COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Slovenia followingthe adoption of the COUNCIL RECOMMENDATION to Slovenia of 2 December 2009 with a view to bringing an end to the situation of an excessive government deficit
Date: 2013-05-29
Institutions: European Commission
Subjects: Slovenia, budget deficit, budgetary equilibrium, economic statistics, gross domestic product, public expenditure, stability pact, tax reform

1. 

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 396 final 

COMMISSION STAFF WORKING DOCUMENT 

Analysis by the Commission services of the budgetary situation in Slovenia following 
the adoption of the COUNCIL RECOMMENDATION to Slovenia of 2 December 2009 
with a view to bringing an end to the situation of an excessive government deficit 

Accompanying the document 

Recommendation dor a 

COUNCIL RECOMMENDATION 

with a view to bringing an end to the situation of an excessive government deficit in 
Slovenia 

{COM(2013) 396 final} 

. 

EN 

EN 

 
 
 
 
 
 
  
 
 
 
1. 

INTRODUCTION  

On 2 December 2009, the Council decided, in accordance with Article 126(6) of the TFEU, 
that  an  excessive  deficit  existed  in  Slovenia  and  issued  a  recommendation1  to  correct  the 
excessive  deficit  by  2013  at  the  latest,  in  accordance  with  Article  126(7)  of  the  TFEU  and 
Article  3  of  Council  Regulation  (EC)  No  1467/97  of  7  July  1997  on  speeding  up  and 
clarifying the implementation of the excessive deficit procedure2. In order to bring the general 
government  deficit  below  3%  of  GDP  in  a  credible  and  sustainable  manner,  the  Slovenian 
authorities  were  recommended  to  implement  the  fiscal  consolidation  measures  in  2010  as 
planned,  ensure  an  average  annual  structural budgetary  adjustment  of  ¾%  of  GDP  over  the 
period 2010-2013, and specify the measures that are necessary to achieve the correction of the 
excessive  deficit  by  2013  cyclical  conditions  permitting  and  accelerate  the  reduction  of  the 
deficit  if  economic  or  budgetary  conditions  turn  out  better  than  expected  at  the  time  of  the 
recommendation. 

On  15  June  2010,  the  Commission  concluded  that  based  on  the  Commission  services'  2010 
Spring  Forecast,  Slovenia  had  taken  effective  action  in  compliance  with  the  Council 
recommendation of 2 December 2009 to bring its government deficit below the 3% of GDP 
reference value and considered that no additional step in the excessive deficit procedure was 
therefore necessary.  

This  document  provides  an  assessment  of  whether  Slovenia  has  undertaken  effective  action 
towards  the  correction  of  its  excessive  general  government  deficit,  and  suggests  a  new 
adjustment  path  that  would  durably  bring  the  general  government  deficit  below  the  3%  of 
GDP reference value. In particular, the document examines the budgetary developments since 
the Commission communication to the Council on action taken as of 15 June 2010. 

2. 

RECENT  MACRO-ECONOMIC  AND  BUDGETARY  DEVELOPMENTS  AND  OUTLOOK 
OVER 2013 - 2015 

Slovenia  has  seen  real  GDP  falling  considerably  more  abruptly  than  in  the  euro  area  as  a 
whole as a result of the global economic and financial crisis as well as domestic imbalances. 
The real GDP drop of 7.8% in 2009 was driven mainly by trends in gross capital formation. 
The export-led recovery Slovenia enjoyed in 2010 and 2011, when real GDP grew by 1.2% 
and 0.6%, respectively, was modest due to the continued drag from weak domestic demand. 
While GDP growth in 2010 was almost at par with that expected in the Commission services' 
2009 Autumn Forecast (see Table 1), which was underlying the EDP recommendation, GDP 
growth  in  2011  was  below  the  projected  2.0%.  The  Commission  services'  2009  Autumn 
Forecast,  which  was  based  on  an  assumption  of  the  closure  of  the  output  gap  beyond  the 
forecast horizon, implicitly assumed that the Slovenian economy would grow at a faster pace 
than in 2011 in outer years in order for the output gap to be closed. 

In reality, the Slovenian economy slipped into a double dip recession in 2012 with a real GDP 
decline of 2.3%. Investment, especially construction, was held back by deleveraging of non-

1 All documents related to the excessive deficit procedure of Slovenia can be found at: 

 http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/slovenia_en.htm 

2 OJ L 209, 2.8.1997, p. 6. 

2 

 
 
                                                 
 
financial  corporations,  subdued  credit  growth,  including  stemming  from  difficulties  of  the 
banking  sector,  government  consolidation  and  households  refraining  from  new  real  estate 
purchases. As a result of falling disposable income, private consumption declined by 2.9% in 
2012. A positive contribution of 3.3 pps. to growth from net external demand was a result of 
robust  growth  of  export  to  non-EU  markets  and  a  sharp  decline  in  imports  due  to  weak 
domestic demand. 

Table 1: Comparison of macroeconomic developments and forecasts 

Real GDP (% change)

Contributions to real GDP growth:

Domestic demand

Changes in inventories

Net exports

Employment (% change)

GDP deflator (% change)

Output gap (% of potential GDP)

Potential output growth

2009

outturn

-7.8

-6.1

-4.1

2.4

-1.8

3.6

-3.9

1.2

2010

2011

2012

COM 
2009 AF

outturn

COM 
2009 AF

outturn

COM 
2009 AF   

outturn

COM AF 
2009      

2013

SP 2013

COM 
2013 SF   

1.3

-0.1

0.3

1.1

-2.0

1.1

-3.3

1.2

1.2

-2.2

1.9

1.5

-2.2

-1.1

-2.7

0.0

2.0

1.5

0.1

0.4

-0.3

1.9

-2.8

1.4

0.6

-1.3

0.7

1.3

-1.6

1.0

-1.5

-0.7

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

-2.3

-3.7

-1.9

3.3

-1.3

0.4

-2.8

-1.0

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

-1.9

-3.1

-0.2

1.4

-1.6

1.3

-3.5

-1.2

-2.0

-3.5

-0.8

2.4

-1.6

1.4

-3.7

-1.0

Source:  COM 2009 AF - Commission services' 2009 Autumn Forecast; COM 2013 SF - Commission services' 2013 Spring Forecast; SP 2013 - May 2013 
stability programme; 

