Recommendation for a Council Decision abrogating Decision 2005/182/EC on the existence of an excessive deficit in Slovakia
Date: 2008-05-07
Institutions: European Commission
Subjects: Slovakia, budget deficit, public debt, public finance, stability pact

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 7.5.2008 
SEC(2008) 572 final 

Recommendation for a  

COUNCIL DECISION 

abrogating Decision 2005/182/EC on the existence of an excessive deficit in Slovakia 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

BACKGROUND 

Article 104 of the Treaty establishes that Member States should avoid excessive deficits and 
lays down a procedure for their identification and correction. The excessive deficit procedure 
(EDP)  is  further  specified  in  Council  Regulation  (EC)  No  1467/97  on  “speeding  up  and 
clarifying  the  implementation  of  the  excessive  deficit  procedure”1,  which  is  part  of  the 
Stability and Growth Pact. According to Article 104(2) of the Treaty, the Commission has to 
monitor  compliance  with  budgetary  discipline  on  the  basis  of  two  criteria,  namely:  (a) 
whether the planned or actual government deficit exceeds the reference value of 3% of GDP 
(unless either the deficit ratio has declined substantially and continuously and reached a level 
that comes close to the reference value; or, alternatively, the excess over the reference value is 
only  exceptional  and  temporary  and  the  ratio  remains  close  to  the  reference  value);  and  (b) 
whether government debt exceeds the reference value of 60% of GDP (unless the debt ratio is 
sufficiently diminishing and approaching the reference value at a satisfactory pace). 

In accordance with the Protocol on the excessive deficit procedure annexed to the Treaty, the 
Commission provides the data for the implementation of the EDP. As part of the application 
of this Protocol, Member States have to notify data on government deficits and debt and other 
associated variables twice a year, namely before 1 April and before 1 October, in accordance 
with Article 4 of Council Regulation (EC) No 3605/932,3,4. 

On 12 May 2004, the Commission initiated the EDP for Slovakia with the adoption of a report 
under Article 104(3), based on a general government deficit of 3.6% of GDP in 20035. On 5 
July  2004,  the  Council  decided,  on  a  recommendation  from  the  Commission,  that  Slovakia 
was in excessive deficit according to Article 104(6)6. At the same time, and also based on a 
Commission recommendation, the Council addressed recommendations under Article 104(7) 
to Slovakia with a view to bringing the situation of an excessive government deficit to an end, 
by 2007 at the latest7. 

1 

2 

3 

4 

5 
6 
7 

OJ  L  209,  2.8.1997,  p.  6.  Regulation  as  amended  by  Regulation  (EC)  No  1056/2005  (OJ  L  174, 
7.7.2005, p. 5). 
OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337, 
22.12.2005, p. 1). 
The most recent notification of Slovakia can be found at: 
http://epp.eurostat.ec.europa.eu/portal/page?_pageid=2373,58110711&_dad=portal&_schema=portal. 
Slovakia benefited from a transition period for implementing the Eurostat decision of 2 March 2004 on 
the classification of funded pension schemes and as a result notified deficit and debt figures without the 
net  cost  of  its  2005  pension  reform  until  April  2006  (Eurostat  News  Release  No  117/2004  of  23 
September  2004  on  the  transition  period  to  implement  the  decision  in  Eurostat  News  Release  No 
30/2004  of  2  March  2004).  As  the  different  documents  under  the  EDP,  including  in  particular  the 
Council  recommendation  under  Article  104(7),  took  the  implications  of  the  March  2004  Eurostat 
decisions  fully  into  account,  all  deficit  and  debt  figures  quoted  in  this  document  include  the  pension 
reform cost and are thus fully comparable. 
SEC(2002) 131. 
OJ L 62, 9.3.2005, p. 16. 
All EDP-related documents for Slovakia can be found at the following website:  
http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/excessive_deficit9109_en.htm. 

