Slovak Parliamentary Election: Unexpected Results

In the process of writing the pre-election commentary, I received the second of two crowdfunded polls concerning preferences of political parties. The outlook was not that similar to the actual result – there was one distinct exception. Nobody had anticipated that the coalition PS/Spolu would not make the cut by 926 votes.

Wasted votes: Valid votes cast for those parties which did not exceed the electoral threshold of 5% ( respectively 7% for the coalition PS/Spolu)

For a long period of time, according to the polls, SMER-SD was dominating the preferences, although with a severely decreased support.

What was alarming was its runner-up – the extremist party Ľudová strana – Naše Slovensko, with a reported support of around 12%. The third place had been more or less steadily occupied by PS/Spolu, with approximately 9-10% share of preferences.¹ 

One can say it did not look all rosy from the beginning, but at least a democratic part of spectrum opposing the now former government appeared to have enough support. And then there was the first surprise – OĽANO started to leave them all behind.

Now, Igor Matovič, the leader of OĽANO, had been appointed to establish a new governing coalition and the talks between parties that passed the threshold started. SMER-SD and ĽSNS will be in the opposition, while Matovič is negotiating with Sme-rodina, Za ľudí, and SaS.

Although the result of elections may have surprised some people in a number of respects, the key notion is that there is a strong impetus for change and effort to bring transparency back to public institutions.

Hopefully, also more level-headedness to public finance management.

What remains yet uncertain is the way in which public finance will be handled. The parties that are presumed to form the new government have brought up a number of measures, which could severely challenge the position the budget already is in².

According to estimates of the Council for Budget Responsibility, the overall risks to the budgeted finance balance increased significantly. Compared to the January forecast, the estimate worsened by EUR 612 million. The increase in the deficit was mainly caused by the introduction of the 13^th pension approved by the Parliament, which could consequently increase spending by EUR 432 million.

Moreover, the lower tax revenues and worse estimated economic performance of other government entities, which stem from the growth in expenditure at the end of 2019, also contribute negatively.

Assuming that the government does not take additional measures, the deficit could reach EUR 2,366 million (2.42% of GDP) this year. The risks to the balance arise mainly from higher growth of social benefits and transfers, state budget expenditures and overvalued non-tax revenues.

At the same time, the government has to respect the limit on total expenditures. The limit was imposed due to weak budget performance and missing the goals in previous years. The abovementioned increase in additional expenditures would lead to exceeding this limit.

In contrast, due to the risk of lower revenues, the government should adopt compensatory expenditure measures in amount of EUR 1,608 million. (1.64% of GDP).

In conclusion, the expected uncertainty now has concrete features, which will need to be cautiously negotiated in the process of forming the new government.

Based on the widely shared consensus among analysts and economists, the coalition should refrain from adopting social packages that may be put forward in a good will, but what is more important is that they could cause deterioration of the public finance management, which has been managed way too long without proper assessment of the risks, former consultation of experts and practically obliviously of the trends in the global financial market as a whole.