Bloomberg News

Slovak Parliament Begins Budget Debate as Cabinet Seeks Support

December 06, 2011

Dec. 6 (Bloomberg) -- Slovak lawmakers began debate on the 2012 budget as the caretaker government of outgoing Prime Minister Iveta Radicova seeks support for the spending plan at a time when euro-area’s debt crisis is weighing on the economy.

The draft budget targets a deficit of 4.6 percent of gross domestic product, compared with a goal of 4.9 percent in 2011. The administration has abandoned a plan to squeeze the shortfall to the originally targeted 3.8 percent of GDP as the lingering debt crisis in the euro region is reducing prospects for growth in the bloc’s second-poorest member.

“We are in the period when the key goal should be to maintain Slovakia’s credibility for financial markets,” Finance Minister Ivan Miklos told lawmakers today in the Slovak capital, Bratislava. “It’s necessary to reduce the deficit in 2012 despite early elections and the crisis.”

Slovakia, which adopted the euro in 2009, is seeking to trim its deficit to avert contagion from the euro region’s credit crisis, which has spread from Greece into Italy. The cost of insuring against Slovak default over five years has almost quadrupled this year and the country has failed to raise the planned amount at Treasury bond auctions in November.

Radicova is holding office until early elections in March after she lost a confidence vote on Oct. 11. The fractured former coalition isn’t able to agree on more spending cuts, while some of of the former partners’ lawmakers haven’t ruled out rejecting the budget.

Miklos said the country should stick to its goal of trimming the budget gap below the European Union limit of 3 percent of GDP by 2013. The central bank said yesterday the risk of missing this goal is rising, being boosted by the collapse of the government.

Forecast Revisions

The government last month revised its forecast for the 2012 growth to 1.7 percent, half the original projection, as the euro area’s debt crisis hurts demand for exports of the products made in the country such as Samsung Electronics Inc. television sets. The European Commission expects an even bigger slowdown, forecasting 1.1 percent growth.

Should lawmakers approve changes to the budget, which would boost the deficit beyond 4.6 percent of GDP, the Finance Ministry will withdraw the spending plan from Parliament, Miklos said on Nov. 29. Public finances would in such a case be governed by an interim budget with a deficit ceiling of 4.4 percent of GDP, he said.

The government parties have 78 legislators in the 150-seat assembly. The largest opposition party, Smer, has said it won’t vote for the budget unless it introduces a tax increase on high earners and a dividend tax. Ordinary People, a faction of four lawmakers that was part of the former ruling coalition, also has conditions for supporting the budget, its leader Igor Matovic has said.

--Editor: Douglas Lytle

To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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