The Commission services' updated 2013 Spring Forecast3 projects a further drop in real GDP 
of  2.0%  in  2013.  Private  consumption  is  forecast  to  decline  by  3.7%  due  to  falling 
employment  and  negative  real  wage  growth.  The  trend  in  gross  fixed  capital  formation, 
particularly in construction, will remain negative with a decrease of 4.9% reflecting corporate 
sector weaknesses and subdued credit growth. Exports are forecast to modestly grow by 1.3% 
due to the expected slow recovery of the global economy. Meanwhile, imports are expected to 
fall by 2.1% because of weak domestic demand. In total, these trends are projected to result in 
a strong contribution of 2.4 pps. of net external demand to growth. The projected continued 
recession  with  GDP  growth  of  -0.1%  in  2014  is  a  result  of  delays  in  resolving  the  banking 
crisis and restructuring the highly-indebted corporate sector. Real GDP growth is projected at 
1.3% in 2015 (see Table 5) on the back of gradually strengthened domestic demand resulting 
mainly  from  a  rehabilitation  of  the  banking  sector,  progress  in  the  deleveraging  of 
corporations and improved consumer confidence.  

The Commission services' updated 2013 Spring Forecast projects the 2014 deficit at 4.9% of 
GDP  under  a  no-policy  change  assumption.  The  2014  budget  does  not  incorporate  new 
discretionary measures, except for a drop in the corporate income tax rate to 16% and broad 
stabilisation  of  the  public  sector  wage  bill  at  the  2013  level.  On  the  expenditure  side,  in 
particular interest expenditure and social transfers are projected to remain dynamic because of 
higher debt, growing number of old-age pensioners and indexation of pensions. Under a no-
policy  change  scenario,  the  deficit  is  projected  at  5.5%  of  GDP  in  2015.  The  forecast 
incorporates further increases in interest expenditure, higher public sector wage bill after the 
expiry of temporary measures curbing salaries of public sector employees and the final step of 
the gradual decrease in corporate income tax rate by 1 pp. to 15%.  

3 This forecast is based on the Commission services’ 2013 Spring Forecast, whose horizon has been extended to 
2015. In addition, the update incorporates two bonds issued on the US market on 2 May 2013 with an impact 
on interest expenditure, deficit and debt. Other nominal variables in 2013 and 2014 are exactly the same as in 
the 2013 Spring Forecast, but cyclically-adjusted variables have been slightly modified, also for years 2013 and 
2014. 

3 

 
 
 
                                                 
Slovenia faces steeply increasing public debt due to persistantly large primary deficits and to 
a lesser extent stock-flow adjustments and higher interest payments. From as low as 22% of 
GDP  in  2008,  debt  increased  to  54%  of  GDP  in  2012.  The  Commission  services’  updated 
2013 Spring Forecast projects it to increase to 61% of GDP in 2013, thus breaching the Treaty 
reference value. Based on a no-policy-change scenario, debt is forecast to increase further to 
69% of GDP (see Table 7) in 2015. These projections do not include up to 11% of GDP of 
state guarantees for asset transfers to a Bank Asset Management Company and up to 3% of 
GDP of cash for recapitalisations as stipulated in the Banking Stability Act. 

3. 

EFFECTIVE ACTION 

3.1. 

Background information 

the 

The current assessment of effective action is based on the Commission services' 2013 Spring 
Forecast.  It  incorporates  the  economic  and  budgetary  developments  since  the  last  Council 
recommendation  under  Article  126(7)  of  the  TFEU  was  issued  in  December  2009.  The 
assessment  starts  by  comparing 
the  Council 
recommendation, the apparent fiscal effort, measured by the change in the structural budget 
balance, and the adjusted structural effort. The adjustment of the structural balance takes into 
account (i) the impact of revisions in potential output growth compared to that underlying the 
growth scenario in the Council recommendation, and (ii) the impact on revenue of revisions 
of the tax content of economic activity (composition of economic growth or of other revenue 
windfalls/shortfalls)  relative  to  what  was  assumed  at  the  time  of  the  recommendation.  This 
top-down  approach  in  the  assessment  is  complemented  by  a  careful  analysis,  including  a 
bottom-up assessment of consolidation measures undertaken by the Slovenian authorities.  

recommended 

fiscal  effort 

in 

3.2. 

Assessment of effective action 2010-2013 - overview 

The  consolidation  process  in  Slovenia  was  backloaded  to  the  second  half  of  the  excessive 
deficit correction period. The structural balance amounted to -4¼%, -4¾%, -4¾% and -2¾% 
of  GDP  over  the  period  2009  –  2012.  The  Commission  services'  2013  Spring  Forecast 
projects  the  structural  balance  to  improve  further  to  -2½%  of  GDP  in  2013.  These 
developments  result  in  an  average  annual  apparent  fiscal  effort  of  0.5%  of  GDP  over  the 
period 2010-2013. However, when adjusted for the significant downward revision in potential 
output growth (see Table A1 in Annex) since the time when the recommendation was issued4 
(+0.8% of GDP) and despite revenues unexpectedly falling at a lower rate than would have 
been  implied  by  the  GDP  decline  (see  Table  A2  in  Annex)  based  on  standard  elasticities 
(-0.2% of GDP), the adjusted average annual structural effort amounts to 1.1% of GDP (see 
Table 2). This is above the average annual fiscal effort of ¾% of GDP over the period 2010-
2013 required in the 2009 Council EDP recommendation. 

4  Because  the  2009  Council  recommendation  formulates  adjustment  requirements  as  an  average  annual 
improvement  in  the  structural  balance  over  2010  -2013,  the  correction  for  the  forecast  error  involves  the 
revision of average potential output growth over the reference period.  

