BRATISLAVA, October 4, (WEBNOVINY) — A cap on public debt to be enshrined in the Constitution of the Slovak Republic is taking realistic contours. Experts of all parliamentary parties unveiled the first draft constitution amendment on fiscal responsibility that is to set the cap at 60 percent of GDP, with a gradual decrease by 1 percentage point annually as of 2018, to 50 percent of GDP. Lawmakers submitted the paper for a public debate slated to last a month. Representatives of parliamentary parties do not rule out changes to the blueprint but they declare the readiness to vote for it in Parliament. If enacted, the bill will take effect as of March 2012.
The paper stipulates an automatic sanction mechanism that will be launched already at the debt limit of 50 percent of GDP. The Finance Minister would then be obliged to clarify the increase to MPs and suggest measures to reverse the growth. At 53 percent, the Cabinet would be obliged to pass a package of measures to trim the debt and freeze its wages. At 55 percent, 3-percent binding of expenditures would be launched automatically and next year’s budgetary expenditures, except for co-financing of the EU funds, would be put on ice.
At 57 percent of GDP, the Cabinet would have to table a balanced budget. Should the debt climb to 60 percent of GDP, the Cabinet would have to face a confidence vote in Parliament. The volume of public debt reported by the EU’s Statistical Office Eurostat on an annual basis shall be the key data. Last year, Slovakia’s public debt rose from 35.4 percent of GDP to 41 percent.
Co-author of the draft Ludovit Odor says that these measures are meant mainly as deterrent. In the ideal case, debt would never reach the sanction limits. “The debt brake is in the constitutional amendment so that it is never used. It should, above all, deter,” he said on Tuesday, when presenting the scheme. The paper contains three exemptions when these limits would not apply for a temporary period of 36 months: massive recession, inevitable rescue of the banking sector, and extensive natural disasters.
The draft counts on more measures to upgrade the quality and transparency of Slovakia’s fiscal policy. For instance, an independent Budget Responsibility Council, funded from the central bank’s budget, shall compile reports on long-term sustainability of public finances, fulfillment of fiscal responsibility rules and issue positions over fiscal impact of legislative proposals. Also, it shall evaluate Slovakia’s economic development in terms of public finances.
The strongest opposition party SMER-SD has declared its support for the bill. Party Deputy Chairman Peter Kazimir said that his party would initiate some changes but admitted that the approval of the norm is inevitable. “We speak about a bill that would deserve support of all 150 MPs,” Kazimir observed. In his words, the SMER-SD would like to debate particularly hidden debts. It would be incorrect if a constitutional mechanism encouraging deficit decrease were approved but, on the other hand, it could increase hidden debts in the health system, infrastructure, etc.
SITA