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ECONOMIC ISSUES
FISCAL DEVELOPMENT AND POLICY
Maja Bednaš
IMAD
Ljubljana, 19th June 2012
General government deficit in the majority of the EU countries
lower in 2011
General government deficit, (change in 2011, p.p. of GDP)
10.0
18,1
8.0
p.p. of GDP
6.0
4.0
2.0
0.0
-2.0
Source: Eurostat.
Source: Bloomberg
Jun/12
May/12
Apr/12
Italy
Mar/12
Feb/12
Jan/12
Spain
Dec/11
Nov/11
Oct/11
Sep/11
Slovenia
Aug/11
Jul/11
Jun/11
May/11
Apr/11
Mar/11
Feb/11
Jan/11
Yield-to-maturity of 10y treasury bonds - spread on German bonds
10-year bond yield spreads, relative to German bonds, in p.p.
France
6
5
4
3
2
1
0
No consolidation in Slovenia until 2012
EMU
Slovenia
0
-1
% GDP
-2
-3
-4
-5
-6
-7
2008
2009
Vir: SORS, Eurostat, Stability Programme 2012, Spring forecast 2012 EC
2010
2011
2012* fc
Expenditure growth in 2011
8,000
7,000
6,000
EUR mn
5,000
4,000
3,000
2,000
1,000
0
Compensation of
employees
Intermediate
consumption
Social payments Other expenditure Gross fixed capital
formation
2010
Source: SORS
2011
Interest
expenditure
Subsidies
Structural deficit has already been high in the pre-crisis period
Cyclical balance
One off expenditure
General government deficit
-6
-8
-8
Source: SORS, calc. IMAD.
2011
-6
2010
-4
2009
-4
2008
-2
2007
-2
2006
0
2005
0
2004
2
2003
2
2002
4
2001
4
2000
% GDP
Structural balance
General government debt increase in Slovenia the sixth largest
since 2008
180
160
140
120
% GDP
100
80
60
40
20
2008
Source: Eurostat.
2011-2008
EE
BUL
LUX
RO
SE
LV
CZ
LT
SK
DK
Slovenia
F
PL
NL
ES
CY
MT
A
H
D
EU-27
UK
F
B
P
IE
EMU-17
-20
I
EL
0
Consolidation in 2012 - substantial fiscal effort supported by
agreed measures defined by the law (credibility)
Budget expenditure (cash flow)
General governement expenditure
ESA95
9,400
18,500
9,300
18,000
9,200
9,100
EUR mn
EUR mn
17,500
9,000
17,000
16,500
8,900
16,000
8,800
15,500
2008 2009 2010 2011 2012 2013 2014
8,700
2009
2010
Source: Ministry of Finance.
2011
2012
2013
2014
Consolidation in Stability programmes 2011 and 2012
SP 2011
SP 2012
0.0
-1.0
% GDP
-2.0
-3.0
-4.0
-5.0
-6.0
-7.0
2011
2012
Source: Stability Programme 2011, Stability Programme 2012.
2013
2014
Consolidation measures in SP 2012
SP 2012 cuts in expenditure (2014
compared to 2011), as p.p. of GDP
Three sets of measures
1.0
•
Rationalising
operations
public
sector
Limiting investments, subsidies
and programmes
0.5
change in p.p. of GDP
•
0.0
-0.5
-1.0
Source: Stability Programme 2012
Property income, payable
Subsidies
Gross fixed capital formation
Intermediate consumption
Compensaton of employees
-1.5
Other expenditure
Adjusting labour market and
social security policies
Social payments
•
Interest expenditure – crowding out
1,200
2.7
Interest expenditure
Interest xpenditure, % of total expenditure
Increase per year
6.0
2.4
as % of GDP, rhs
5.6
1,000
5.5
5.7
5.2
2.1
5.0
1.8
1.5
600
1.2
as % of GDP
EUR mn
800
3.8
4.0
3.1
3.0
3.3
3.0
2.7
2.5
400
0.9
2.0
0.6
200
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
0.3
1.0
0.0
0.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Stability Programme 2012.
Age related expenditure
pension expenditure
health care
long-term care
education
35
5.0
30
4.6
as % of GDP
25
20
4.8
4.7
4.7
1.4
2.8
3.0
7.2
7.2
17.9
18.3
2050
2060
2.4
4.9
1.9
1.7
5.2
7.0
1.6
6.8
15
6.1
6.3
6.4
10
15.8
5
0
11.2
11.8
12.2
13.3
2010
2015
2020
2030
Source: Ageing Report 2012, EC 2012
2040
Challenges to consolidation
•
Positive side
•
adopted and agreed measures
•
nominal decline in expenditure in 2012 and 2013
•
•
Risks
consolidation partly relies on temporary (intervention) measures
•
(all) measures are not clearly defined, especially for the period
beyond 2013
•
growing expenditure on interest is crowding out more flexible
development expenditure
The scope for increasing the tax burden is limited
To speed up consolidation, it makes sense to raise certain indirect taxes and
broaden the tax base:
•
higher taxes on labour and capital would have an adverse impact on
economic activity and competitiveness - tax policy in these fields must
focus on improving the tax capacity by preserving the current tax
rates and broadening the tax base
•
the scope for raising consumption taxes is also limited. Possibilities: to
raise excise duties on products with relatively low elasticity of demand
(alcohol, tobbaco), property and environmental taxes
•
increase of VAT tax rate is estimated to have relatively smaller dverse
effects on economic growth, BUT it is crucial to avoid a spillover of
higher tax rates into the growth of wages and transfers through
adjustment to inflation
Further sistemic changes are needed for sustainable
consolidation
Substantial fiscal effort will be needed to realise the planned
consolidation, including further systemic changes
•
creation of a system that will allow for greater flexibility in wages and
hiring
•
consistent implementation of measures to improve the efficiency of the
public sector
•
improving the efficiency and effectiveness of development
expenditure as indicated in SP 2012 - positive impact on competitiveness
•
maintaining the long-term sustainability of the public finances:
pension, health care and long-term care reforms