4 

 
 
 
 
 
                                                 
Table 2: Change in the structural balance corrected for revisions in potential output gap and 
revenue windfalls/shortfalls 

Apparent annual average fiscal 
effort up to year

2010
-0.3

2011
-0.2

2012
0.6

2013
0.5

Average annual fiscal effort 
corrected for potential growth 
revision and revenue 
windfalls/shortfalls up to year
2010
2013
1.1
-0.8

2011
0.0

2012
0.9

Required fiscal 
effort in 2009 
Council 
recomendation
2010 - 2013
3/4

Deadline for 
correction of 
excessive 
deficit

2013

Source: Commission services’ 2013 Spring Forecast and Commission services’ calculations 

The  fall  in  revenues,  net  of  discretionary  measures,  at  a  lower  rate  than  would  have  been 
implied by the GDP decline based on standard elasticities is in particular explained through 
the  improved  absorption  of  EU  funds  in  2010  and  interest  revenue.  Beside  the  traditionally 
accelerated  absorption  of  EU  funds  towards  the  second  half  of  a  multiannual  financial 
framework,  a  high  level  of  EU  funds  is  also  due  to  recording  of  EU  funds  for  which  non-
government  units  are  final  beneficiaries  into  general  government  accounts5.  This  expands 
both the revenue and expenditure ratios of the general government. Increased interest revenue 
by  the  government  are  explained  by  the  pre-financing  of  bonds6  maturing  in  the  following 
years  by  the  Treasury  and  corresponding  deposits  of  proceeds  with  banks.  That  ensured 
sufficient financing of the sovereign during the crisis years. 

3.3. 

Assessment of effective action 2010-2013 – detailed analysis of measures 

The total amount of additional consolidation measures implemented by Slovenian authorities 
in response to the Council EDP recommendation over 2010-2013 is estimated at around 6¾% 
of  GDP  with  the  bottom-up  approach  (see  Table  4).  This  estimate  excludes  consolidation 
measures  amounting  to  around  0.8%  of  GDP  from  the  2010  budget  already  included  in  the 
Commission services' 2009 Autumn Forecast. Measures amounting to some 5% of GDP have 
targeted  current  expenditure  and  to  a  lesser  extent  revenues.  In  addition,  the  authorities 
significantly cut public investment by around 1¾% of GDP over 2010-2012 (see Table 3). 

Budgetary  implications  of  consolidation  measures  have  been  partially  offset  by  inherent 
growth  of  certain  expenditure  items,  in  particular  interest  and  pension  expenditures,  and 
intermediate consumption growth. The size of this dynamics is estimated at around 2½% of 
GDP over 2010-2013. Interest expenditure have increased annually by around 0.25% of GDP 
over 2010-2012 and  a  similar increase is projected for  2013. On  average the  number of old 
age  pensioners  was  increasing  annually  at  around  3.5%  over  2010-2012,  which  annually 
added around 0.3% of GDP to total expenditure. A similar increase in the number of old age 
pensioners is projected for 2013, but then it is expected to decelerate after the implementation 
of  the  pension  reform  from  end-2012.  Finally,  intermediate  consumption  in  projected  to 
increase by 0.2% of GDP in 2013 relative to 2009. The bottom-up calculation of the size of 
consolidation  measures  adjusted  for  inherent  growth  of  expenditure  items  mentioned  above 
indicates the total net fiscal effort of around 4¼% of GDP over 2010 – 2013. This is above the 
average annual fiscal effort of ¾% of GDP over the period 2010-2013 required in the 2009 

5 The Statistical Office of the Republic of Slovenia will soon start recording EU funds into institutional sectors 

which are final beneficiaries of these funds.  

6 The Treasury pre-financed some EUR 2bn of future liabilities in 2009, which added some 0.25% of GDP to 
interest expenditures.  

5 

 
 
 
 
                                                 
Council  EDP  recommendation.  Thus,  it  appears  to  confirm  the  outcome  of  the  top-down 
assessment of the adjusted average annual structural effort  that  Slovenia has taken effective 
action to correct the excessive deficit. 

3.4. 

Budgetary implementation in 2010 

The general government deficit had soared to 6.2% of GDP in 2009 (from 1.9% of GDP in 
2008) due to strong, in-built expenditure dynamics. The consolidation measures in the 2010 
budget  adopted  before  the  Council  issued  the  EDP  recommendation,  contributed  to  the 
reduction  of  the  headline  deficit  to  5.9%  of  GDP.  Most  expenditure  measures  were  ad-hoc 
interventions,  enacted  for  one  year  only.  They  reduced  in  particular  growth  of  the  public 
sector wage bill and of social transfers and no recovery for the foregone increase was foreseen 
in  future.  The  annual  indexation  of  social  benefits  rates,  including  pensions,  and  of  public 
sector wages was halved for 2010 (social benefits rates and public sector wages were usually 
indexed to 100% of CPI inflation, while pensions were indexed to 100% wage growth). In the 
public sector the last two instalments of the envisaged wage increase were postponed to 2011, 
performance  bonuses  were  cancelled  and  workload  bonuses  were  cut.  The  only  revenue 
measure  was  higher  excise  duty  rates  on  alcohol,  cigarettes  and  mineral  oils.  No  additional 
consolidation  measures  for  2010  were  adopted 
the  Council  EDP 
recommendation. 

in  response 

to 

Table 3: Composition of the budgetary adjustment 

2009

2010

2011

2012

outturn

COM 
2009 AF

outturn

COM 
2009 AF

outturn

COM 
2009 AF   

outturn

COM 
2009 AF

2013

SP 2013

COM 
2013 SF    

%  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP %  of GDP

Revenue

of which:

- Taxes on production and imports

- Current taxes on imcome, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

      of which:

     - Compensation of employees

     - Intermediate consumption

     - Social payments

     - Subsidies

     - Gross fixed capital formation

     - Other (residual)

- Interest expenditure

General government balance (GGB)

