Slovak Coalition Backs Austerity Package Including Temporary VAT Increase
Slovak coalition leaders approved an austerity package, including a temporary increase in value-added tax by one percentage point, as the eastern European country seeks to more than halve the budget deficit within three years.
The leaders of the four ruling parties agreed to raise the value-added tax rate for most goods and services to 20 percent from the current 19 percent, Prime Minister Iveta Radicova said late yesterday.
The measure is part of a package that seeks to cut the fiscal shortfall by 1.7 billion euros ($2.2 billion) next year through a combination of spending cuts and revenue-boosting measures.
The new Slovak administration, in power since July, wants to reduce the shortfall from a projected 7.8 percent of gross domestic product this year below the European Union’s limit of three percent of GDP by 2013. At the same time, the government wants to minimize the impact of the austerity package on the economy, which is set to resume growing after slipping into its first-ever recession last year.
“We need to make savings through means that won’t halt the economy,” Radicova said after meeting with her coalition partners in the Slovak capital of Bratislava.
The administration wants to raise about 800 million euros in extra revenue from next year. The increase in VAT, which will be effective only until the fiscal gap narrows back to the EU limit, is forecast to bring about one-fifth of this amount. The rest will be fetched mostly from higher excise taxes on cigarettes and beer and removing breaks for payment of taxes and social-security contributions.
Another 900 million euros will be saved by a 10 percent cut in expenditures, more effective procurement and changes to the pension system, Radicova said.
To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net.
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