Slovakia in 2013Radovan Ďurana, INESS

13.8.2013

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• Macro• Fiscal issues• Policy papers• Q&A

Macro – w shape, or ww shape?

Macro – 2013 down, down

GDP, Annual growth

Source:IFP

GDP, Annual change

ConsumptionInvestmentGDP growth

Change in stockNet export

Macro

Source: IFP

Macro – Man on the moon

• Export rulz + 22% between 2008-2012 (Import + 13%, due to low household cons.)- 83% to EU- Germany 21%- Czech Republic 13%• Industrial production + 13% 2008-2012

Macro – Man on the moon

• Annual growth of employment in division Automotive production: 3,1% (+ 1 793 workers)

Government spending vs. GDP

Macro – Dark side

in bln. Eur 2008 2012Change

2008/2012

Car sales 4,0 3,0 -25%

Retail sales 19,8 17,9 -9%

Accomodation 0,4 0,3 -19%Restaurants, bars, krčmy 1,1 0,8 -27%

Macro – Dark sideTotal lending in bln. eurCorporate lending in (right axis)

Source: IFP

Macro employment

• Total employment• Unemployment rate• Contracts

Macro employment

in ths. 2008Q1 2013Q1Working persons 2 391,30 2 327,70

Employed 2 063,30 1 963,70Economicly active 2 671,80 2 723,20

Macro - Unemployment

Total unemployment in ths. 2008Q1 2011Q1 2013Q1Difference 2013/2008

Total population change

15 - 19 years 13 14 13 0 -6520 - 24 years 41 62 64 23 -4125 - 29 years 44 59 68 24 -3130 - 34 years 34 50 50 17 -1535 - 39 years 30 42 51 21 5640 - 44 years 32 39 36 4 345 - 49 years 34 36 38 4 -1350 - 54 years 35 39 38 4 -3155 - 59 years 17 29 35 18 20Total 280,5 372,2 395,5 115

Unemployment rate prediction

2013 2014 2015 201614,5 14,2 13,3 12,5

Source: IFP

Wages

• 10% growth in HC sector = 0,7% of overall average wage growth (IFP)

Average monthly salary in 2012 806 Eur 2,5%

Private Sector 804 Eur 2,2%

Public Sector 810 Eur 3,7%

Macro – Household Revenues

in. Mil. eur 2008 2012 Change

GDP 66 842 71 463 7%

Gross salaries 25 931 27 717 7%

Social benefits 7 951 10 308 30%

Savings 2 736 5 032 84%

• What is the number of PT jobs in Slovakia?

ContractsApril 2012 April 2013

Contractors 516 947 315 349Contracts 609 530 398 704

Age distribution of contractors in January 2012, resp. 2013 (Source: IFP)

Fiscal Issues

• 2012 Data• State Budget in 2013• Tax Revenues Forecasts

2012 Data

• Lower tax revenues by 0,7 bln. Eur (-1% GDP)• Consolidation measures 0,3 bln. Eur (0,4%)• EU Co-financing + contributions – 0,4 bln.eur

(0,5%)• Municipalities+ SGR exp. Lower by 0,2 bln.

Eur (0,3%)

Revenues of public sector

2 010 2 011 2 012Annual

change 2012

2 011 2 012

mil. Eur %GDP

Total revenues 21 281,7 22 961,8 23 660,9 699,0 33,2 33,1

Tax revenues 10 215,2 11 024,4 11 040,9 16,4 16,0 15,4

- Value added tax (without VAT - EU source) 4 128,7 4 651,0 4 248,3 -402,6 6,7 5,9

- Excise Taxes 1 930,8 1 999,1 1 973,3 -25,8 2,9 2,8

- Personal income tax 1 513,9 1 741,4 1 880,0 138,6 2,5 2,6

- Corporate income tax 1 683,0 1 659,4 1 704,0 44,5 2,4 2,4

Other taxes 429,2 474,3 471,6 -2,7 0,7 0,6

Social contributions 8 251,6 8 634,7 9 065,1 430,4 12,5 12,7

Property revenues 812,6 854,1 1 007,2 153,0 1,2 1,4

Dividends + interest 628,0 648,0 834,6 186,5 0,9 1,2

Grants and transfers 1 374,2 1 800,6 1 713,2 -87,4 2,6 2,4

from which EU 653,0 793,0 805,4 12,4 1,1 1,1

Source: Fiscal council

Expenditures of public sector

2 010 2 011 2 012Annual

change 2012

2 011 2 012

mil. Eur %HDP

Total expenditures 26 328,7 26 459,5 26 767,7 308,2 38,3 37,5

Current expenditures 23 940,8 24 080,0 24 858,4 778,3 34,8 34,8

Employees compensations 5 065,3 4 912,1 5 013,5 101,4 7,1 7,0

Intermediate consumption 3 200,4 3 108,0 3 087,6 -20,3 4,5 4,3

Subsidies 893,5 862,8 993,5 130,7 1,2 1,4

Interest expense 884,8 1 084,4 1 322,1 237,7 1,6 1,9

Social benefits 9 315,5 9 363,8 9 789,6 425,8 13,5 13,7

Health care system 3 481,9 3 392,9 3 501,5 108,6 4,9 4,9

Capital expenditures 2 387,9 2 379,5 1 909,4 -470,1 3,4 2,7

Capital investments 1 680,9 1 462,8 1 326,1 -136,6 2,1 1,9

Deficit -5 047,0 -3 497,7 -3 106,9 390,8 -5,1 -4,3

Source: Fiscal council

Primary balance EU 2012

Debt 2012• From 43,3% GDP to 52,1% GDP

• 52% of the growth – deficit financing

• 30% of the growth – reserves

• 18% of the growth – Eurozone bailout

• Excluding the PICGSS, Slovak debt growth the highest in EU in 2008- 2012 period

