Slovak Voters Return Fico to Power on Pledge of Social State

Slovak opposition leader Robert Fico said he would follow through with his vision of a social state that increases subsidies for the poor while supporting Europe’s fight against a debt crisis after winning elections.

Fico, who as premier from 2006 to 2010 oversaw Slovakia’s 2009 euro entry, won 44.4 percent in the balloting yesterday, according to results from the electoral commission. Fico’s Smer party will have 83 of parliament’s 150 seats and may become the first party ever in Slovakia to form a government without a coalition partner.

“We can realize a program of a social state, a program of improving the public finances that won’t be at the cost of people with low and middle incomes,” Fico told reporters in Bratislava. “It’s also a pro-European program. The European Union can lean on Smer in Slovakia.”

Worsening fiscal prospects, aggravated by the country’s dependence on exports to the euro region, led Moody’s Investors Service to cut Slovakia’s credit rating by one level to A1 and impose a negative outlook. Iveta Radicova’s Cabinet fell in October when a coalition party refused to back the euro area’s enhanced rescue mechanism, causing the government to lose a confidence vote. Fico agreed to help approve the European Financial Stability Facility in exchange for early elections.

The extra yield investors demanded to hold a 10-year Slovak government bond over German debt was 210 basis points, or 2.1 percentage points, on March 9, almost a four-month low, according to generic bond indexes compiled by Bloomberg. The spread on debt issues by Poland, the biggest post-communist economy in the EU, was 356 basis points.

‘Stable Government’

President Ivan Gasparovic told reporters today at a news conference that he would like to see a “stable government,” which may include a partner, and will formally ask Smer to form a Cabinet.

Fico is an advocate of a bigger government role in the economy and he said that state investment projects help fuel economic growth. He has said the previous administration ignored the poor, pointing to data such as a 1.6 percent decline in real wages last year.

His party pledged during the campaign to eliminate the flat-tax system with a 19 percent rate that former Finance Minister Ivan Miklos said had helped attract foreign investment projects in the past decade, including factories by and KIA Motors Corp. (000270)

Tax Increases

Fico wants to raise the personal tax rate to 25 percent for income exceeding 33,000 euros ($43,794) a year, increase the corporate tax rate to 22 percent for companies with taxable revenue of more than 30 million euros, and restore a dividend tax, according to the Smer election program.

Smer takes power in a different environment compared with Fico’s first government term six years ago, when the economy grew 8.3 percent and expanded a record 10.5 percent in 2007. The European Commission forecasts Slovak gross domestic product to rise 1.2 percent this year.

The public-finance deficit narrowed to 4.6 percent of GDP in 2011 from 8.1 percent a year earlier, helped by 3.3 percent economic growth. The gap will be 4.9 percent this year and 5 percent in 2013, according to European Commission forecasts from Nov. 10. Fico said his plan to raise revenue to offset any rise in social spending will allow him to stick to Slovakia’s commitment to reduce the gap to less than 3 percent in 2013.

Ruling Alone

Smer ruling alone “would probably bring consolidation focused on sector-specific taxes combined with some spending cuts,” Erste Group Bank AG said in a report on March 8. “Smer would like to avoid raising the value-added tax or hurt low-to- middle income workers, which make up a large base of their voters.”

All four parties in the outgoing Cabinet reached the 5 percent threshold needed to gain entrance to parliament. In the previous election in June 2010, the four grouped together to form a government even though Fico also won the most votes.

Smer’s popularity was helped by the leak of a suspected secret-service file, which suggested corruption ties between businessmen and government officials during the 2002-2006 rule of Mikulas Dzurinda, a foreign minister in the previous Cabinet. His SDKU party received 6.1 percent, while the Christian Democrats had 8.8 percent, the MOST-HID party 6.9 percent and Freedom and Solidarity 5.9 percent.

Public discontent helped Ordinary People, a party established last year, make it to parliament with 8.6 percent. No other party won more than the 5 percent needed to gain entrance to parliament.

“Fico is not so rough around the edges and he doesn’t have as radical a vocabulary as a few years ago,” Grigori Meseznikov, the head of the Institute for Public Affairs in Bratislava, said by phone. “Slovakia is not at a significant crossroad now.”

To contact the reporters on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net; Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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