Slovak Lawmakers Back Pension Change to Narrow Budget Deficit

Slovakia’s parliament approved changes to the pension system designed to help trim the budget deficit below the European Union limit next year.

Lawmakers today in Bratislava, the Slovak capital, voted to cut the amount of pension contributions channeled to private asset managers to 4 percent of wages from the current 9 percent. The change will boost annual revenue of the state-run welfare system by about 500 million euros ($614 million), the Labor Ministry estimated.

“The move will help address immediate fiscal needs, but it hurts sustainability of the pension system in a long run,” said Juraj Valachy, an economist at Tatra Banka AS (TAT) in Bratislava. “The government is aware that these days investors don’t tolerate any budget overshooting and the pension change with other measures already approved or in the pipeline should be enough to meet the budget targets.”

Prime Minister Robert Fico is seeking to insulate the country, which adopted the euro in 2009, from the euro region’s debt crisis at a time when the economy is slowing. The measure is a key element of the government’s plan to garner about 2 billion euros in spending cuts and additional revenue by next year to cut the budget deficit below the EU limit of 3 percent of gross domestic product.

Growth in the export-oriented east European economy is set to slow to 2.5 percent this year from 3.3 percent in 2011 as export demand wanes. By focusing on pension changes and tax increases for companies and wealthy individuals, Fico, in power since April, is seeking to balance the need for austerity measures with his pre-election pledge to insulate most citizens from their impact.

The cut in contributions to private funds takes effect next month as the government strives to ensure that the 2012 deficit target of 4.6 percent of GDP is achieved. Today’s bill also limits annual increases in pensions and automatically extends the retirement age to reflect rising life expectancy.

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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