Primary balance

One-off and other temporary measures

Structural balance

Change in structural balance

Real GDP growth

GDP deflator

Nominal GDP

43.1

43.2

44.5

42.9

44.4

14.1

8.2

15.2

5.6

49.3

14.4

8.7

14.6

5.5

50.2

14.3

8.2

15.4

6.6

50.4

14.3

8.7

14.5

5.5

49.9

14.1

8.0

15.3

7.1

50.8

48.0

48.3

48.8

47.9

48.8

12.4

6.5

18.7

2.1

4.6

3.8

1.3

-6.2

-4.9

-0.1

-4.4

0.1

-7.8

3.6

-4.5

12.4

6.5

18.8

2.4

4.5

3.6

1.9

-7.0

-5.1

0.0

-5.4

-0.7

1.3

1.1

2.4

12.6

6.8

19.4

2.3

4.4

3.2

1.6

-5.9

-4.3

0.0

-4.7

-0.3

1.2

-1.1

0.1

12.6

6.4

18.8

1.9

4.5

3.6

2.0

-6.9

-4.9

0.0

-5.6

-0.2

2.0

1.9

3.9

12.8

6.9

19.8

1.3

3.6

4.4

1.9

-6.4

-4.4

-1.0

-4.7

0.0

0.6

1.0

1.6

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

45.0

14.6

7.7

15.5

7.3

49.0

46.9

12.6

6.9

19.7

1.3

2.9

3.4

2.1

-4.0

-1.9

0.0

-2.7

2.0

-2.3

0.4

-2.0

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

45.5

45.0

15.0

7.6

15.4

7.5

53.4

14.6

7.6

15.3

7.5

50.3

50.7

47.9

12.0

6.8

20.2

1.3

3.2

7.2

2.7

-7.9

-5.2

3.7

-2.6

0.1

-1.9

1.3

-0.6

12.3

6.7

20.4

1.3

3.3

4.0

2.3

-5.3

-2.9

-1.2

-2.4

0.3

-2.0

1.4

-0.6

Source:  COM 2009 AF - Commission services' 2009 Autumn Forecast; COM 2013 SF - Commission services' 2013 Spring Forecast; SP 2013 - May 2013 
stability programme

6 

 
 
 
Overall, total consolidation measures of around ¾% of GDP7 were taken for 2010. However, 
they  were  partially  offset  by  increasing  interest  burden,  new  old-age  pensioners,  including 
from early retirement in anticipation of the envisaged pension reform, and higher intermediate 
consumption. These factors in combination with other determinants of the cyclically-adjusted 
balance deteriorated the structural balance by 0.3% of GDP (see Table 4 for composition of 
the budgetary adjustment). The estimated adjusted annual structural effort was also affected 
by  developments  in  revenues,  net  of  discretionary  measures,  unexpectedly  rising  at  a  larger 
rate than would have been implied by the GDP increase based on standard elasticities. This 
was largely due to the high absorption of EU funds (0.5% of GDP), social contributions (0.3% 
of  GDP),  interest  revenue  (0.2%  of  GDP)  and  excise  duties  (0.2%  of  GDP).  These  revenue 
developments would reduce the annual apparent fiscal effort in 2010 by around 1.3% of GDP. 
After taking also the large downward revision of the potential output growth into account8, the 
adjusted annual structural effort is estimated at around -0.8% of GDP in 2010. 

7 The estimated size of consolidation measures is expressed in net terms (excluding possible deficit-increasing 
measures). 
8  The  contribution  from  the  revision  of  average  potential  output  growth  rates  over  the  reference  period  to  the 
correction of the annual apparent fiscal efforts is constant at 0.8% of GDP. 

7 

 
 
                                                 
Table 4: Main budgetary measures over 2010-2013 

Revenue 

2010 

Expenditure 

• 

Higher excise duty rates on tobacco, alcohol and mineral oils 
(0.1%) 

2011 

• 

Higher excise duty rates on tobacco (0.1%) 

2012 

• 

• 

• 

• 

Reduction in the corporate income tax rate from 20% to 18% 
and higher R&D and investment allowances for personal and 
corporate income tax (-0.5%) 

Higher excise duty rates on tobacco, alcohol and mineral oils 
(0.25%) 

New CO2 charge on mineral oils (full year impact 0.25%) 

Higher charges (concession fees) on student work (full-year 
impact 0.1%) 

2013 

• 

• 

• 

• 

Reduction in the corporate income tax rate to 17 % (-0.1%) 

Higher road user charge (full-year impact 0.1%)  

New  tax  on  financial  services  and  amended  bank  assets  tax 
(0.1%) 

Higher excise duty rates on tobacco, alcohol and mineral oils 
(0.25%) 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

Halved  indexation  of  pensions  and  other  social 
benefit rates (2010) (-0.3%) 

Halved  indexation  of  public  sector  wages  (2010) 
(-0.15%),  cancelled  performance  bonuses  and  lower 
workload bonuses (2010) (-0.25%) 

Indexation of pensions and other social benefit rates 
by ¼ of the usual size (2011) (-0.3%) 

Indexation of public sector wages by ¼ of the usual 
size and freeze on promotions (2011) (-0.3%) 

Cut in subsidies (permanent) (-0.8%) 

Canceled  indexation  of  social  benefit  rates  (until 
end-2014) (total impact in 2012 and 2013 -0.3%) 

Public  sector  wage  bill:  net  cut  in  wages  by  3% 
(permanent),  cancelled  indexation  of  public  sector 
wages,  postponement  of  payment  for  promotions 
(until  June  2013)  (full-year  impact  -0.85%),  and 
permanent 
fourth 
instalments  of  the  public  sector  wage  increase 
envisaged back in 2008 (-0.6%) 

cancellation  of 

third 

and 

Lower  recreational  allowance  for  pensioners  (until 
the  year  after  the  year  in  which  real  GDP  growth 
exceeds 2.5%) (full-year impact -0.15%) 

Canceled indexation of pensions (2012) (-0.25%) 

Lower  child  benefits  for  higher  income  families 
(until  the  year  after  the  year  in  which  real  GDP 
growth exceeds 2.5%) (full-year impact -0.2%) 

Lower  increase  in  minimum  income  for  socially 
vulnerable people (until 2015) (-0.1%)  

Lower parental protection and other family benefits 
(full year impact -0.2%)  

Various  cuts  in  social  transfers  (permanent)  (e.g. 
veteran  entitlements  and  scolarships) 
(full-year 
impact -0.1%) 

Cut  in  public  sector  holiday  allowance  (2013) 
(-0.15%) 

Cancelled indexation of public sector wages (2013) 
(-0.15%) 

Higher  meals  allowance  for  students  (permenent) 
(+0.1%) 

Note: A positive sign implies that revenue / expenditure increases as a consequence of this measure. Annual budgetary impacts 
are  estimated  by  the  Commission  services  and  expressed  as  a  % of  GDP.  Measures  with  a  budgetary  implications  of  at  least 
0.1% of GDP are listed.  

