Report on the Long-Term Sustainability of Public Finances
One of the core tasks of the Council for Budget Responsibility is to draw up and publish its long-term sustainability report, including a baseline scenario and determination of the long-term sustainability indicator.
The purpose of the report is to evaluate the situation in public finances within the context of long-term sustainability, taking into particular account the positive and negative impacts which the adopted legislative measures and other polices may have on the sustainability of public finances.
The most important areas where it makes sense to consider long-term impacts on public finances include, in particular:
- Pension systems and healthcare, the development of which largely depends on demographic changes (population ageing)
- Major expenditure programmes which typically span beyond one year and where it is therefore necessary, whenever new projects are launched, to consider their consequences over a longer time horizon (e.g. repayment of PPP projects)
- Contingent liabilities which constitute potential risks for public finances and whose discharge is contingent on whether or not certain events occur (e.g. a lost court case)
- Macroeconomic shocks (cyclical fluctuations, financial contagion, etc.) which may change the fiscal position of a given country quite significantly (e.g. as a consequence of fragile or narrowly defined tax bases)
Publication of the report:
The CBR draws up and publishes the long-term sustainability report, including the baseline scenario and determination of the long-term sustainability indicator,
- annually, as of 30 April, and
- always within 30 days of the parliamentary debate on the Government Manifesto and the vote of confidence in the government
The CBR must submit the first report within six months of the election of all Council members, i.e., in December 2012.
A more detailed description of the methodology of calculations and the assumptions used in the long-term sustainability analysis can be found in Discussion Paper 1/2012: “How to evaluate long-term sustainability of public finances.”
Definition of basic terms:
1. Definition of the long-term sustainability of public finances
“...means such a fiscal performance of the Slovak Republic under which the general government balance and the general government debt ensure that no change, anticipated or not, in the general government revenues and expenditures under the baseline scenario brings the general government debt above the upper limit in the nearest 50 years...”
2. Long-term sustainability indicator
“...means a difference between the actual value and the long-term sustainable value of the structural primary balance, expressed as a percentage of gross domestic product.”
3. Baseline scenario
“... means a scenario where public finance development is determined by the policies and legislation in force at the time (assuming that neither the government nor parliament adopt new measures) and is driven solely by macroeconomic and demographic factors.”
Report on the Long-term Sustainability of Public Finances (04/2016)
The long-term sustainability of public finances remained unchanged in 2015 and the long-term sustainability indicator reached 1.4 % of GDP. The starting position contributed negatively to sustainability due to the worse year-on-year fiscal performance of the general government. Save for the introduction of the minimum old-age pension, the long-term projections of the revenues and expenditures sensitive to demographic changes remained basically unchanged. The indicator was positively influenced by budget development in the medium term under a no-policy-change (NPC) assumption. The present macroeconomic outlook creates a margin for deficit reduction without government interventions by 1.1 % of GDP by 2019. If the government does not use that margin and keeps the expenditure-to-GDP ratio flat, the indicator will rise to 2.4 % of GDP. On the other hand, the attainment of a balanced to surplus budget in 20191 would bring public finances significantly close to the long-term sustainability. However, such development is contingent on the government’s ability to recast the improved fiscal performance into debt reduction.
Report on the Long-term Sustainability of Public Finances (04/2015)
In contrast to the two preceding years, Slovakia’s long-term sustainability of public finances in 2014 deteriorated. The main reason lies in the worse starting position, which was due to the year-on-year increase in general government deficit, even if adjusted for temporary effects. Long-term projections of the revenues and expenditures sensitive to demographic changes have not changed significantly. The fiscal policy easing worsened the long-term sustainability indicator, from 1.9 % of GDP in 2013 to 2.4 % of GDP last year. The change in the indicator already reflects the amendments in the tax legislation effective as of 2015; without them, the deterioration would have been worse.
Report on the Long-term Sustainability of Public Finances (04/2014)
The year 2013 was yet another year of improvement in the long-term sustainability of public finances in Slovakia. This was mainly due to the reduction of general government deficit compared to 2012, even after adjustment for temporary effects. The consolidation, along with the reform of the pension scheme of the armed forces and police corps, improved the long-term sustainability indicator last year to 3 % of GDP against 4 % of GDP in 2012.
Report on the Long-term Sustainability of Public Finances (04/2013)
On the whole, the changes adopted in the pension system’s pay-as-you-go pillar, as well as the 2011-2012 reduction in general government deficit, improved Slovakia’s long-term sustainability of public finances quite significantly. If Slovakia’s public debt is to remain below the upper limit set by the Fiscal Responsibility Act in the following 50 years, the public finance balance will have to improve by 4.3% of GDP (i.e. 2.7% less than in 2011) through a combination of permanent revenue- and expenditure-side measures.
Report on the Long-term Sustainability of Public Finances (12/2012)
The objective of the Report on the Long-term Sustainability of Public Finances of the Slovak Republic is to evaluate, in quantitative terms, the extent to which current fiscal burdens are passed on to future generations, and assess the risks stemming from the population ageing phenomenon in Slovakia.