RRZ: Public Spending to Be Record High Next Year, Almost 50 percent of GDP

Bratislava, September 24 (TASR) - After the approval of the prepared consolidation package, Slovakia will have the highest ratio of public income to gross domestic product (GDP) in the history of the independent Slovakia next year, equalling 45.2 percent of GDP, the Budgetary Responsibility Council (RRZ) noted on Tuesday (23 September) based on current estimates. With a deficit projected at over 4 percent of GDP, this means that expenditures in proportion to GDP will also reach the highest level in 25 years, even if the declared savings are made. "State spending has grown so rapidly over the past two decades that it's already approaching 50 percent of GDP, although revenues aren't high enough to cover it and despite repeated consolidation packages that have increased state revenues to an all-time high," warned the council. RRZ quantified that public spending in all areas of public administration increased by more than 13 percent of GDP when compared to 2007. It ascribed almost half (6 percent of GDP) of this increase to the growth in social transfers, mainly old-age pensions and family allowances. Investments accounted for mere one fifth of the increase. "In addition to the legislation that is being adopted, the main reason for the growth in the ratio of expenditures to GDP is their rigidity, i.e. the weak ability to adapt to current economic developments. While budgetary revenues naturally react to the economy's performance, the weight of expenditures increases sharply during crises due to their inflexibility," explained RRZ, adding that lower than originally expected economic growth in a post-crisis period causes expenditures to remain at permanently higher levels. ko/df