Full-year budgetary implications are presented for measures not introduced at the beginning of a calendar year. 

All listed revenue measures are permanent, with the exception of higher excise duty rates on mineral oils which are normally bi-
weekly  amended  in  reactionte  to  movements  in  world  oil  prices.  Listed  expenditure  measures  have  different  validities  as 
provided in the table. 

3.5. 

Budgetary implementation in 2011 

The  headline  deficit  peaked  at  6.4%  of  GDP  in  2011.  Capital  support  operations  to  loss-
making  state-owned  enterprises  and  one-offs  for  the  largest  bank  and  the  railway  company 
together contributed 1.4% of GDP to the deficit. The 2011 budget temporarily prolonged and 

8 

 
 
 
 
 
 
 
 
 
 
 
 
 
strengthened  the  consolidation  measures  initially  envisaged  to  be  valid  for  2010  only.  The 
indexation of social benefit rates, including pensions, and of public sector wages was reduced 
to ¼ of the usual size. Cancellation of performance bonuses for public employees and cut in 
workload  bonuses  were  extended  into  2011  and  2012.  Finally,  public  sector  promotions  in 
salary  grades  were  cancelled  for  2011,  while  wage  increases  due  to  promotions  in  position 
grades in 2011 were postponed to 2012, but with no reimbursement for lost income. On the 
revenue side, excise duty rates on cigarettes were further augmented.  

Overall, total discretionary measures of some 1½% of GDP were taken. They were partially 
offset  by  the  same  elements  as  in  2010.  These  elements  in  combination  with  other 
determinants of the cyclically-adjusted balance and after deducting one-offs related to banks 
and  railway  company  kept  the  structural  balance  unchanged.  Revenues,  net  of  discretionary 
measures,  were  moving  in  line  with  the  GDP  increase  based  on  standard  elasticities.  After 
taking  also  the  large  downward  revision  of  the  potential  output  growth  into  account,  the 
adjusted annual structural effort is estimated at around 0.8% of GDP in 2011. 

3.6. 

Budgetary implementation in 2012 

The  March  EDP  notification  as  validated  by  the  Commission  (Eurostat)  reported  the  2012 
general  government  deficit  at  4.0%  of  GDP.  This  outturn  covers  another  recapitalisation  of 
the largest bank by some 0.2% of GDP (€63m) in  June 2012, being treated as a one-off. The 
2012  budget  was  initially  supported  with  the  Additional  Intervention  Measures  Act  which 
postponed  an  envisaged  increase  in  the  minimum  income  for  socially  vulnerable  people  to 
2015 and froze the indexation of social benefit rates, including pensions, and of public sector 
wages until 30 June 2012. This provided the previous government elected in February 2012 
with sufficient time to prepare a broader set of consolidation measures in the context of the 
2012  supplementary  budget.  Thus,  the  Act  on  Balancing  Public  Finances  from  May  2012 
amended 39 different legal acts. Most expenditure-restraining measures were, however, again 
of a temporary nature, with either a fixed or conditional expiry date (e.g. until the year after 
the year in which real GDP growth exceeds 2.5%). The payment of the last two instalments of 
the envisaged public sector wage increase from 2008 was permanently abolished. In addition, 
public sector nominal wages were cut by 3% on average in net terms and are not indexed over 
2012-2013.  The  cancellation  of  performance  bonuses  and  cut  in  workload  bonuses  were 
extended  into  2013.  Furthermore,  public  sector  promotions  for  2013  were  cancelled  while 
wage increases due to promotions in 2011 and 2012 were envisaged to be paid in July 2013, 
but with no reimbursement for lost income in both years. Finally, the government contained 
some other work-related costs and successfully implemented the long-envisaged brake on new 
public sector employment. Consequently, public sector employment started to decline in July 
2012  and  currently  evolves  at  an  annual  growth  rate  of  around  -1.8%.  In  the  area  of  social 
transfers, pensions were not indexed in 2012 while the recreational allowance for pensioners 
was  cut  for  high  pension  earners  until  the  year  after  the  year  in  which  real  GDP  growth 
exceeds  2.5%.  The  indexation  of  other  social  benefit  rates  was  cancelled  until  2014.  In 
addition, eligibility for child benefits was tightened for higher income families while parental 
protection and other family benefits were lowered. On the revenue side, the authorities have 
made the tax system more growth-friendly with a gradual cut in the corporate income tax rate 
from  20%  in  2011  to  15%  in  2015  and  more  generous  investment  and  R&D  allowances. 
However,  this  has  tended  to  work  against  the  consolidation  effort  because  it  largely  offset 
permanent  revenue  increasing  measures  in  the  form  of  higher  excise  duty  rates,  new  CO2 
charge on mineral oils and charges (concession fees) on student work.  

9 

 
 
Overall,  total  discretionary  measures  of  around  2¾%  of  GDP  were  taken.  Again,  they  were 
partially  offset  by  the  same  elements  as  in  previous  years.  These  elements  in  combination 
with other determinants of the cyclically-adjusted balance and after deducting one-offs on the 
revenue  (superdividends  for  energy  companies)  and  expenditure  side  (recapitalisation  of 
banks) improved the structural balance by significant 2.0% of GDP. The estimated change in 
the  structural  balance  was  also  affected  by  revenue,  net  of  discretionary  measures, 
unexpectedly falling at a slightly lower rate than would have been implied by the GDP decline 
and  standard  elasticities.  This  was  mainly  due  to  buoyant  indirect  taxes  after  higher  excise 
duty rates. After taking also the large downward revision of the potential output growth into 
account, the annual adjusted structural effort is estimated at around 2.6% of GDP in 2012. 