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In its recommendation under Article 104(7), the Council recommended the Slovak authorities 
to "take action in a medium-term framework in order to achieve their objective of bringing the 
deficit  below  3%  of  GDP  in  a  credible  and  sustainable  manner  by  2007  at  the  latest,  in 
accordance with the path for deficit reduction as specified in the Council Opinion of 5 July 
2004 on the convergence programme submitted in May 2004"; to "implement with vigour the 
measures envisaged in the May 2004 convergence programme, in particular those related to 
the  proposed  further  health  care  reforms  and  further  public  sector  rationalisation";  to 
"accelerate the fiscal adjustment if the implemented structural reforms result in higher growth 
than  expected  in  the  convergence  programme  of  May  2004,  in  particular  by  dedicating  any 
higher-than-budgeted  revenues  primarily  to  faster  deficit  reduction";  and  to  "take  effective 
action  by  5  November  2004  regarding  the  measures  envisaged  to  achieve  the  2005  deficit 
target". 

In addition, the Council invited the Slovak authorities to "strengthen the binding character of 
the  three-year  budgetary  framework  by  introducing  detailed  medium-term  expenditure 
ceilings to be adopted by parliament". 

Table 1: Adjustment endorsed by the Council on 5 July 2004 

% of GDP, unless indicated otherwise 

General government balance 

2003 

-3.6 

2004 

-4.0 

2005 

-3.9 

2006 

-3.9 

2007 

-3.0 

p.m.: Real GDP growth (%) 
Source:  Council  recommendation  under  Article  104(7)  and  Council  opinion  on  the  May  2004  convergence 
programme, both adopted on 5 July 2004 

4.2 

4.1 

4.3 

5.0 

4.7 

On 22 December 2004, i.e. after the expiry of the deadline for taking action set in the Council 
recommendation, the Commission adopted a communication to the Council, which concluded 
that action taken until then by Slovakia was consistent with the Council recommendation and 
that no further steps under the EDP were necessary at that stage8. In its meeting of 18 January 
2005, the Council concurred with this assessment. 

According to Article 104(12), a Council decision on the existence of an excessive deficit is to 
be  abrogated,  on  the  basis  of  a  Commission  recommendation,  when  the  excessive  deficit  in 
the Member State concerned has, in the view of the Council, been corrected.  

2. 

RECENT DEFICIT DEVELOPMENTS 

The  data  available  in  May  2004,  when  the  Commission  initiated  the  EDP  for  Slovakia, 
indicated  that  the  2003  deficit  was  at  3.6%  of  GDP  and  the  deficit  was  expected  to  remain 
above  the  reference  value  in  subsequent  years.  According  to  the  data  provided  by  the 
Commission  (Eurostat)  following  the  reporting  by  Slovakia  before  April  20089  the  general 
government deficit remained below 3% of GDP in the years 2003-2005 due to a subsequent 
data  revision  (in  the  April  2007  notification)  mainly  resulting  from  a  change  in  the 
accrualization method for tax revenue. The headline deficit increased to 3.6% of GDP in 2006 
(mostly  due  to  a  substantial  increase  in  government  consumption  of  1%  of  GDP,  the  2005 

8 
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SEC(2004) 1630. 
Eurostat News Release No 54 of 18 April 2008. 

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pre-stocking  with  cigarettes  in  view  of  an  imminent  excise  tax  hike  and  increased  pension 
reform costs) before falling to 2.2% of GDP in 200710. 

A pension reform was launched in 2005, affecting social contributions by redirecting 9% of 
gross  wages  to  a  funded  (second)  pension  pillar.  Due  to  widespread  public  interest  in  this 
pillar  and  a  gradual  transition,  these  revenue  transfers  are  estimated  to  have  increased  from 
0.8% of GDP in 2005 to 1.2% and 1.3% of GDP in 2006 and 2007 respectively. 

