On March 11, 2011 the Heads of State or Government of the Eurozone endorsed the Pact for the Euro. At the 24/25 March 2011 European Council, the same Heads of State or Government agreed on the Euro Plus Pact and were joined – hence the ‘Plus’ – by six others: Bulgaria, Denmark, Latvia, Lithuania, Poland, Romania (leaving only the UK, Czech Republic, Sweden and Hungary out).
The objective of the pact is to foster competitiveness, foster employment, contribute to the sustainability of public finances and reinforce financial stability. In the Euro-Plus-Pact the Heads of State or Government have entered into commitments on a number of policy areas, in which member states are competent.
What political/legal difficulties did Slovakia encounter in the negotiation of the Euro-Plus-Pact, in particular in relation to the implications of the Pact for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process.
Slovakia focused on two priorities in the negotiations of the Pact: first, to include an explicit notion that direct taxes remained in the Member States’ competences, and, second, to maintain that the retirement age would depend on demographic developments in a MS. Especially the idea of EU corporate tax was strictly refused by then PM Radičová. This fear led to several constitutional bills being proposed stipulating that the competences in direct taxes could not be transferred to the EU. Neither of these efforts materialized.
What other information is relevant with regard to Slovakia and the Euro-Plus-Pact?
Major changes were adopted through a constitutional law, the Fiscal Responsibility Act, and implementing laws (see the answers to questions VI.2, IX.4 and IX.5).
The National Reform Programme of 2012 stated that “[t]he Slovak Government made a political commitment under the Euro Plus Pact initiative to adopt several key measures (fiscal consolidation, pension and contribution reform, fiscal responsibility act, Labour Code, reducing administrative burden on businesses, fight against corruption and improved transparency).” These measures were also part of the effort to implement the EU recommendations for the period of 2011-12.
I. Sustainability of public finances and financial stability aims of the Pact
Measures in the total amount of €1.8bn, or 2.5% of GDP, were implemented in 2011 (compared to an unchanged policy scenario). General government deficit were expected to stand at 4.8% of GDP in 2011. This figure also included debts of healthcare facilities and debts towards railway companies incurred from 2004 to 2010. The total amount of these debts represented €633 million (0.9% of GDP) which, taking into account the 2011 bailout, accounted for a net negative effect on the public balance of 0.83% of GDP.
The general government budget for 2012-2014 contained further consolidation measures to reduce the deficit in 2012. They include measures on the expenditure side, especially frozen wage expenditures and overhead costs, as well as savings on capital expenditures, which, however, should be compensated for by a more effective use of EU funds. On the revenue side, moderate changes were made in corporate income tax, the excise duty on tobacco products was increased and a bank levy was introduced.
In order to protect expenditures that promote economic growth, two basic and political expenditure priorities were apparent in the 2012 budget. The first one was the transport infrastructure, where allocations increased in the road and railway transport sectors. The second priority area was education where the volume of funds for regional schools per student increased by 5.0% year-on-year and in the tertiary school sector by 4.7%.
Pension and contribution reform
The reform of the second (fully-funded) pension system pillar came into force on November 1, 2011, but several changes in pension funds became only applicable as of April 1, 2012. The reform introduced the fourth type of pension fund, so-called index-linked, whose performance will replicate developments in one or more stock market indices. The proposed change enables savers to divide their savings into two pension funds, one of which must be a bond pension fund. In connection with this change, a gradual transfer of personal savings to a bond pension fund has been introduced, depending on the age of savers. The scope of insurers was defined anew, based on the principle of automatic entry, while the pension savers have the possibility to unilaterally opt out from the second pillar anytime during the first two years after their entry to the old-age pension saving scheme. A change was also made to one of the eligibility criteria for old-age pension payments from the 2nd pillar, namely that savers must participate in the old-age pension saving scheme for at least 10 years, compared to the original 15-year limit.
Fiscal Responsibility Constitutional Act
The Fiscal Responsibility Constitutional Act approved by a constitutional majority in the Parliament on Dec. 8, 2011 and effective as of March 1, 2012 governs the establishment and competences of a Fiscal Responsibility Council, rules of fiscal responsibility and rules of fiscal transparency. The Fiscal Responsibility Council will be an independent body, which will monitor and assess the fulfilment of Government’s fiscal targets. The act sets the maximum limit on general government debt, including measures that must be implemented if the reported level of the general government debt reaches a certain limit, sets out the transparency rules to be observed when drafting a general government budget and introduces more stringent budgetary rules for local government. More information on the legal framework is supplied in the section on the Fiscal Compact.
II. Employment aim of the Pact
Under the amendment to the Labour Code effective from Sept. 1, 2011, the practice which entitled employees to both severance pay and full wage over the course of the notice period was cancelled; the notice period was cut from two months to one month for employment contracts shorter than one year; the maximum duration of fixed-term employment contracts was extended and the maximum number of their renewals was increased from two to three. Changes concerning working time and new provisions on overtime work without prior consent from employee representatives gave the employers better possibility to flexibly respond to changing economic conditions, but led to deterioration in the social dialogue. The amendment also introduced a working time account and made the flexi-account a permanent instrument.
III. Competitiveness aim of the Pact
Reducing administrative burden on businesses
The project to decrease the administrative burden on businesses contains a set of 94 legislative and deregulatory measures. Fourteen of them were fulfilled by the end of October 2011. For example, the Parliament approved an amendment to the Act on Business Register in December 2011, under which the statutory period for entry of data to the business register was shortened from five to two working days. Another change facilitating improvements in the business environment was the introduction of electronic publication of the Commercial Journal, which allowed for, among other things, shortening of publication periods from several months to a few days. The launch of its electronic version turned the Commercial Journal into a real source of information for entrepreneurs.
Single points of contact (SPC) were put in operation in January 2012, following the completion and testing of their electronic system. SPCs help remove redundant administrative burden on business entities and allow, for example, the submission of electronic applications/notifications when starting a business, including electronic payments, or applications for incorporation of companies in the business register. Entrepreneurs may thus handle all the necessary administrative requirements before starting their business in one place, including in electronic format.
Under an amendment to the Act on Bankruptcy and Restructuring, creditors have been permitted to file proposals for bankruptcy against their debtors due to debtor’s insolvency, which has put a natural pressure towards observing payment discipline. Debtors are also encouraged to timely resolve their pending insolvency or insolvency by means other than bankruptcy, namely through informal or formal restructuring. The amendment will also put an end to speculative practices used by some companies within bankruptcy proceedings, such as when a debtor company has declared bankruptcy too late, i.e., at a time when it officially held no assets to satisfy its creditors, or, possibly, when the bankruptcy proceedings have been agreed with “friendly creditors” and only served to transfer assets from one company to another.
Fight against corruption and improved transparency
The Slovak Government introduced rules for a more transparent and cost-efficient use of public assets and public funds. Contracts concluded by government entities and municipalities, as well as contracts involving public funds, may only enter into force on the day following the day of their publication on the Internet. A requirement was introduced to use electronic auctions to the greatest extent possible. The use of electronic auctions increased considerably last year; in the second half of 2011, approximately a quarter of all public tenders were carried out by means of electronic auctions. In 2011, contracting authorities bought goods and services 14% cheaper than planned.