1. Slovakia in 2013 Radovan Ďurana, INESS 13.8.2013

2. Menu Macro Fiscal issues Policy papers Q&A

3. Macro – w shape, or ww shape?

4. Macro – 2013 down, down GDP, Annual growth Source:IFP GDP, Annual change

5. Consumption Investment GDP growth Change in stock Net export Macro Source: IFP

6. 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

7. Macro – Man on the moon Annual growth of employment in division Automotive production: 3,1% (+ 1 793 workers)

8. Government spending vs. GDP

9. Macro – Dark side in bln. Eur20082012 Change 2008/2012 Car sales4,03,0-25% Retail sales19,817,9-9% Accomodation0,40,3-19% Restaurants, bars, krčmy1,10,8-27%

10. Macro – Dark side Total lending in bln. eur Corporate lending in (right axis) Source: IFP

11. Macro employment Total employment Unemployment rate Contracts

12. Macro employment in ths.2008Q12013Q1 Working persons2 391,302 327,70 Employed2 063,301 963,70 Economicly active2 671,802 723,20

13. Macro - Unemployment Total unemployment in ths.2008Q12011Q12013Q1 Difference 2013/2008 Total population change 15 - 19 years1314130-65 20 - 24 years41626423-41 25 - 29 years44596824-31 30 - 34 years3450 17-15 35 - 39 years3042512156 40 - 44 years32393643 45 - 49 years3436384-13 50 - 54 years3539384-31 55 - 59 years1729351820 Total280,5372,2395,5115

14. Unemployment rate prediction 2013201420152016 14,514,213,312,5 Source: IFP

15. Wages 10% growth in HC sector = 0,7% of overall average wage growth (IFP) Average monthly salary in 2012806 Eur 2,5% Private Sector804 Eur 2,2% Public Sector810 Eur 3,7%

16. Macro – Household Revenues in. Mil. eur20082012Change GDP66 84271 4637% Gross salaries25 93127 7177% Social benefits7 95110 30830% Savings2 7365 03284%

17. What is the number of PT jobs in Slovakia?

18. Contracts April 2012April 2013 Contractors 516 947315 349 Contracts 609 530398 704 Age distribution of contractors in January 2012, resp. 2013 (Source: IFP)

19. Fiscal Issues 2012 Data State Budget in 2013 Tax Revenues Forecasts

20. 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%)

21. Revenues of public sector 2 0102 0112 012 Annual change 2012 2 0112 012 mil. Eur%GDP Total revenues21 281,722 961,823 660,9699,033,233,1 Tax revenues10 215,211 024,411 040,916,416,015,4 - Value added tax (without VAT - EU source)4 128,74 651,04 248,3-402,66,75,9 - Excise Taxes1 930,81 999,11 973,3-25,82,92,8 - Personal income tax1 513,91 741,41 880,0138,62,52,6 - Corporate income tax1 683,01 659,41 704,044,52,4 Other taxes429,2474,3471,6-2,70,70,6 Social contributions8 251,68 634,79 065,1430,412,512,7 Property revenues812,6854,11 007,2153,01,21,4 Dividends + interest628,0648,0834,6186,50,91,2 Grants and transfers1 374,21 800,61 713,2-87,42,62,4 from which EU653,0793,0805,412,41,1 Source: Fiscal council

22. Expenditures of public sector 2 0102 0112 012 Annual change 2012 2 0112 012 mil. Eur%HDP Total expenditures26 328,726 459,526 767,7308,238,337,5 Current expenditures23 940,824 080,024 858,4778,334,8 Employees compensations5 065,34 912,15 013,5101,47,17,0 Intermediate consumption3 200,43 108,03 087,6-20,34,54,3 Subsidies893,5862,8993,5130,71,21,4 Interest expense884,81 084,41 322,1237,71,61,9 Social benefits9 315,59 363,89 789,6425,813,513,7 Health care system3 481,93 392,93 501,5108,64,9 Capital expenditures2 387,92 379,51 909,4-470,13,42,7 Capital investments1 680,91 462,81 326,1-136,62,11,9 Deficit-5 047,0-3 497,7-3 106,9390,8-5,1-4,3 Source: Fiscal council

23. Primary balance EU 2012

24. 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

25. 2013 Budget Tax measures II. Pillar Banks Frozen expenditures

26. In thousands EUR As of 31.07.2012 As of 31.07.2013 Annually State budget revenues6 287 2186 174 076-113 142 State budget expenditures8 525 7297 799 715-726 014 Debt service1 082 229849 873-232 356 EU expenditures786 859661 209-125 650 Co- financing162 411130 093-32 318 Contributions to the EU, including reserves 410 302509 79899 496 Transfer to Social Insurance Agency 890 000420 913-469 087 Other expenditures of state budget 5 193 9285 227 82933 901 Deficit of state budget-2 238 511-1 625 639612 872

27. Tax Revenues Forecasts Tax revenues in ths. EurRealityForecast 201120122013201420152016 Direct taxes3 533 4613 663 1973 934 7364 060 2184 314 7424 617 576 Indirect taxes (VAT, Petrol, Tabacco..)6 709 3626 295 4866 189 3006 264 8916 180 6576 406 982 International trade taxes38 73930 75927 00027 54028 09022 920 Local taxes572 719615 885632 160652 857674 235696 318 Bank taxes0169 922206 136154 602103 068 Public Broadcasting tax73 91772 37571 51170 72470 08869 597 Social Contributions4 592 5414 848 7455 632 0925 546 6135 783 1686 047 053 -II. Pillar transfer044 234239 701000 Health Contributrions2 385 2682 426 3352 590 6472 693 1142 818 9662 958 786 Tax and contributions revenues17 956 064,018 159 80919 379 99219 472 10019 974 55520 923 841 Tax Revenues growth nominal0,5%2,6%4,8% GDP Nominal growth4,4%4,8%5,4% Source: Fiscal council, IFP

28. Tax Property, not Activity?

29. Fiscal responsibility Overall situation Sanctions Municipalities Expenditures ceiling State companies

30. National Rules Constitutional 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 rules Stability 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

31. 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 expenditures by 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.

32. 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

33. Debt brake in time

34. When will we have debt over 57%? Debt in bln. EurGDP nominal Debt to GDP 2013*40431,072 600,055,7% 2014*43622,077 500,056,3% 2015*46319,081 700,056,69% 2016*48204,086 300,055,9% Source: Fiscal council, 2013 updated

35. 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

36. 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)

37. Policy papers Decrease Minimum wage to 1 € Monitoring of Structural funds Investment subsidies

38. Q & A ?

39. Resources Ministry of Finance (IFP) Macro, TaxesMacroTaxes Fiscal council Statistical office

40. Radovan Ďurana www.iness.sk radovan.durana@iness.sk +421915540395