Slovakia committed itself to gradually increase taxes on cigarettes up to the minimum levels 
required by the EU. As a result, taxes were increased in May 2004, January 2006 and January 
2008 and are planned to be raised again in December 2008. All increases so far were preceded 
by a sizeable pre-stocking with cigarettes at various stages of the distribution chain. This has 
led  to  shifts  in  tax  revenue  resulting  in  extra  tax  revenue  of  some  0.1%,  0.3%  and  0.5%  of 
GDP  in  2003,  2005  and  2007  respectively  followed  by  equivalent  revenue  shortfalls  in  the 
subsequent years. Moreover, Slovakia has claims on several foreign countries. In 2003, 2005 
and 2007 cancellations of some of these claims had a deficit-increasing effect of 0.4%, 0.9% 
and 0.1% of GDP respectively.  

Given  the  better-than-originally-estimated  2003  deficit,  headline  deficit  developments  were 
consistent  with  the  deadline  for  correction  of  the  excessive  deficit  set  by  the  Council  in  its 
104(7) recommendation although the consolidation path was quite different. In particular, in 
2007  the  headline  deficit  fell  by  almost  1½%  of  GDP  to  2.2%  of  GDP.  The  fiscal 
consolidation  has  benefited  from  buoyant  GDP,  employment  and  revenue  growth,  allowing 
the  expenditure-to-GDP  ratio  to  fall  faster  than  the  revenue-to-GDP  ratio.  The  fall  in  the 
expenditure-to-GDP  ratio  from  40.2%  of  GDP  in  2003  to  36.9%  of  GDP  in  2007  was  also 
induced  by  expenditure  restraint  and  expenditure  reforms.  These  included  restrictions  on 
social and unemployment benefits, tightening of conditions for early retirement and a gradual 
increase in the  pension  retirement  age. The creation  of  the National Motorway Company in 
2005  has  enabled  the  government  to  partly  finance  motorway  construction  through  private 
sector borrowing. On the revenue side, a comprehensive tax reform was introduced in 2004, 
shifting  the  weight  from  income  to  consumption  taxation.  Together  with  the  2005  pension 
reform it has contributed to a fall in the revenue-to-GDP ratio from 37.4% of GDP in 2003 to 
34.7% of GDP in 2007. 

10 

Deficit ratios are usually revised - upwards or downwards - after the publication of the first outcome in 
the spring notification. For the EU Member States as a whole, the revisions are usually relatively small 
and on  average  insignificantly  different  from  zero.  For  Slovakia,  in view  of  the  distance  between  the 
currently  reported  deficit  for  2007  and  the  deficit  reference  value,  there  is  a  low  probability  that 
potential future revisions in government accounts would raise the 2007 deficit ratio in excess of 3% of 
GDP.  The  fact  that  there  are  pending  issues  on  the  sectoral  delimitation  of  general  government  in 
Slovakia (notably on the appropriate sectoral classification of health-care related units, such as hospitals 
and  health-insurance  companies  in  general  government  or  the  corporate  sector)  has  not  a  significant 
impact  on  the  upward  and  downard  risks  of  deficit  revisions  in  future.  Though  detailed  data  are  not 
available, there are indications that the financial balance of the units that need to be re-classified inside 
government or outside government, to be in line with ESA95 rules, is very small. (See Eurostat findings 
of the dialogue visit to Slovakia on 10 and 11 March 2008: 
http://epp.eurostat.ec.europa.eu/portal/page?_pageid=2373,47631456&_dad=portal&_schema=PORTA
L, available soon.) 

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The 2007 deficit outcome was below the official target of 2.9% of GDP set in the December 
2006  update  of  the  convergence  programme.  The  over-performance  was  mainly  induced  by 
higher-than-foreseen GDP and employment growth, lower-than-budgeted co-financing for the 
EU funds and a larger-than-expected pre-stocking with cigarettes at the end of 2007, triggered 
by a hike in the excise tax on tobacco in January 2008 and resulting in additional revenue of 
½% of GDP compared to ¼% of GDP expected by the programme.  

