• Velimir Bole
  • Jože Mencinger
  • Franjo Štiblar
  • Robert Volčjak

Sound Revenues of Public Budgets

Gospodarska gibanja 490

Domestic demand dropped significantly in July, more long-term dynamics became negative. Reduced were all three components of domestic consumption: by government, investments and households. Investments in constructions remained weak; while growth in other construction works had strengthened by inflows of EU funds they declined sharply by the drying-up of these funds. Housing construction which had dwindled by the beginning of the ZUJF, began to recover but failed to reduce the gap with the euro area. Investment in machinery improved in the last two years; investments in transport equipment accelerated even more.

In the seasonally weak August balance of trade was negative again, but the amount of trade exceeded the amount in 2015. By annual growth of exports and imports Slovenia maintains exceptionally favorable position in the EU28.

In September, business climate cooled as it was affected by the lack of trust in the manufacturing sector, while trust in the service sector, retail trade and construction improved. In the EU, the business climate in September compared to the same period last year recovered as a result of more orders in construction and revised expectations in retail trade and manufacturing.

Industrial production in the year on year comparison recovered, even though the activity of its smaller part - mining fell by a quarter. In August compared to July, industrial production in the EU28 and the euro area increased; the most in the Czech Republic and the Netherlands, while it declined the most in Ireland and Finland.

The value of construction works in July compared to June increased, but it was much lower than a year ago; the trend is decreasing. Total number of tourist overnight stays increased considerably in the height of the summer. Good results were produced by domestic and foreign tourists; by the latter much more. In air transport, there were more passengers and more passenger kilometers while in the urban transport there were slightly less passengers. Shipment of goods in the Port of Koper increased.

The situation in the labor market adjusted for the seasonal fluctuations continues to improve which is well reflected by annual data on active and working population as well as by the number of employees and job seekers. The latter continues to fall, as the influx of new job seekers, primarily composed of  employees who come to the end of temporary employment, is lower than the outflow of especially those who are re-employed or self- employed. Unemployment also decreased in the EU and in the euro area; the best performers continue to be Czechs and Germans, the worst Spaniards and Greeks.

Living costs in September rose, long-term dynamics increased much less, but moved upward in positive digits. The rise in the prices of services did not continue, while prices of goods increased slightly. A more long-term dynamics did not change significantly. Current price dynamics by groups of products has been shaped by season and fuel prices. The harmonized index of consumer prices in September rose a little more than a cost of living index; by that Slovenia moved a little closer to the EU average, where the prices declined. Producer prices in August remained unchanged, whereas they were lower than a year before. Price expectations do not suggest that price dynamics would change much in the near future. The prices of raw materials on the world market rose at the beginning of October.

In August, average salary increased in the long term due to large increases in some activities. The general government salaries are practically stagnant; here changes arise mainly due to release of promotions. Although data suggest a modest but systematic strengthening of the average wage, unit labor costs show no additional deviations from the trend. Only in manufacturing, unit labor costs go in step with unit labor costs in the euro area; in the services sector lagging behind the euro area increased again. Even greater is the difference in the public sector where, after the third quarter last year, unit labor costs rose significantly in the first quarter and stopped at that level. The largest lag in the dynamics of unit labor cost compared to unit labor costs in the euro area is in construction; unit labor  costs in the euro area are rising, in Slovenia they continue falling.

General government revenues were reduced in September, but their long-term dynamics strengthened. Direct taxes and other revenues were the same as in August; other forms of taxes offset a drop in personal income tax, which was slightly higher than last year. Domestic taxes on goods and services decreased due to the excise tax, most likely by the  shift in the timing of payments. Revenues of value-added tax in September strengthened. Surprisingly weak was the import channel of value added tax, as this form of tax payments is being very stable. Social security contributions increased significantly in September, long-term dynamics has picked up more than current growth. Thus, strong improvements of the contributions surprise, because their growth is more than twice the growth of wages in the same month or annual period.

A more long-term dynamics of the structure of taxes in Slovenia and in the euro area for the period from the beginning of the ZUJF to the first quarter of this year indicates that the contraction in economic activity and tax yield, which was caused by ZUJF, was the strongest in taxes on income and wealth. While it recovered since 2013, the loss of tax revenues compared with the euro area has not decreased. The tightening of fiscal policy has reduced social security contributions, as ZUJF radically reduced the wages in the public sector and, indirectly, in the private sector, i.e.  the tax base. After the beginning of 2013, the contributions actually began to pursue the euro area, so that the gap in three years was reduced, but the catching stopped. Only taxes on production and imports managed relatively quickly to catch the revenues of the relevant taxes in the euro area and, after the increase in the tax rates, began systematically to lead relevant taxes in the euro area.

Total loans to non financial companies and households fell in August; the fall continues to be dictated by lending to companies, which was reduced again. The fall was the biggest since the last transfer of credits to DUTB. Lagging loans to companies in Slovenia behind the loans in the euro area continue to rise. Loans to households vary, but it appears that the trend will slowly convert into growth, but lower than in the euro area. Total deposits of companies and households in August increased more in the long term they are higher than a year ago. The net financial position of companies and households has also been strongly positive. Although they are already in negative territory, the interbank interest rates in the euro area continue to slowly diminish.

The balance of the current account in August is positive and significantly exceeds the comparable balance in August 2015. External debt is decreasing, the yield on our bond as well. Therefore,  it is time to finance the construction of infrastructure (the second track) with public funds obtained by government bonds.

Full article is available in Slovenian language.

Only a part of the articles in the publication Gospodarska gibanja (Economic Trends) is written in the English language. Please visit the Slovenian web page.


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