Prime Minister Janez Janša: If Slovenia has the capacity to draw European funds, this year’s drop in GDP will be just a brief episode in the country’s fiscal life
Prime Minister Janez Janša: If Slovenia has the capacity to draw European funds, this year’s drop in GDP will be just a brief episode in the country’s fiscal life.
“Coming into office, the Government was faced with an entirely new situation, to which it first had to respond by re-allocating funds in order to be able to purchase protective equipment and cover the most urgent costs of the fight against the epidemic, which in turn created discrepancies between these measures and the already adopted fiscal acts or the budget for this year,” said Mr Janša in his introduction, adding that, before the expiry of the statutory deadline, the Government prepared a revised budget for 2020 which, judging from macroeconomic forecasts, is a realistic reflection of the country’s public finances at the present time.
“I am convinced that we will end the year in line with these predictions. It is the following years that are in doubt, as we do not know exactly when the challenge of the new coronavirus will be overcome – anyway this will be discussed shortly when the Government will submit the budget documents for the next two years.”
In this context, he pointed to the actually high budget deficit in nominal terms. “I would like to stress at the very beginning that it is nevertheless in accordance with the provisions on the fiscal rule in Slovenia enshrined in the Constitution and the law, as the latter envisages exemptions in exceptional situations, and in compliance with European regulations, because the European Commission relaxed the criteria for public debt, in other words indebtedness due to this exceptional situation. Hence the revised budget is in line with the constitutional and European formal criteria, but it still warrants an explanation of what it includes and why the deficit is so high,” said Mr Janša. It is probably for the first time in the history of this country that the Government can explain down to every euro on what it was or will be spent.
“This increase in the budget deficit by roughly 4.5 billion euros, in other words an unplanned budget deficit, is the result of significantly lower revenue due to the epidemic and a rise in expenditure,” explained Mr Janša, who went on to say that, by the beginning of this month, as much as 1.6 billion euros of a total of 4.6 billion had already been paid to direct budget users to mitigate the consequences of the COVID-19 epidemic.
“Nearly 500 million euros was paid directly to workers or employed persons when they were temporarily laid off or were not been able to work due to force majeure or when their workload in the management of the epidemic was excessive. In addition, they, or, in broader terms, businesses, were exempt from the payment of approximately 560 million euros, this in social security contributions, sickness benefits from the first day of absence from work onwards, and an increase in the assets of funds for the mitigation of the consequences of the epidemic for businesses,” stressed Mr Janša.
“The self-employed and farmers thus received around 130 million euros in the form of a monthly basic income, exemption from the payment of social security contributions, direct compensation for loss of income and sickness benefit from the first day of absence onwards. Nearly 70 million euros of one-off allowance was paid to pensioners to top up their low pensions and around 30 million euros to other vulnerable groups, such as students and socially disadvantaged members of farm households and large families,” continued Mr Janša.
Citizens were also paid around 60 million euros in tourism vouchers by the beginning of this month, and as of today almost double that amount. “This measure, above all, saved the tourist season in Slovenia and helped the tourism industry stay relatively fit, taking into account that it employs around 60 thousand people,” noted Mr Janša, reminding us of an increase in the lump-sum payments to municipalities introduced in this period, which for this year totals around 145 million euros. “The municipalities used these funds to mitigate the consequences of the epidemic and for other purposes,” added Mr Janša.
“The unemployment rate, of course, increased slightly despite all these measures. Consequently, social transfers paid to the unemployed increased. These amounted to around 45 million euros, while more than 270 million euros was spent on interventions in the health insurance and pension funds,” the Prime Minister noted.
“Taking into account that certain measures under the initial four anti-corona packages are still in force, and the fifth package is in the pipeline and will soon be on your desks, and since the danger of COVID-19 still exists and its consequence require mitigation measures, the general budget reserve in the revised budget in front of you has been increased by around 1 billion euros to cover such or any other unforeseen costs of the epidemic,” clarified Mr Janša, who went on to say that the aforementioned funds plus lower revenue due to the temporary exemption from the payment of taxes and contributions for companies and individuals will this year will result in a reduction of budget revenue from citizens in the amount of around 230 million euros in income tax, around 720 million euros in VAT and around 170 million euros in excise duties.
“Citizens and business were able to keep these funds, this money, millions of euros, and hence were significantly less affected by the epidemic. This year companies will pay around 370 million euros less in corporate income tax, which also helps keep our economy in shape,” commented Mr Janša. Although it is only the ninth month, we can claim that the measures, which were financially assessed according to the method presented above, have significantly alleviated the overall economic and social situation in the country and that the funds were used rationally. “If we had not taken these measures, by now around 150 thousand jobs in the Slovenian economy would have been lost permanently or temporarily. All those who would thus have become unemployed would have benefitted from the social protection scheme, meaning that we would have had to substantially increase unemployment contributions, which would in turn have led to an equal increase in the budget deficit, while the Slovenian economy would have employed more than 100 thousand fewer workers, hence further significantly reducing revenue.”
“If we had not acted, the budget deficit would have been the same or even much bigger, but the country would, in terms of the economy and otherwise, have found itself in a situation where it would have been very difficult to secure recovery in the coming years.”
“The following data from national and European institutions’ forecasts of a drop in GDP or the general effect on the living standard in Slovenia illustrate that the Government acted with due diligence. In its latest estimate for Slovenia, the European Commission, for example, predicted a reduction of GDP by 7% in 2020. Our institutions are somewhat more optimistic,” said the Prime Minister. “Let us have a look at the European Commission’s estimate and draw the relevant comparisons with other countries. GDP is on average estimated to contract by 8.3% in the European Union and by 8.7% in the Eurozone. In Austria – our most developed neighbour – it is forecast to shrink by 7.1%, which is slightly more than in Slovenia, while in France and Croatia it is estimated to decrease by nearly 11% and in Italy by more than 11%. Should at the end of the year these comparative data on other EU Member States turn out to be correct, then Slovenia will have emerged in relatively good shape from the epidemic or pandemic as far as this year is concerned, and I can be more optimistic for the coming years,” stressed Mr Janša.
“The forecast for Slovenia is positive in 2021. Hence we expect growth, possibly not as high as this year’s drop, but still close to it. And if we make an additional effort, even that goal is within our reach. If we manage this, we will be one of only a few European countries to make up for the drop in the relatively short period of one year. Grounds for optimism in relation to this goal can be found in the relatively realistic possibility of shortly being able to draw European funds provided by the financial perspective for the next seven years, this from the European budget and the recovery fund,” said Mr Janša, adding that the Government is making every effort to bring Slovenia to the position where it can not only draw the funds in nominal terms but also invest them economically.
“If Slovenia manages to reach such absorption capacity, this year’s drop will be just a brief episode in the country’s fiscal life, and I am hopeful that the budgets for the next two years will chart ambitious growth by making up for some deficiencies or correcting some unreformed areas where, with the exception of talks and studies, absolutely nothing has done for many years in Slovenia, which has created major problems here at least in the fight against the epidemic – in relation to the capacities of our healthcare system, care for the elderly and so on and so forth,” commented Mr Janša. By way of conclusion, the Prime Minister announced that future perspectives and budgets would be discussed shortly, as the Government will submit these documents by the end of this month.