3.7. 

Budgetary developments in 2013 

The  Commission  services'  2013  Spring  Forecast  projects  the  general  government  deficit  at 
5.3%  of  GDP  in  2013.  This  projection  includes  one-off  conversions  of  hybrid  debt-equity 
instruments into equity of the two largest banks together amounting to 1.2% of GDP (€320m 
for  the  NLB  and  €100m  for  NKBM).  Consequen tly,  in  their  absence  the  deficit  for  2013 
would  be  projected  at  4.1%  of  GDP.  The  deficit  forecast  of  5.3%  of  GDP  compares  with 
Slovenia's  deficit  target  for  2013  of  7.9%  of  GDP  from  the  2013  update  of  the  stability 
programme, which includes larger recapitalisations of banks.  

Public finances in 2013 are expected to benefit from the full-year effects of savings measures 
from the Act on Balancing Public Finances which entered into force in mid-2012. Slovenia is 
also  implementing  additional  revenue-increasing  measures,  which  include  a  new  tax  on 
financial  services,  an  amended  tax  on  bank  assets,  higher  excise  duty  rates  and  higher  CO2 
tax. The net effect of personal income tax changes is assessed as broadly neutral because the 
increase in the threshold for the tax bracket at 41% to around 1.5 times an average wage (from 
around  1.3  times)  offsets  a  new  highest  personal  income  tax  bracket  at  50%  (temporary 
measure over 2013 – 2014) and reductions in some personal income tax allowances. A further 
reduction  in  the  corporate  income  tax  rate  by  1  pp.  will  also  reduce  revenue.  On  the 
expenditure  side,  the  main  new  measure  is  the  December  2012  pension  reform.  However 
recent increases in number of old-age pensioners indicate it will have less of an effect in 2013 
than  was  foreseen  when  the  budget  was  prepared.  In  addition,  pension  expenditure  is 
projected  to  be  higher  by  some  0.15%  of  GDP  (including  the  compensatory  payment  for 
2012) due to the March 2013 Constitutional Court judgement to repeal provisions of the Act 
on Balancing Public Finances stipulating the cut in pensions financed directly from the central 
government budget9. 

Some  consolidation  measures  announced  by  the  previous  government  and  included  in  the 
2013 budget have not yet been adopted by the cut-off date of the Commission Services' 2013 
Spring  Forecast.  The  adoption  and  implementation  of  the  announced  tax  on  sugar  and 
sweeteners in beverages, tax on gaming tickets and higher environmental charges as well as 
the implementation of measures to cut the wage bill by 5% in net terms would further reduce 
the 2013 deficit. Their estimated budgetary implications depend on measures’ details and time 
of  implementation.  These  measures  are  not  incorporated  in  the  Commission  services'  2013 
Spring  Forecast,  with  the  exception  of  the  cut  in  the  wage  bill  by  3%.  Finally,  the  new 
government  announced  the  2013  supplementary  budget  for  summer,  which  will  include 

9 The final decision how the compensation for lower pensions in 2012 will be recorded in ESA95 accounts stays 
with Eurostat. 

10 

 
 
                                                 
measures announced in the 2013 update of the stability programme. However, these measures 
(e.g. higher VAT rates, higher and broader real estate taxation, possible crisis personal income 
tax, cancelation of further cuts in the corporate income tax rate from currently 17% as well as 
various not yet fully identifiable expenditure consolidation measures) were not included in the 
Commission Services' 2013 Spring Forecast because the stability programme was submitted 
to the Commission on 9 May only. 

Overall, total discretionary measures of around ½% of GDP have already been taken for 2013. 
Again,  they  were  partially  offset  by  the  inherent  dynamics  of  previously  mentioned 
expenditure items. These elements in combination with other determinants of the cyclically-
adjusted  balance  are  forecast  to  improve  the  structural  balance  by  0.3%  of  GDP.  The 
estimated change in the structural balance is forecast to be affected also by revenues, net of 
discretionary measures, unexpectedly falling at a higher rate than would have been implied by 
the GDP decline and standard elasticities mainly due to weak indirect taxes (0.25% of GDP), 
social  contributions  (0.25%  of  GDP)  and  direct  taxes  (0.1%  of  GDP).  After  taking  also  the 
large  downward  revision  of  potential  output  growth  into  account,  the  annual  adjusted 
structural effort is estimated at around 1.9% of GDP in 2013. 

4. 

PROPOSED NEW ADJUSTMENT PATH 

According  to  the  baseline  macroeconomic  scenario,  which  is  the  Commission  services’ 
updated 2013 Spring Forecast, Slovenia is not forecast to correct its excessive deficit by the 
deadline  established  in  the  Council  Recommendation  of  2  December  2009,  although  the 
average annual adjusted structural effort at 1.1% of GDP is above the structural effort of ¾% 
of  GDP  recommended  by  the  Council.  At  the  same  time,  Slovenia was  hit  with unexpected 
adverse  economic  developments  with  the  economy  in  the  double  dip  recession,  which  is 
projected  to  last  into  201410.  Employment  has  been  affected  negatively,  unemployment  has 
risen sharply and real wage growth became negative. Slovenia is also experiencing excessive 
macroeconomic  imbalances  which  seriously  hamper  investment.  Thus,  domestic  demand 
continues to decline. This is having adverse effects on both the revenue and expenditure sides 
compared  to  what  was  expected  at  the  time  of  the  Council  recommendation.  It  therefore 
appears  justified  to  issue  a  revised  EDP  recommendation  to  Slovenia  and  to  extend  the 
deadline  for  correction  of  the  excessive  deficit  which  is  also  in  line  with  the  flexibility 
foreseen in the Stability and Growth Pact. 

Granting  two  additional  years  for  the  correction  of  the  excessive  deficit  would  be 
commensurate  with  intermediate  headline  deficit  targets  of  4.9%  of  GDP  in  2013  (3.7%  of 
GDP without 1.2% of GDP one-off conversions of hybrid debt-equity instruments into equity 
of the two largest banks), 3.3% of GDP in 2014 and 2.5% of GDP in 2015 (see Table 6). The 
underlying improvement in the structural budget balance implied by these targets is 0.7% of 
GDP in 2013, 0.5% of GDP in 2014 and 0.5% of GDP in 2015, the last two corresponding to 
the minimum improvement required by Article 5(1) of Council Regulation (EC) No 1466/97 
of 7 July 1997. 

