RRZ proposes to harmonize debt brake sanctions with spending limits
15. mark 2023
The Council for Budget Responsibility (RRZ) proposes to align debt brake sanctions with the recently adopted spending limits. Despite the fact that the draft amendment to the constitutional law was submitted to the parliament two years ago, the deputies have not yet approved it. The current state of public finances following the corona crisis and the energy crisis, especially the level and development of public debt and the high risk of long-term sustainability, require a change in the approach to the management of public finances, including the consistent application of spending limits. This would mean measures for 356 mil. EUR in 2024 and 926 mil. euros in 2025.
In response to exceeding the second limit of the debt brake, the government submitted to the National Council the material Justification of the amount of public debt of the Slovak Republic and a proposal for measures to reduce it. The submission of draft measures is mandated by the Constitutional Act on Budgetary Responsibility, which defines the obligations in case of exceeding the individual penalty zones of the debt brake. For the year 2021, the value of the second sanction zone of the debt brake, from which the obligation to submit a draft of measures follows, was set at the level of 49% of GDP. The public debt of Slovakia reached the level of 62.2% of GDP in 2021, which significantly exceeds not only the second limit of the debt brake, but also its highest limit of 56% of GDP.
According to the assessment of the RRZ, the proposal contains only a minimum number of specific measures to reduce the debt for the years 2024 to 2025. Specifically, it contains measures with the potential to improve the deficit of public finances in the range of tenths of a percent of GDP, while according to the RRZ, consolidation measures are needed in the long term to stabilize the public debt in the long term 5% of GDP. For the real fulfillment of the purpose of the constitutional law on budgetary responsibility, it is necessary for the government to present proposals for measures in a sufficient range. There is thus a lack of a credible consolidation strategy for the post-crisis period from 2024.
The RRZ also states that submitting the material only at the beginning of 2023, with the parliament discussing it only in March, i.e. almost a year following Eurostat’s notification, and without the necessary scope of measures, is an unjustified delay. “Only the formal fulfillment of the provisions of the Constitutional Law on Budgetary Responsibility, without their substantive fulfillment, will lead to a worsening of the stability of public finances, and thus the state’s ability to provide its citizens with promised public services, a deterioration of Slovakia’s position on international financial markets, will increase the costs of future consolidation, and last but not least, it will regarding failure to fulfill the requirements of the Constitutional Act on Budgetary Responsibility,” the council informs.
