The recently approved consolidation package for the coming years improves Slovakia’s economic prospects in the long term, even if it temporarily slows down economic growth. The Slovak economy will be most affected by consolidation in 2026, and its positive influence will become more apparent in the following years. This is assumed by the Council for Budget Responsibility (RRZ) in the current detailed evaluation of the package.
She pointed out that the extent and timing of the effects of consolidation on the real economy results from the structure of the package with a focus on the income side. Unlike the increased value added tax (VAT), the increase in corporate taxes will be felt mainly after 2025.
“As a result, the economy will be most affected by consolidation in 2026, when its growth will be 0.65 percentage points (bps) weaker than expected without consolidation. The cause will be a significant increase in corporate taxes, which account for more than 40% of the entire package, and which will have a negative impact on investment attractiveness, the competitiveness of the economy, the labor market and inflation,” explained RRZ.
On the contrary, in the years 2027 and 2028, according to the council, the positive consequence of consolidation, which is the expected lower risk premium of government bonds, will begin to manifest itself to a greater extent. This will help in faster economic growth in 2028 compared to the situation without consolidation. “The benefit of a permanently lower risk premium for investment activity and the growth potential of the economy will outweigh the losses due to increased corporate taxes in later years. Thanks to this, the economy will grow up to 0.25 percentage points faster than expected without consolidation, and households will be able to maintain their standard of living and level of consumption,” explained RRZ.
She reminded that Slovak public finances are in a high-risk zone, and without consolidation measures, deficits would remain at the level of 5 to 6% of gross domestic product (GDP) in the coming years. In that case, the debt of the public administration could approach 70% of GDP at the end of 2028. “This state of affairs is not sustainable, and the RRZ welcomed, after years of consolidation postponements, the introduction of measures that should start the process of public finance recovery. Considering the scope of the necessary consolidation, this is only the first step, while additional measures will have to follow in the coming years, beyond those already presented,” the council announced.
In its current assessment, it estimates that the approved package of measures could lead to an improvement of the public administration balance by 1.5% of GDP or 2.1 billion euros next year. In the following years, the impact of the measures themselves will slightly decrease to 1.3% of GDP in 2028, but together with the positive impact of the reduction of interest costs at the level of 0.2% of GDP, the deficit will also improve by 1.5% of GDP. The adopted measures will reduce the gross debt at the end of 2028 by 5.9 pp
According to RRZ, the long-term sustainability of public finances, which today is significantly in the zone of high risk, can be improved by 1.3% of GDP. However, the Budget Council also drew attention to the risks resulting from additional adjustments to the consolidation package. They are related, for example, to legislation on tax on financial transactions.
