How Slovakia Fell From Reform Leader to Country Where Sun May Set

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Alex E. Proimos via flickr // CC 2.0

Slovakia was once the reform tiger that used to set the example that others would lkely follow. However, that time is now certainly over. With the rise of populism, Slovak politics has recently produced ad hoc a number of negative social measures introduced to buy the support of a specific group of voters. And this time, the measure employed is even worse.

Slovakia has managed to muster a constitutional majority (reaching beyond the government parties) passing a bill that would have a detrimental effect on the stability of the Slovak public finances in the long run. The measure is the constitutional limit of the retirement age now set at 64 for men and 63 for women (with two kids).

As a matter of fact, this measure will not have an immediate effect. The retirement age will continuously grow untill it reaches the limit for men ( in 2030) and women (in 2022).

The measure has been supported by the Social democrats (SMER-SD), nationalists (SNS), conservative populists (Sme Rodina), fascists (People’s Party – Our Slovakia), and several independent MPs.

To understand the problems related to this measure, we must state that the current (pre-amendment) setup of the pension system already faces several issues that prevent it from being stable within the the next 30 years. This is mainly due to the fact that the past generation recorded a massive drop in the fertility rate, on which the stability of the system is directly dependent.

The obvious response was the slow but consistent growth of the retirement age to compensate for the loss of the income from the social contributions.

The current populist reaction to these trends may have severe financial consequences (amounting to roughly EUR 120 billion during the next fifty years) as well as lead to a possible drop in the nominal decrease of the pension for people in their 30s by 12%.

The amendment has come in for criticism from various expert groups, including the Council for Budgetary Responsibility. The Council estimated that the social contributions shall be immediately increased by 3% (on top of the existing 34.6 %) in the long-term perspective to compensate for introducing the discussed measure.

INESS