Slovak Fiscal Gap May Have Surpassed EU Limit on New Rule

Slovakia’s budget deficit may have exceeded the European Union limit last year once recalculated under new methodology, prompting the government to defer cuts in value-added tax to meet its fiscal goal, Finance Minister Peter Kazimir said.

Eurostat, the EU’s statistical office, reported today that the euro-area member’s fiscal shortfall reached 2.77 percent of gross domestic product in 2013, the first shortfall below the bloc’s 3 percent limit in five years. Still, the so-called second notification, using new ESA2010 methodology, may show the gap to be above the ceiling, Kazimir told journalists in Bratislava, Slovakia, today.

“We don’t know what the number will be,” Kazimir said. “There are some factors, which will have a negative effect as well as factors with positive effects.”

Prime Minister Robert Fico’s administration is striving to continue reducing the budget deficit to differentiate Slovakia from ailing members of the euro bloc. The country plans to cut the shortfall, which ballooned to 8 percent of GDP during the 2009 recession, to 2.6 percent of GDP this year and 2.5 percent in 2015.

The 2013 deficit may swell as the new rules won’t take into effect the partial transfer of private pension savings into the state-run system, worth 0.3 percent of GDP, Kazimir said. The cabinet may thus defer the plan to cut the standard value-added tax rate by 1 percentage point to 19 percent, he said.

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