Weekly Briefing, Vol. 39, No. 2 (Sl), April 2021
The government adopted the 8th Anti-Corona Package, and increased budget expenditures and the deficit by decree
Summary
State budget expenditures will increase by 800 million to 14.3 billion euros in 2021, and the deficit will reach 8.6 percent of GDP. The eighth Anti-Corona Package brought additional mitigation of the consequences of COVID-19 for the economy in the form of 320 million euros in aid.
The deficit in the state budget reached almost 1.3 billion euros in the first three months of this year, which is almost half (47 percent) of the budget planned for the whole of 2021. Measures to mitigate the impact of the epidemic have contributed significantly to this, without which the deficit would have reached 432 million euros in the first three months.
The gap between current budget revenues and expenditures is widening
Due to the large difference between current budget inflows and expenditures – which mainly includes expenditures on salaries – the question of when the government will decide to rebalance this year’s state budget is becoming more relevant. For now, only amendments to the decree on the framework for the preparation of the General State Budget have been prepared for adoption by Parliament, justified by the changed and exceptional circumstances related to the epidemic and the measures taken to contain it. The proposed amendment to the decree increases the target deficit for this year’s state budget from 5.7 to 8.6 percent of GDP, and the largest expenditure amount for the 2021 state budget increases from just over 13.5 to just over 14.3 billion euros. Due to changes in pension legislation, the maximum spending level for the pension fund for 2021 also increases.
The decree will enable the Ministry of Finance to increase the expenditure that can be used exclusively to finance the mitigation measures adopted in the intervention laws. Since the State has funds in its accounts, it will not incur additional debt to finance these measures, but will use only a portion of these funds. Appropriate legal bases for their use are already in place, so there is no need for amending budget at this stage.
Some experts are critical of this, accusing the government of a lack of control over budget expenditures due to a lack of planning. At the same time, they predict either a reduction in rights or an increase in taxes for taxpayers and warn that this year’s revision of the state budget will be necessary sooner or later.
A new, eighth Anti-Corona aid package has come into force
The eighth Anti-Corona Package in the form of €320 million in aid to mitigate the impact of COVID-19 on the economy came into force at the beginning of February.
The Eighth Anti-Corona Package brings, among other things, an extension of the waiting for work subsidy until the end of April, with the possibility of an extension for a further two months, and the transfer of the burden of raising the minimum wage from employers to the shoulders of the state.
The main objective of the law on additional measures to mitigate the consequences of the COVID-19 epidemic is to mitigate and eliminate the consequences and effects of the epidemic on the economy, labor relations, the labor market, social protection and health care. Thus, it is planned to expand some existing measures and introduce some new ones.
Among the main measures is the extension of the measure of waiting for work for the period from February 1 to April 30, with the possibility of extending the measure twice for one month by government decree. The second main measure is to subsidize the minimum wage in the first half of 2021 and in the second half to relieve employers from paying social security contributions for employed workers.
Due to the negative impact of the COVID-19 epidemic and the additional burden of the increase in the minimum wage from January this year, a subsidy of €50 is proposed for employers for the wages of workers whose wages do not reach the minimum wage without allowances. The subsidy is set for work in the months from January to June. The law also determines the proportionality of the subsidy in relation to the scope of the concluded employment contract.
For salaries and wage replacement benefits paid by employers between July and December, the minimum base for the payment of social security contributions will be temporarily reduced from 60 percent of the average wage to the level of the minimum wage. According to the government, this will provide some relief for employers who are already in an unenviable position due to the epidemic, and the increase in the minimum wage would increase their costs. According to the Ministry of Labour, Family, Social Affairs and Equal Opportunities, the first quarter of this year will be comparable to the last quarter of last year due to the still aggravated epidemiological picture, and a more significant economic recovery is not expected until the second half of the year. The package also provides for full coverage of costs incurred by an employer with an employee waiting for work.
The eighth Anti-Corona Package also eliminates inequality between workers who received a payment for business performance or part of that payment in December and were therefore not entitled to the crisis allowance. Thus, although they worked in that month, they were in a different position from those who received business performance payment in other months, such as January.
The amendment is meant to strictly adhere to the purpose of crisis allowance. In addition to the December salary, the crisis allowance from the 7th Anti-Corona Package in the amount of EUR 200 is provided for employees who continue to work during the epidemic and whose last monthly salary did not exceed two minimum wages.
Proposed measures at Eighth Anti-Corona Package include a solidarity allowance for recipients of disability insurance benefits who work part-time, war veterans and persons with disabilities under the law governing social integration of persons with disabilities, a one-time solidarity allowance for students over 18 years of age and a solidarity allowance for students with permanent residence in Slovenia who study at a foreign higher education institution in the academic year 2020/2021.
IMF still forecasts 3.7% growth for Slovenia
The International Monetary Fund (IMF) has published the latest economic forecasts for the global economy. The forecast for Slovenia has not been changed, with economic growth of 3.7% predicted for this year and 4.5% for next year.
The forecast economic growth for Slovenia thus remains the same as in mid-March, when the head of the mission for Slovenia at the IMF, Bernardin Akitoby, announced a reduced forecast of economic growth at the end of consultations with stakeholders. Instead of a 5.2% increase in GDP, he projected 3.7% at that time.
According to the IMF’s forecasts, the Slovenian economy will only return to pre-Corona levels towards the end of 2022. At the same time, Akitoby pointed to the risks that could slow down the recovery, such as the resurgence of the COVID-19 epidemic due to new versions of the virus, delays or difficulties in the vaccination campaign and turmoil in international financial markets.
A key feature of the recovery from the COVID-19 epidemic is that it is indeed uneven as it relates to the size of the financial packages. In the US in particular, they seem to be accepting really large-scale aid packages. There has also been a big acceleration of investment in China. At the EU level, several packages are also already being implemented, but a large part of the measures will only be implemented in the coming years.
Another important element for the recovery is the structure of the economy. In particular, those economies in the Union with a higher share of services and tourism, especially the Mediterranean countries, are more affected. Among them are also some large countries. As far as Slovenia is concerned, the decline in GDP was smaller than the average for the EU and the euro area, reinforced mainly by the sharp fall in activity in Spain, France, Portugal and Austria. However, there are more countries where the decline in GDP last year was smaller than in Slovenia.
Conclusions
Since the end of November last year, when MPs approved the amended budget for 2021, the macroeconomic situation and the macroeconomic forecast for 2021 have changed significantly due to the new wave of the epidemic and the restrictive mitigation measures. As a result, deficits are also increasing, which according to current projections will continue for at least another three years.
In this year’s budget, expenditure on wages and transfers for households has increased the most. Up to and including April 8, more than one billion 329 million euros have been spent on wages and salaries, which is 37 percent of the expenditure planned for this purpose this year. It is on wages that the reward system is problematic. It would therefore be wise to differentiate between crisis expenditure and all other spending.
With regard to future recovery procedures, both the IMF and the OECD point out that the withdrawal of measures must be very gradual and well-considered when there are sufficiently strong signs of recovery in individual areas. Otherwise, the full impact that the measures have had in this good year may be nullified. If measures are allowed to expire prematurely, companies could face bankruptcy even though they had the opportunity to recover.