Nevertheless,  the  cyclical  upswing  and  growth  dividends  from  structural  reforms  were  not 
fully  exploited  for  fiscal  consolidation.  As  a  result,  the  structural  deficit  (i.e.  the  cyclically-
adjusted deficit net of one-off and other temporary measures) deteriorated from some 1½% of 
GDP  in  2003  to  around  3%  of  GDP  in  2006  before  improving  to  around  2½%  of  GDP  by 
2007. However,  the creation of the second funded pension pillar in 2005 has contributed to 
the structural deterioration11.  

3. 

DEFICIT PROJECTIONS FOR 2008 AND BEYOND 

According to the Commission services’ spring 2008 forecast the headline deficit is expected 
to narrow further to 2.0% of GDP in 2008 before increasing to 2.3% of GDP in 2009 (under 
the customary "no-policy-change" assumption) against the background of  markedly  slowing 
but  still  robust  GDP  and  decelerating  employment  growth.  Revenue-increasing  measures 
included in the 2008 budget such as a broadening of the corporate and personal income tax 
base and an increase in the maximum ceiling on social contributions are foreseen to generate 
additional revenue of around ¼% of GDP in 2008. The revenue shortfall induced by the 2007 
pre-stocking with cigarettes is likely to be broadly offset by a further hoarding of cigarettes 
motivated  by  a  lower  excise  tax  hike  planned  for  the  end  of  2008.  Moreover,  a  temporary 
opening  up  of  the  second  pension  pillar  in  the  first  half  of  2008,  allowing  all  current 
participants  to  leave  and  new  participants  to  join,  should  result  in  an  one-off  revenue  of 
around  0.1%  of  GDP  as  savings  accumulated  in  previous  years  in  the  second  pillar  will  be 
transferred to the pay-as-you-go pillar if participants decide to leave. On the expenditure side, 
farming subsidies are set to continue increasing substantially. The main reason for the 2009 
deterioration projected in the spring forecast is a likely revenue shortfall of some ½% of GDP 
due to aforementioned expected further substantial pre-stocking with cigarettes in 2008. 

While the forecast for 2008 is in line with the latest official target of 2% of GDP (set by the 
Ministry of Finance in February 2008 as a reaction to the February 2008 Council opinion on 
the  November  2007  update  of  the  convergence  programme)  the  forecast  for  2009  is 
significantly above the latest national target of 1.7% of GDP (set in April 2008 in the outline 
for the new budget proposal), which is not yet underpinned by explicit measures.  

11 

In accordance with Article 2(7) of Regulation (EC) No 1467/97, a decision to abrogate a decision on the 
existence of an excessive deficit should take into account the net cost of a pension reform introducing a 
multi-pillar system that includes a mandatory, fully funded pillar if the deficit has declined substantially 
and continuously and has reached a level that comes close to the reference value. Since the 2007 general 
government deficit was below the 3%-reference value there is no need to consider the application of this 
Article.  

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The  structural  deficit  is  expected  to  deteriorate  from  around  2½%  to  some  2¾%  of  GDP 
between  2007  and  2008  which  is  not  in  line  with  the  Stability  and  Growth  Pact,  which 
specifies  that,  for  euro-area  and  ERM  II  Member  States,  the  annual  improvement  in  the 
structural balance should be 0.5% of GDP as a benchmark and that the adjustment should be 
higher  in  good  economic  times.  In  2009,  under  the  customary no-policy-change assumption 
the structural deficit is foreseen to deteriorate further to some 3% of GDP mainly due to the 
cigarette pre-stocking related revenue shortfall. 