The  baseline  scenario  incorporates  only  adopted  consolidation  measures  among  those 
foreseen  in  the  2013/14  budget.  To  reach  the  recommended  improvement  in  structural 
balance,  specification,  adoption  and  implementation  of  additional  consolidation  measures  in 

10 The unexpected macroeconomic developments are reflected in the adjusted average annual structural effort.  

11 

 
 
                                                 
the  announced  2013  supplementary  budget  is  required.  Also  for  2014  and  2015,  detailed 
specification  and  adoption  of  structural  consolidation  measures  which  are  necessary  to 
achieve the correction of the excessive deficit by 2015 followed by rigorous implementation 
is  requested.  In  total,  to  reach  the  above-mentioned  structural  targets,  the  Slovenian 
authorities  would  need  to  implement  additional  consolidation  measures  of  1%  of  GDP  in 
2013,  1½%  of  GDP  in  2014  and  1½%  of  GDP  in  2015  on  top  of  the  measures  already 
included in the baseline scenario. These targets take into account the need to compensate for 
the  negative  second-round  effects  of  fiscal  consolidation  on  public  finances,  through  its 
impact on GDP growth.   

Public  finances  could  benefit  from  a  specification,  adoption  and  implementation  of 
consolidation measures valid over a period of a few years in order to avoid repetitive, annual 
lengthy  negotiations  on  temporary  measures  valid  in  some  cases  for  one  year  only.  In 
addition, current expenditure consolidation measures appear as a preferred option relative to 
broad based tax increases, because the former could effectivelly decelerate inherent dynamics 
of  expenditure  and  tackle  expenditure  inefficiencies.  In  this  context,  also  a  review  of 
financing of indirect budgetary users (public institutes) and avoidance of further cuts in public 
investment could improve the quality of the consolidation. Furthermore, a close monitoring of 
public  finance  developments  and  prompt  further  corrective  action  would  be  warranted  if 
slippages  were  to  materialise.  Finally,  to  ensure  the  success  of  the  fiscal  consolidation 
strategy, it will be also important to back the fiscal consolidation by comprehensive structural 
reforms, in line with the Council recommendations addressed to Slovenia in the context of the 
European Semester and Macroeconomic Imbalances Procedure. 

0.5

0.1

2015
43.9
43.1

2013
45.0
44.3

2012
45.0
44.6

2014
44.2
43.5

Table 5 – Forecast of key macroeconomic and budgetary variables under the baseline scenario
% of GDP
Revenues 
Current revenues
Discretionary measures with impact on current 
revenue1
Expenditure
Real GDP growth (%) 
Nominal GDP growth (%) 
Potential GDP growth (%) 
Structural balance
General government balance
p.m CAB methodology revenue elasticity
p.m Apparent revenue elasticity
p.m Output gap (% of potential output)
Note:
1 Measures clearly specified and committed to by governments ahead of the recommendation
Source: Commission Services' updated 2013 Spring Forecast

49.1
-0.1
1.0
-0.7
-3.4
-4.9
0.9
-0.9
-3.1

49.4
1.3
3.1
-0.2
-4.7
-5.5
0.9
0.8
-1.9

49.0
-2.3
-2.0
-1.1
-2.7
-4.0
0.9
0.6
-2.7

50.5
-2.0
-0.6
-1.1
-2.6
-5.5
0.9
4.0
-3.6

0.0

0.0

12 

 
 
  
 
Table 6 - Forecast of key macroeconomic and budgetary variables under the EDP scenario
% of GDP
Real GDP growth (%)
Potential GDP growth (%)
Structural balance
General government balance
p.m Output gap (% of pot. output)
Source: Commission Services

2015
0.3
-0.5
-1.1
-2.5
-2.8

2012
-2.3
-1.3
-2.8
-4.0
-2.5

2014
-1.2
-1.0
-1.6
-3.3
-3.5

2013
-2.2
-1.4
-2.1
-4.9
-3.3

13 

 
 
 
5. 

CONCLUSIONS 

On current information, the average annual fiscal effort after correction for the effects of the 
revision  in  the  potential  output  growth  and  in  revenue  developments  is  estimated  at  around 
1.1%  of  GDP.  This  estimate  is  based  on  the  Commission  services’  2013  Spring  Forecast, 
which  incorporates  only  adopted  measures  among  those  foreseen  in  the  2013  budget.  The 
calculated adjusted structural effort is above the average annual fiscal effort of ¾% of GDP 
over  2010-2013  required  in  the  Council  recommendation,  which  suggests  that  Slovenia  has 
taken effective action to correct the excessive deficit.  

The bottom-up approach assesses the cumulative size of consolidation measures at some 6¾% 
of GDP over 2010-2013, which includes a reduction in public investment by around 1¾% of 
GDP. A deficit-reducing effect of these measures has been partially offset by inherent growth 
of certain expenditure items, in particular interest and pension expenditures, and intermediate 
consumption  growth.  The  budgetary  impact  of  those  items  is  estimated  at  around  2½%  of 
GDP  over  2010-2013.  Consequently,  the  bottom-up  calculation  of  the  size  of  consolidation 
measures  adjusted  for  inherent  growth  of  expenditure  items  mentioned  above  indicates  the 
total  net  fiscal  effort  of  around  4¼%  of  GDP  over  2010  –  2013.  This  is  above  the  average 
annual fiscal effort of ¾% of GDP over the period 2010-2013 required in the 2009 Council 
EDP recommendation. Thus, it appears to confirm that Slovenia has taken effective action to 
correct the excessive deficit. 

