Matovič boasted about the debt graph. A wave of criticism immediately arose, is it justified? – People – Economy
This week, the European Statistical Office (Eurostat) published the state of public debts of the member countries of the European Union. It follows that Slovakia’s gross debt fell below 60 percent of gross domestic product in the third quarter of 2022.
As recently as 2021, it was at the level of 62.2 percent, which was the highest in the entire history of Slovakia. Even after a slight decrease, our national debt is in the zone of high risk. Former finance minister Igor Matovič (OĽaNO) immediately caught hold of the European public debt statistics.
He boasted that despite the criticism that the country was in debt, the truth is completely different. In his status, he describes how, during his tenure at the Ministry of Finance, he was able to lend 12 euros on the financial markets at zero percent interest. “Last year, we paid off old debts from the reserve, so our gross debt decreased for the whole year. In addition, with this operation, we saved Slovakia approximately 4 billion euros, as interest rates have risen significantly in the meantime,” he wrote on the social network.
The national debt decreased in 2022, that’s a fact. It remains questionable what caused this decline. The head of the financial committee, Marián Viskupič (SaS), responded that it was just a game with numbers. According to him, the government is not entitled to credit for its good management or good measures or increased efficiency.
According to Viskupič, the fact that Slovakia’s national debt has fallen in cash terms is mainly due to mathematics and high inflation. “The result is that the relative debt as a percentage of GDP has decreased,” explained the opposition MP.
Eugen Jurzyca, MEP for SaS, also contributed to the discussion on the decrease of the national debt in 2022. He points out that inflation has helped reduce the share of public debt to GDP in almost all member countries of the union. The same phenomenon as in Slovakia was seen in most EU economies. In other words, Matovič has nothing to brag about.
Long energy support
Inflation helped the government significantly in 2022, because the debt did not grow. In simple terms, we can say that the inflationary shock was not only favorable to people’s family budgets, but also helped to reduce the public debt in Slovakia, for example.
INESS analyst Radovan Ďurana to ensure that the government paid only the minimum at the end of last year, or did not pay any energy compensation. “This means that the debt for the energy crisis has not yet grown, but it will grow next year,” he claims for Pravda.
As you further need, nothing will be achieved that public finances suffer from a high risk of unsustainability. There is also nothing to be gained from the fact that in recent years the debt has reached the zone with the highest sanctions of the long brake. There is therefore a risk that next year the government will deal with a balanced budget. However, this is currently being confirmed. On Wednesday, the government discussed material that talks about the next steps the state must take for the health of public finances.
Sanctions are activated
Three sanction measures will be activated before this year’s summer. use is high public debt. The first measure is the submission of the future balanced budget. The second is a three percent cut in spending already in the current year, and the third is a vote of confidence in the government. The third point will not be applied due to the nature of the matter, since the government is currently in resignation.
The State Secretary of the Department of Finance, Marcel Klimek, announced after the government’s meeting that at the beginning of May, they will begin binding three percent of expenses. That is roughly three quarters of a billion euros. “It’s a lot of money, but we will always respect and follow the law. We are ready to do so that it does not endanger the state’s operation,” said Klimek on the margin of spending cuts.
The bigger problem is that the Ministry of Finance will have to support the sanctioning mechanism to prepare the future balanced budget. “It is bordering on unreal that Slovakia will manage with a balanced budget next year,” he said. He reminded that it must be submitted for government approval by October 15. According to him, the new government will either amend or even not approve a balanced budget.
Public debt in 2021 reached 62.2 percent of GDP and was the highest in the history of Slovakia. At the same time, he reached the highest sanctioning range of the Act on Budgetary Responsibility. There should be the strictest debt brake sanctions. However, it does not apply during the first 24 months after the approval of the government’s program statement, which was in May 2021. Since the government coalition failed to amend the constitutional law on budget responsibility, the most severe sanctions were moved to May this year.
Why is the public debt the highest in history and did the sanctions have to be activated? The current government, as well as the previous government, has butter on its head. “The current level of asset indebtedness, the most severe debt brake sanctions, is not only the result of the pandemic, but also the development of public finances in the last ten years, characterized by little active deficit reduction in the period of economic growth,” the Ministry of Finance in its material, which was approved by the government on Wednesday.
The main increase in the increase in indebtedness in the recent period is the pandemic. This required spending on direct aid in the fight against the coronavirus in a total volume of almost five percent of GDP. On the other hand, the previous government failed to create surpluses or balanced budgets during the years of prosperity, i.e. 2012 to 2019. For example, Germany was able to create budget surpluses in the past. And that’s why they can now be used in large numbers to help in times of crisis. “Therefore, Slovakia ranks among the five countries with the worst results in reducing the primary deficit in the EU, while another 22 countries managed a primary surplus in the period from 2012 to 2019,” reads the material of the Ministry of Finance.
If we don’t save, we will go into debt quickly
The government material also shows the long-term gross debt forecast. In the case of additional consolidation measures, there has been an increase in GDP debt towards 95 percent by 2040. Governments will thus have to take measures on the income or expenditure side. In other words, without saving or increasing taxes, Slovakia’s indebtedness will start to rise again and in 2039 it will exceed 90 percent of GDP. The good news is that the debt-to-GDP ratio will continue to decline until 2025.
Measures have been approved in the parliament or are currently being submitted for discussion, which aim to increase the revenues of the public administration budget by three quarters of a billion euros as early as 2023. These are, for example, a law on a special levy on business in regulated industries, an increase in alcohol consumption taxes, solidarity contribution, tax on special construction or tax on excess profits in the energy sector.