economic issues
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ECONOMIC ISSUES. Maja Bednaš IMAD. Ljubljana, 19th June 2012. FISCAL DEVELOPMENT AND POLICY. General government deficit in the majority of the EU countries lower in 2011. Source: Eurostat. 10-year bond yield spreads, relative to German bonds, in p.p. Source: Bloomberg. - PowerPoint PPT PresentationTRANSCRIPT
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ECONOMIC ISSUESFISCAL DEVELOPMENT AND POLICY
Ljubljana, 19th June 2012
Maja Bednaš IMAD
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General government deficit in the majority of the EU countries lower in 2011
Source: Eurostat.
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10-year bond yield spreads, relative to German bonds, in p.p.
Source: Bloomberg
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No consolidation in Slovenia until 2012
Vir: SORS, Eurostat, Stability Programme 2012, Spring forecast 2012 EC
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Expenditure growth in 2011
Source: SORS
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Structural deficit has already been high in the pre-crisis period
Source: SORS, calc. IMAD.
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General government debt increase in Slovenia the sixth largest since 2008
Source: Eurostat.
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Consolidation in 2012 - substantial fiscal effort supported by agreed measures defined by the law (credibility)
Source: Ministry of Finance.
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Consolidation in Stability programmes 2011 and 2012
Source: Stability Programme 2011, Stability Programme 2012.
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Consolidation measures in SP 2012
Source: Stability Programme 2012
Three sets of measures
• Rationalising public sector operations
• Limiting investments, subsidies and programmes
• Adjusting labour market and social security policies
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Interest expenditure – crowding out
Source: Stability Programme 2012.
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Age related expenditure
Source: Ageing Report 2012, EC 2012
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Challenges to consolidation
• Positive side
• adopted and agreed measures • nominal decline in expenditure in 2012 and 2013
• Risks
• consolidation partly relies on temporary (intervention) measures
• (all) measures are not clearly defined, especially for the period beyond 2013
• growing expenditure on interest is crowding out more flexible development expenditure
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The scope for increasing the tax burden is limited
To speed up consolidation, it makes sense to raise certain indirect taxes and broaden the tax base:
• higher taxes on labour and capital would have an adverse impact on economic activity and competitiveness - tax policy in these fields must focus on improving the tax capacity by preserving the current tax rates and broadening the tax base
• the scope for raising consumption taxes is also limited. Possibilities: to raise excise duties on products with relatively low elasticity of demand (alcohol, tobbaco), property and environmental taxes
• increase of VAT tax rate is estimated to have relatively smaller dverse effects on economic growth, BUT it is crucial to avoid a spillover of higher tax rates into the growth of wages and transfers through adjustment to inflation
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Further sistemic changes are needed for sustainable consolidation
Substantial fiscal effort will be needed to realise the planned consolidation, including further systemic changes
• creation of a system that will allow for greater flexibility in wages and hiring
• consistent implementation of measures to improve the efficiency of the public sector
• improving the efficiency and effectiveness of development expenditure as indicated in SP 2012 - positive impact on competitiveness
• maintaining the long-term sustainability of the public finances: pension, health care and long-term care reforms