According  to  the  February  2008  Council  opinion12  on  the  November  2007  update  of  the 
convergence programme the budgetary stance in the programme seems insufficient to ensure 
that the medium-term objective (MTO) for Slovakia, set as a structural deficit of just below 
1%  of  GDP,  is  achieved  by  the  end  of  the  programme  period  (2010),  as  envisaged  in  the 
programme.  Moreover,  the  Council  concluded  that  the  envisaged  change  in  the  structural 
balance for 2008 is not in line with the Pact and should be more ambitious. 

4. 

DEBT DEVELOPMENTS AND PROJECTIONS 

The debt ratio decreased gradually from 42.4% of GDP in 2003 to 29.4% of GDP in 2007, i.e. 
well  below  the  60%  of  GDP  reference  value,  mainly  thanks  to  privatisation  revenue. 
According to the Commission services’ spring 2008 forecast, gross public debt is expected to 
remain broadly stable over the forecast horizon (on a no-policy change basis). 

5. 

CONCLUSIONS 

The data available in May 2004 indicated that the 2003 deficit was at 3.6% of GDP and the 
deficit was expected to remain above the reference value in subsequent years. According to 
the latest data, the general government deficit remained below 3% of GDP in the years 2003-
2005  before  increasing  to  3.6%  of  GDP  in  2006  mainly  due  to  a  substantial  increase  in 
government  consumption.  The  headline  deficit  then  fell  to  2.2%  of  GDP  in  2007.  The 
structural  balance,  i.e.  the  cyclically-adjusted  balance  net  of  one-off  and  other  temporary 
measures,  deteriorated  in  2006  by  some  2%  of  GDP  but  improved  again  by  around  ½%  of 
GDP  in  2007.  According  to  the  Commission  services’  spring  2008  forecast,  the  headline 
deficit  is  expected  to  narrow  to  2.0%  of  GDP  in  2008  and,  on  a  no-policy  change  basis,  to 
increase  to  2.3%  in  2009.  This  indicates  that  the  deficit  has  been  brought  below  the  3%  of 
GDP ceiling in a credible and sustainable manner. 

General government gross debt declined from 42.4% of GDP in 2003 to 29.4% in 2007, well 
below the 60% of GDP reference value. According to the Commission services’ spring 2008 
forecast, the debt ratio is expected to remain broadly stable over the forecast horizon (on a no-
policy change basis). 

From an overall assessment, it follows that the excessive deficit situation in Slovakia has been 
corrected. Accordingly, the Commission recommends to the Council to abrogate its decision 
on the existence of an excessive deficit in Slovakia. 

12 

OJ C 49, 22.2.2008, p. 44. 

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Table 2: Budgetary developments, 2003-2009 

% of GDP, unless indicated otherwise 

2003 2004

2005 2006 2007

General government balance 

-2.7 

-2.4 

-2.8 

-3.6 

-2.2 

- Total revenues 
- Total expenditure 
Of which : 

- interest expenditure 
- gross fixed capital formation

Pension reform costs 
Pre-stocking with cigarettes (net impact) 
Primary balance 
One-off and temporary measures 
Structural balance(1) 
Structural primary balance(1) 
Government gross debt 
Pm 
Pm 
(1) 
(2) 

Real GDP growth (%) 
Output gap 

2.2 
2.4 
0.0 
-0.1 
-0.2 
0.0 
-1.4 
0.8 

37.4  35.4  35.3  33.5  34.7 
40.2  37.8  38.1  37.2  36.9 
1.4 
1.7 
2.5 
1.9 
2.1 
2.6 
1.3 
0.8 
0.0 
0.5 
0.3 
0.1 
-0.8 
-1.1 
-0.2 
-0.1 
-0.9 
-0.4 
-2.6 
-1.0 
-1.4 
1.1 
-1.2 
0.8 
42.4  41.4  34.2  30.4  29.4 
10.4 
6.6 
4.8 
1.9 
-3.2 
-3.2 