2013 Budget

• Tax measures • II. Pillar• Banks• Frozen expenditures

Tax Revenues ForecastsTax revenues in ths. Eur Reality Forecast

2011 2012 2013 2014 2015 2016

Direct taxes 3 533 461 3 663 197 3 934 736 4 060 218 4 314 742 4 617 576

Indirect taxes (VAT, Petrol, Tabacco..) 6 709 362 6 295 486 6 189 300 6 264 891 6 180 657 6 406 982

International trade taxes 38 739 30 759 27 000 27 540 28 090 22 920

Local taxes 572 719 615 885 632 160 652 857 674 235 696 318

Bank taxes 0 169 922 206 136 154 602 103 068 103 068

Public Broadcasting tax 73 917 72 375 71 511 70 724 70 088 69 597

Social Contributions 4 592 541 4 848 745 5 632 092 5 546 613 5 783 168 6 047 053

-II. Pillar transfer 0 44 234 239 701 0 0 0

Health Contributrions 2 385 268 2 426 335 2 590 647 2 693 114 2 818 966 2 958 786

Tax and contributions revenues 17 956 064,0 18 159 809 19 379 992 19 472 100 19 974 555 20 923 841

Tax Revenues growth nominal 0,5% 2,6% 4,8%

GDP Nominal growth 4,4% 4,8% 5,4%

Source: Fiscal council, IFP

Tax Property, not Activity?

Fiscal responsibility

• Overall situation• Sanctions• Municipalities• Expenditures ceiling• State companies

National RulesConstitutional Budget Responsibility Law •Debt break (until 2017 50-60% of GDP)•expenditures limit (without specification)• Rules for self-governments• Rules of transparency Laws about budgetary rules•debt of self-government < 60% of ordinary income•Debt service of self- govt debt < 25% of ordinary income•Evaluation of state budget•Terms for submitting proposals State Budget Law•Defines incomes, expenditures, maximum deficit•expenses can be exceeded by 1% max.•valid for 1 year

International rulesStability and Growth Pact•deficit < 3% of GDP, debt < 60% HDP•excessive deficit procedure•MT objective, consolidation of 0,5% of GDP annualy•decreasing the debt over 60% of GDP by 1/20 ann.•Expenditures benchmark•Semi-automatic sanctions

“Fiscal compact” + 2 pack•A rule of balanced budget•Medium-term objective in national legislation•decreasing the debt over 60% of GDP by 1/20 ann.•Reviewing EC budget proposal (until 15/10)•Strengthening supervision on countries with problems

Council Directive 2011/85/EU (part of Six pack)•Requirements for the fiscal framework of the Member States:•Accounting, statistics, audit, transparency•Independent predictions, sensitivity scenarios•Numerical rules, medium-term frameworks

Source: Fiscal council

Debt brake sanctions• debt between 50 – 53% of GDP - MF is sending a written justification of the level of

debt to National Council and proposal for its cut-down• debt between 53 – 55% of GDP – Government submits to National Council proposal of

measures cutting-down the debt- salaries of members of Government are lowered to the previous year level f

• debt between 55 – 57% of GDP – MF will decrease the state budget expendituresby 3% (exceptions)- consolidated expenditures of public administration cannot rise nominally (exceptions)- self-government expenditures cannot annualy increase in nominal terms

• debt between 57 – 60% of GDP – Government cannot submit to National Council proposal of public administration budget with budget deficit-self-governments are obliged to approve only balanced or surplus budget for the next year

• debt over 60% of GDP – in addition to previous action Government asks National Council for confidence vote- sanctions cumulate when debt is over 53% of GDP, e.g. after exceeding the limit of 60% besides the vote of confidence it is necessary also to implement measures described in previous levels of debt.

But• Sanctions from 55% of GDP are not applied for

the period of 24 months starting the first day after the day when the Manifesto of Government and the vote of confidence were approved (15/5/2012)

• Sanctions from 55% of GDP are not applied for the period of 36 months starting the first day of the month after the month in which: GDP decreased by 12%, costs related to crisis of financial sector, catastrophic events, Euro bailouts + 3% of GDP

Debt brake in time

When will we have debt over 57%?

Debt in bln. EurGDP

nominalDebt to

GDP

2013* 40431,0 72 600,0 55,7%

2014* 43622,0 77 500,0 56,3%

2015* 46319,0 81 700,0 56,69%

2016* 48204,0 86 300,0 55,9%

Source: Fiscal council, 2013 updated

Sustainability index

Sustainability index decreased from 7,0% of GPD in 2011 to 4,3% in 2012. It means that to make Slovak debt sustainable in a long-term period according to definition of constitutional law, it is necessary to constatnly improve the balance of public finance by 4,3% of GDP..

Source: Fiscal council

Future of deficits

• Short term measures turned off, EC predicts deficit 3,1% v 2014

• Oil measures• Arctic ice(for how long?)• Limited capital investmens• Revenues growing faster than expenditures?• Nationalization of Health Insurance companies?• Risks related to ESA 2010 (autumn 2014)

Policy papers

• Decrease Minimum wage to 1 €

• Monitoring of Structural funds

• Investment subsidies

Q & A

?

Resources

• Ministry of Finance (IFP) Macro, Taxes• Fiscal council• Statistical office

Radovan Ďuranawww.iness.sk

radovan.durana@iness.sk+421915540395