The new Slovak government will aim "without conditions" to adopt the euro in 2009 and balance socially-oriented policies with the need to cut the budget deficit, the cabinet's programme said on Monday.
Slovakia aspires to be the first of the four largest new EU members in central Europe to adopt the euro, but investors feared the leftist agenda of Prime Minister Robert Fico could derail the ambition set by the previous centre-right government.
Fico will present the programme to parliament on Tuesday. Deputies are expected to hold a confidence vote later in the week in the cabinet, which includes Fico's leftists, far right nationalists and the party of former ruler Vladimir Meciar.
The programme said all policies, such as tax changes or budget measures, would be closely co-ordinated with the central bank to achieve euro adoption in 2009.
"The Slovak government commits directly, and without conditions, to meet criteria to enter the euro on January 1, 2009," Fico told reporters.
Fico was ambiguous about the euro before he won a June election, but has shifted to unconditional support of the timetable after his stance spooked investors into dumping the crown, forcing the central bank to intervene.
The crown has since stabilised, and it showed no reaction to Monday's government assurance of the euro adoption commitment.
The unit closed at 38.100 to the euro, weaker from Friday because of the regional mood but still on the strong side of its 38.455 parity rate within the pre-euro ERM-2 currency band. The government agenda revealed few details and many economic aims were listed as intentions rather than hard targets.
Analysts need to see the exact spending plans and their timing to estimate their impact on the fiscal gap, and to assess their possible effect on inflation as Slovakia is currently fighting against upward pressure on consumer prices.
"The key document will be the 2007 state budget, which will show whether the government is patient enough and prefers the euro adoption, or whether it prefers quicker spending," said Juraj Kotian, the chief economist at Slovenska Sporitelna.
The government programme included plans to improve living conditions, including support for young families, more money for the poorest pensioners, and cancellation of unpopular fees for visiting a doctor.
The government plans to introduce a lower value added tax (VAT) rate for selected goods and services. Investors will closely watch for details as the move will reduce budget income at the time when Slovakia needs to cut the total fiscal deficit to 3.0 percent of GDP in 2007, from a 4.2 percent ceiling set for this year.
Fico said concrete details of the lower VAT bracket and other government steps, such as a one-off Christmas benefit for pensioners, would depend on availability of state budget funds given the deficit limit set by the euro adoption criteria.
"We think we are able to take care of people better than the previous government," Fico said. "We have economic growth and we are going to take significant savings measures in spending on state administration."
The programme sees a higher income tax rate for wealthier Slovaks, moving away from the flat tax system introduced by former Prime Minister Mikulas Dzurinda in line with Fico's promises to bring more solidarity into the tax system.
The corporate tax will remain at 19 percent, Fico said, although special tax measures may apply to dominant utilities if the planned tighter regulation rules prove ineffective in securing better protection of customers.
Comments
Comments are closed.