1.5 
2.2 
1.2 
-0.3 
-2.2 
0.0 
-3.1 
-1.7 

8.5 
-1.6 

5.2 
-3.4 

2008 

2009 

-2.3 

-2.0 

COM  CP(2)  COM(3) CP(2) 
-1.8 
(-1.7) 
31.8 
33.7 
1.5 
1.4 
1.3 
n.a. 
-0.3 
0.0 
-2.4 
-0.9 
30.5 
5.8 
2.1 

-2.3 
(-2.0) 
33.0 
35.3 
1.4 
1.8 
1.3 
n.a. 
-0.9 
0.1 
-3.1 
-1.7 
30.8 
6.8 
2.3 

34.3 
36.3 
1.4 
1.9 
1.3 
-0.1 
-0.6 
0.1 
-2.8 
-1.5 
29.2 
7.0 
2.7 

33.8 
36.1 
1.4 
1.9 
1.3 
-0.4 
-1.0 
0.0 
-3.1 
-1.7 
29.7 
6.2 
2.5 

Cyclically-adjusted (primary) balance excluding one-off and temporary measures. 
Cyclically-adjusted and structural balances and output gaps according to the programme as calculated by 
Commission services on the basis of the information in the programme. 
No-policy change assumption. 

(3) 
Sources:  Commission  services’  spring  2008  forecast  (COM)  and  November  2007  update  of  the  convergence 

programme (CP) (In brackets the latest national targets set in February and April 2008) 

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Recommendation for a  

COUNCIL DECISION 

abrogating Decision 2005/182/EC on the existence of an excessive deficit in Slovakia 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 104(12) thereof, 

Having regard to the recommendation from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

By  Council  Decision  2005/182/EC13,  following  a  recommendation  from 
the 
Commission  in  accordance  with  Article 104(6)  of  the  Treaty,  it  was  decided  that  an 
excessive deficit existed in Slovakia. The Council noted that the general government 
deficit was 3.6% of GDP in 2003, above the 3% of GDP Treaty reference value.  

On  5  July  2004,  in  accordance  with  Article 104(7)  of  the  Treaty  and  Article  3(4)  of 
Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the 
implementation  of  the  excessive  deficit  procedure14,  the  Council  made,  based  on  a 
recommendation from the Commission, a recommendation addressed to Slovakia with 
a view to bringing the excessive deficit situation to an end by 2007 at the latest. The 
recommendation was made public. 

In accordance with Article 104(12) of the Treaty, a Council Decision on the existence 
of  an  excessive  deficit  is  to  be  abrogated  when  the  excessive  deficit  in  the  Member 
State concerned has, in the view of the Council, been corrected.  

In  accordance  with  the  Protocol  on  the  excessive  deficit  procedure  annexed  to  the 
Treaty, the Commission provides the data for the implementation of the procedure. As 
part  of  the  application  of  this  Protocol,  Member  States  are  to  notify  data  on 
government  deficits  and  debt  and  other  associated  variables  twice  a  year,  namely 
before  1  April  and  before  1  October,  in  accordance  with  Article  4  of  Council 
Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol 
on  the  excessive  deficit  procedure  annexed  to  the  Treaty  establishing  the  European 
Community15. 

13 
14 

15 

OJ L 62, 9.3.2005, p. 16. 
OJ  L  209,  2.8.1997,  p.  6.  Regulation  as  amended  by  Regulation  (EC)  No  1056/2005  (OJ  L  174, 
7.7.2005, p. 5). 
OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337, 
22.12.2005, p. 1). 

