Slovakia Targets Smallest-Ever Budget Gap on Growth, New Taxes

  • Budget deficit set to narrow next year to 1.3 percent of GDP
  • Government targets first-ever budget surplus in 2019

Slovakia’s government approved 2017 budget with the smallest-ever deficit as reviving economic growth and new levies light a fire under revenue.

The shortfall is set to narrow to 1.3 percent of gross domestic product in 2017 from an estimated 2 percent this year, according to the spending plan posted on the government’s website on Wednesday. In cash terms, the central budget deficit is projected at 2 billion euros ($2.2 billion), up from 1.3 billion euros estimated this year.

The expanding economy is allowing the administration of Robert Fico, who started his third term in March, to balance out his promises for more social spending with commitments to fiscal prudence. It also tracks developments in neighboring Hungary and the Czech Republic, where higher revenue has helped squeeze budget deficits to below target.

Slovakia’s Finance Ministry estimated last month that tax revenue would exceed previous projections by about 0.7 percent of GDP annually in the next two years. Rising employment will translate into collecting more in payroll and consumption taxes, while the state is also counting on extended levies for regulated industries and a higher tobacco tax.

The budget shortfall is set to narrow further to 0.4 percent of GDP in 2018, according to the ministry. A year later, Slovakia will post a 0.2 percent of GDP surplus, its first-ever, as car production will begin at a new new Jaguar Land Rover Plc factory and, providing a further boost to economic growth.

The budget, which will be discussed by parliament next month, is based on the assumption of economic growth slowing in 2017 to 3.5 percent from an estimated 3.6 percent this year, average inflation of 0.9 percent and unemployment to 8.5 percent. Finance Minister Peter Kazimir said the assumptions are “very conservative,” because economic growth and job creation may exceed forecasts.

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