For  2013,  the  Slovenian  authorities  have  adopted  the  budget  which  contains  additional 
consolidation measures, which are however not sufficient for the correction of the excessive 
deficit situation by 2013, as recommended by the Council. The authorities have also adopted 
the  2014  budget,  which  does  not  incorporate  new  discretionary  measures,  except  for  a 
reduction  in  the  corporate  income  tax  rate  by  another  1  pp.  and  broad  stabilisation  of  the 
public sector wage bill at the 2013 level. 

to 

the  one  underlying 

the  economy  relative 

The  substantial  deterioration  in  the  budgetary  position  resulting  from  the  weaker  overall 
position  of 
the  2009  Council  EDP 
recommendation  suggests  that  a  new  deadline  for  the  correction  of  the  excessive  deficit  in 
Slovenia  by  2015  is  appropriate.  Granting  two  additional  years  in  the  correction  of  the 
excessive deficit requires intermediate headline deficit targets of 4.9% of GDP in 2013 (3.7% 
of  GDP  without  1.2%  of  GDP  one-off  conversions  of  hybrid  debt-equity  instruments  into 
equity  of  the  two  largest  banks),  3.3%  of  GDP  in  2014  and  2.5%  of  GDP  in  2015.  The 
underlying improvement in the structural budget balance implied by these targets is 0.7% of 
GDP  in  2013,  0.5%  of  GDP  in  2014  and  0.5%  of  GDP  in  2015.  To  reach  those  structural 
targets, the Slovenian authorities would need to implement additional consolidation measures 
of  1%  of  GDP  in  2013,  1½%  of  GDP  in  2014  and  1½%  of  GDP  in  2015  on  top  of  the 
measures already included in the baseline scenario   

14 

 
 
 
 
 
 
 
Table 7: Comparison of key macroeconomic and budgetary projections 

2009

2010

2011

2012

2013

2014

2015

Real GDP

(% change)

Output gap1
(% of potential GDP)

COM uSF 13

SP 13

COM AF 09

COM uSF 13

SP 13

COM AF 09

COM uSF 13

General government balance

SP 13

(% of GDP)

COM AF 09

COM uSF 13

Primary balance

SP 13

(% of GDP)

COM AF 09

COM uSF 13

Cyclically-adjusted balance1

SP 13

(% of GDP)

Structural balance2
(% of GDP)

COM AF 09

COM uSF 13

SP 13

COM AF 09

COM uSF 13

Government gross debt

SP 13

(% of GDP)

COM AF 09

-7.8

-7.8

-7.4

-3.9

-3.9

-3.3

-6.2

-6.2

-6.3

-4.9

-4.9

-4.8

-4.4

-4.4

-4.8

-4.4

-4.4

-4.7

35.0

35.0

35.1

1.2

1.2

1.3

-2.7

-2.7

-3.3

-5.9

-5.9

-7.0

-4.3

-4.3

-5.1

-4.7

-4.7

-5.4

-4.7

-4.7

-5.4

38.6

38.6

42.8

0.6

0.6

2.0

-1.5

-1.5

-2.8

-6.4

-6.4

-6.9

-4.4

-4.4

-4.9

-5.7

-5.7

-5.6

-4.7

-4.7

-5.6

46.9

46.9

48.2

-2.3

-2.3

n.a.

-2.7

-2.7

n.a.

-4.0

-4.0

n.a.

-1.9

-1.9

n.a.

-2.7

-2.7

n.a.

-2.7

-2.7

n.a.

54.1

54.1

n.a.

-2.0

-1.9

n.a.

-3.6

-3.5

n.a.

-5.5

-7.9

n.a.

-2.9

-5.2

n.a.

-3.8

-6.3

n.a.

-2.6

-2.6

n.a.

61.4

61.8

n.a.

-0.1

0.2

n.a.

-3.1

-2.7

n.a.

-4.9

-2.6

n.a.

-2.1

0.3

n.a.

-3.4

-1.4

n.a.

-3.4

-1.4

n.a.

64.0

63.2

n.a.

1.3

1.2

n.a.

-1.9

-1.3

n.a.

-5.5

-2.1

n.a.

-2.4

0.7

n.a.

-4.7

-1.5

n.a.

-4.7

-1.5

n.a.

68.9

63.2

n.a.

Note:
1 Output gaps and cyclically-adjusted balances according to the  programmes as 
recalculated by Commission services on the bass of the information in the programmes.
2 Cyclically-adjusted balance excluding one-off and other temporary meaures
Source:  Commission services' 2013 Spring Forecast extended for year 2015 (COM eSF 13),  Commission services' 2009

Autumn Forecast (COM AF 09), and May 2013 stability programme (SP 13)

15 

 
 
 
  
Annex 

Table  A1:  Adjustment  of  apparent  structural  effort  for  the  revision  in  potential  growth  – 
details of calculation  
Average potential growth 
assumptions underlying 
Dec 2009 Council 
recommendation (%)

Structural 
expenditure (% of 
potential GDP) (COM 
2013 SF)

Correction for revision in 
potential growth (% of 
nominal potential GDP)

Average potential 
growth (COM 2013 SF) 
(%)

Forecast error (%)

(1)

1.8

(2)

0.0

(3) = (2) - (1)

1.8

(4)

45.2

(5) = (3) * (4) / 100

0.8

Source: Commission services' updated 2013 Spring Forecast 

Table  A2:  Adjustment  of  apparent  structural  effort  for  the  revenue  windfalls/  shortfalls  as 
compared to standard elasticities – details of calculation 

CAB methodology 
revenue elasticity 
(ε* = 0.91)

Change in current 
revenues (yoy) 
(EUR mln)

Discretionary 
current revenue 
measures (EUR mln)

Nominal growth 
assumptions (%)

Current revenues 
in t-1 (EUR mln)

Revenue gap 
(EUR bn)

2013 SF
2010
2011
2012
2013
Average

(1)
535.8
261.4
-159.6
-203.7

(2)
30.0
35.0
30.0
162.0

(3)
0.1
1.6
-2.0
-0.6

(4)
15190.7
15726.5
15987.8
15828.2

(5) = (1) - (2)-
ε*x(3)x(4)

486.0
0.0
93.4
-282.1

Correction for 
revenue 
windfalls/shortfalls

(5) (% of nominal 
potential GDP)
1.3
0.0
0.3
-0.8
0.2

Source: Commission services' 2013 Spring Forecast 

16