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(5) 

Based  on  data  provided  by  the  Commission  (Eurostat)  in  accordance  with  Article 
8g(1) of Regulation (EC) No 3605/93 following the notification by Slovakia before 1 
April  2008  and  on  the  Commission  services’  spring  2008  forecast,  the  following 
conclusions are warranted:  

– 

– 

– 

due  to  data  revisions  after  the  2004  Council  decision  on  the  existence  of  an 
excessive deficit, the general government deficit remained below 3% of GDP 
in  the  years  2003-2005.  After  increasing  to  3.6%  of  GDP  in  2006  it  was 
reduced  to  2.2%  of  GDP  in  2007,  which  is  below  the  3%  of  GDP  deficit 
reference  value.  This  compares  with  a  target  of  2.9%  of  GDP  set  in  the 
December 2006 update of the convergence programme,  

the  fiscal  consolidation  has  benefited  from  buoyant  GDP,  employment  and 
revenue  growth,  allowing  the  expenditure-to-GDP  ratio  to  fall  faster  than  the 
revenue-to-GDP ratio. The falling expenditure-to-GDP ratio was also induced 
by  expenditure  restraint  and  expenditure  reforms  such  as  substantial 
restrictions  on  social  benefits.  Nevertheless,  the  cyclical  upswing  and  growth 
dividends  from  structural  reforms  were  not  fully  exploited  for  fiscal 
consolidation.  As  a  result,  the  structural  deficit  (i.e.  the  cyclically-adjusted 
balance  net  of  one-off  and  other  temporary  measures)  is  estimated  to  have 
deteriorated from  some 1½% of GDP in 2003 to around 3% of  GDP in 2006 
before  improving  to  around  2½%  of  GDP  by  2007.  However,  part  of  the 
structural  deterioration  can  be  attributed  to  the  introduction  of  the  second 
funded  pension  pillar  in  2005  with  transfers  to  this  pillar  estimated  to  have 
increased from 0.8% of GDP in 2005 to 1.2% and 1.3% of GDP in 2006 and 
2007  respectively.  In  addition,  increases  in  taxes  on  cigarettes  preceded  by 
sizeable pre-stocking with cigarettes at various stages of the distribution chain 
led to sizeable shifts in tax revenue resulting in extra tax revenue in 2003, 2005 
and 2007 followed by equivalent revenue shortfalls in the subsequent years, 

for 2008, the Commission services’ spring 2008 forecast projects the headline 
deficit  to  be  reduced  further,  to  2.0%  of  GDP,  driven  mainly  by  continued 
strong  growth  prospects  and  some  revenue-increasing  measures  such  as  a 
broadening  of  the  corporate  and  personal  income  tax  base  and  an  increase  in 
the  maximum  ceiling  on  social  contributions.  This  is  in  line  with  the  official 
deficit  target  of  2.0%  of  GDP  set  in  February  2008.  For  2009,  the  spring 
forecast projects, on a no-policy change basis, an increase in the deficit to 2.3% 
of GDP. This indicates that the deficit has been brought below the 3% of GDP 
ceiling in a credible and sustainable manner. The structural balance is projected 
to deteriorate by some ¼ percentage point of GDP in 2008 and, on a no-policy 
change  basis,  by  around  ¼  percentage  points  in  2009.  This  has  to  be  seen 
against the need to make progress towards the medium-term objective (MTO) 
for  the  budgetary  position,  which  for  Slovakia  is  a  structural  deficit  of  just 
below 1% of GDP, 

– 

government  debt remains  well  below  the  60%  of  GDP  reference  value.  It 
declined  from  42.4%  of  GDP  in  2003  to  29.4%  in  2007.  According  to  the 
spring 2008 forecast, the debt ratio is projected to remain broadly stable over 
the forecast horizon (on a no-policy change basis). 

EN 

9 

   EN 

 
(6) 

In  the  view  of  the  Council,  the  excessive  deficit  in  Slovakia  has  been  corrected  and 
Decision 2005/182/EC should therefore be abrogated. 

HAS ADOPTED THIS DECISION: 

From an overall assessment it follows that the excessive deficit situation in Slovakia has been 
corrected. 

Article 1 

Decision 2005/182/EC is hereby abrogated. 

Article 2 

Article 3 

This Decision is addressed to the Slovak Republic. 

Done at Brussels,  

For the Council 
The President 

EN 

10 

   EN