50.0	21.6	
•	transfer received from health insurance companies	320.0	2,000.0	
	
Expenses of Veriteľ, a. s.  total	350.0	2,030.0	
of which:	
•	current expenses 	30.0	30.0	
•	transfer to State financial assets	320.0	2,000.0	
	
Total surplus/deficit of Veriteľ, a. s. 	21.6	-6.8	
- Exclusion of financial transactions	-50.0	-21.6	
   of which:	
•	exclusion of income financial transactions	-50.0	-21.6	
•	exclusion of expense financial transactions	0.0	0.0	
	
Deficit of Veriteľ, a. s.  (ESA 95)	-28.4	-28.4	

8.10. Public universities

Throughout the three budgetary years, the balance of account in public universities (PU) is balanced.

(in SKK million)
 	2005	2006	2007	
Total income of PU	11,754.6	12,882.3	13,730.8	
of which:	
•	administrative and other charges and payments	1,354.6	1,319.3	1,350.2	
•	State budget transfers	10,400.0	11,563.0	12,380.6    	
             of which:  - domestic current grants and transfers	9,350.0	10,463.0	11,180.6	
                   - domestic capital grants and transfers 	1,050.0	1,100.0	1,200.0	
	
Total expenses of PU	11,754.6	12,882.3	13,730.8                                                  	
of which:	
•	current expenses	10,704.6	11,782.3	12,530.8                                                           	
      of which:  - wages, salaries, service income and other employment payments	4,510.1	5,009.3	5,315.0	
                  -  insurance premiums  	1,663.6	1,750.7	1,857.6	
                  -  goods and services	3,421.6	4,380.0	4,665.5	
                  -  current transfers	1,109.3	642.3	692.7	
•	capital expenses	1,050.0	1,100.0	1,200.0                                                      	
	
Total deficit/surplus of PU	0.0	0.0	0.0                                          	
- Exclusion of financial transactions	0.0	0.0	0.0         	
	
Surplus/deficit of PU (ESA 95)	0.0	0.0	0.0                                  	
   
The draft of the overall budget balance prepared by the Ministry of Finance of the Slovak Republic is based on data for 2004. In 2004 the current subsidies for PU represented the amount of SKK 8,438.7 million and SKK 1,001.0 million in capital subsidies.

The proposal for distribution of expenses by PU from State budget subsidies was based on the budgeting methodology for current subsidies paid out to PU. The State budget resources will be used to fund study programmes and the operation of the PU, science and technology in PU, development of PU, their transformation, social grants and student loans, support for catering, housing, sports and leisure activities of students and religious centres. The overall volume of funding in 2005 - 2007 provides for expenses that comprise the expenses of PU and State budget expenses. On an absolute comparison, the expenses in  2007 will increase by about SKK 2.9 billion over 2004. 

Note that the proposal for distribution of expenses into categories is only an indicative one, since subject to Article 89 of Act 131/2002 Coll.  on Universities, as amended, the university itself should decide on how the State budget subsidy is to be used. 

The expected annual income of PU is to come to about SKK 1,350 million and will comprise, for instance, income from fees paid by foreign students, study-related fees, income from contracted research, further education, income from housing and catering, etc. In contrast to the State budget subsidy, this amount will not change in nominal terms (in actual figures however, it is even decreasing). The share of own and private resources in the funding of PU is therefore constantly decreasing. 

The Ministry of Education of the Slovak Republic has not yet considered the idea of collecting tuition fees from Slovak students and of including those fees in the income of PU. This is subject to the passing in Parliament of the amendment to the Act on Universities. The discussion in the National Council SR about the amendment will also focus on the provision of social grants and funding for student dormitories. The draft budget for PU also does not take into account the options to draw funds from the EU and Agency for Support of Science and Technology. 

8.11. Subsidised organisations under the authority of the State, municipalities and Upper-tier Territorial Units (UTU)

The draft budget for public administration in 2005 - 2007 for the first time now also comprises the draft budgets for government-subsidised organisations. Subject to common EU methodology, these organisations are included in the public administration sector. These are subsidised organisations established by the State, municipalities, or UTU, where less than 50% of production expenses are covered by sales. The decision on the inclusion into a respective economic sector of public administration bodies, as well as the fulfilment of conditions to include a body in the public administration sector, has been entrusted to the Statistical Office of the Slovak Republic in compliance with Act No 540/2001 Coll. on State Statistics. 

	The draft budget of subsidised organisations under the authority of State, municipalities and UTU has been prepared for those organisations that are registered with the updated Statistical Register of organisations maintained by the Statistical Office of the Slovak Republic and included in the public administration sector subject to ESA 95 methodology. 
89 subsidised organisations under the authority of the State were included in the public administration sector, along with 769 subsidised organisations under the authority of municipalities and UTU.  

The subsidised organisations under the authority of the State provide activities in the area of cultural activities, education, the environment, agriculture, research, services and informatics. Most of the subsidised organisations operate under the authority of the Ministry of Culture (29), followed by organisations under the authority of the Slovak Academy of Sciences (19) and the Ministry of Agriculture (12). 

Subsidised organisations operating under the authority of municipalities provide public works (technical services), cultural activities (local community centres, libraries, galleries), social issues, sports (operation of sport facilities) and other areas of activities. The subsidised organisations established by UTU provide for transport activities (organisations which provide for the administration and maintenance of class II and III roads), cultural activities (theatres, museums, galleries, etc.) and educational activities (outdoor activities' schools, secondary vocational schools, secondary technical schools etc.).

The following is the development of the income and expense part in the budget of subsidised organisations within the sector of public administration in 2005, 2006, and 2007:         

                                                                                                                                                                             (in SKK million)
	2005	2006	2007	
Total income of GSO within the public administration sector	16,746.2	16,300.0	16,577.5	
of which:				
•	non-taxable income	4,141.8	3,875.5	3,918.7	
•	transfers within the public administration sector	11,017.0	10,892.4	11,131.2	
•	income from payment of credits and loans and from the sales of property interests (financial transaction)	1,502.5	1,501.0	1501.0	
•	balance of previous years and transfer  of funds from monetary funds (financial transaction)	84.9	31.1	26.6	
	
Total expenses of GSOs within the public administration sector	16,501.9	16,085.9	16,400.1	
of which:				
•	current expenses	13,757.1	13,495.7	13,629.8	
•	capital expenses	1,242.3	1,087.7	1,267.8	
•	payments of principal (financial transaction)	1,502.5	1,502.5	1,502.5	
                	
Total surplus of GSOs within the public administration sector	244.3	214.1	177.4	
- Exclusion of financial transactions	-84.9	-29.6	-25.1	
   of which:				
•	exclusion of income financial transactions 	-1,587.4	-1,532.1	-1,527.6	
•	exclusion of expense financial transactions	1,502.5	1,502.5	1,502.5	
	
Deficit of GSOs within the public administration sector (ESA 95)	159.4	184.5	152.3