Slovak Lawmakers Pass Budget as Economy Outlook Remains Risky

Slovak lawmakers backed the 2013 budget that hinges on one of the fastest economic growth rates in the euro area to meet a commitment to trim the fiscal gap to below the European Union limit.

The spending plan, approved in a 82-64 vote today, targets a deficit of 2.94 percent of gross domestic product, below the EU’s 3 percent ceiling. Lawmakers in Slovak capital Bratislava voted on a reworked version of the budget compared with a document originally submitted by Prime Minister Robert Fico’s Cabinet, which has incorporated an increasingly worsening outlook for tax collection.

The budget is based on an assumption of economic growth slowing to 2.1 percent from 2.5 percent expected this year. The projected pace, 0.1 percentage point quicker than the European Commission’s estimate, still makes Slovakia one of the fastest-growing nations in the euro-region, which as a whole is set to advance 0.1 percent in 2013.

Slovakia, a euro-area member since 2009, is striving to improve its public finances to prevent contagion from the bloc’s sovereign-debt crisis even as the slowing economy is reducing tax receipts. The reworked budget, which assumes dissolution of a reserve previously considered to cover an unexpected shortfall in revenue, remains prone to western Europe’s economy, Finance Minister Peter Kazimir said during the debate.

The government of the euro-area’s second-poorest country has focused on tax increases for the best earners and companies as well as a pension overhaul to narrow the fiscal gap. Fico has refrained from raising value-added tax, in line with his pledge to minimize the impact of austerity measures.

Slovakia last managed to keep budget gap below the EU’s ceiling in 2008 as it was preparing to adopt the euro next year. The projected deficit compares with a planned shortfall of 4.6 percent of GDP this year, which Kazimir has said may be “slightly” overshot.

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