Slovakia’s next government is committed to narrowing the budget deficit to below the European Union’s ceiling of 3 percent of economic output in 2013 by taxing the rich and companies, Premier-elect Robert Fico said.
The second-poorest euro-area nation needs to find about 1 billion euros ($1.32 billion) in savings and additional tax revenue to meet the goal, Fico said today. As much as one-half of the amount may come from tax increases, he said.
“This is a goal that must be met,” he said in an interview in the Slovak capital, Bratislava, adding it will “be done in a way that will protect” the country’s poorest citizens.
Fico, whose Smer party won March 10 elections with a majority in parliament, seeks to balance out campaign pledges to boost living standards for poorer Slovaks with a need to improve public finances to distance the eastern euro nation from ailing peripheral peers. The European Commission will probably later this year ask the country to adopt more measures to ensure that the fiscal shortfall narrows, he said.
Moody’s Investors Service and Standard & Poor’s earlier this year cut Slovakia’s credit rating one level to A2 and A, respectively, citing a worsening fiscal outlook and concern over the euro area’s debt woes. Slovak bond yields and credit-default swap prices have since fallen, mirroring moves in its euro-sharing peers, on optimism the crisis can be contained.
‘Protect the Euro’
Slovakia has benefitted from the euro adoption in 2009 and his administration will therefore be pro-European and support all measures to “protect the euro,” Fico said, adding he’s “quite optimistic” about the future of the euro area as the measures undertaken so far to fight the bloc’s sovereign-debt crisis have brought relief.
The caretaker government of Iveta Radicova, in power until Fico takes office, targets a budget deficit of 4.6 percent of GDP in 2012, down from 5 percent last year. The goal is realistic as the economy will probably expand 2.3 percent this year compared with a forecast for 1.7 percent, on which the spending plan is based, outgoing Finance Minister Ivan Miklos has said.
To help reach the deficit target next year, the government will end the current flat-tax system and implement levies on higher-income earners, luxury goods and the most-profitable companies, including banks, Fico said. The administration also plans to support economic growth with infrastructure projects carried out in tandem with private companies, he said.
The Slovak benchmark 4 percent 2020 bond traded at a yield of 3.906 percent, or 2.29 percentage points more than German bunds with similar maturity. The spread has narrowed from this year’s high of 3.76 percentage points on Jan. 16.
The cost of insuring against Slovak default for five years using credit-default swaps has fallen 99 basis points this year to 220 basis points today.