Матеріали проекту «Аналітична підтримка економічних реформ у регіонах України в умовах європейської інтеграції»

1. Social & Economic Reforms on
the Eve of the EU Accession:
Case of Slovakia
Martin Angelovič & Vladimír Benč
Research Centre of the Slovak Foreign Policy Association, n.o.
Hlavná 11, 080 01 Prešov, Slovak Republic
e-mail: benc@sfpa.sk
tel./fax: +421 51 7721 018
web: www.sfpa.sk
Ukraine, 30.03.2015

2. About us
 Established in 1993 as a civic association: think-tank (NGO)
 Central office in Bratislava and regional office in Prešov (Eastern Slovakia)
 In 2004: Research Center (non-profit, MFA of the SR is a shareholder)
 Activities and aims:
 Provide independent expert studies of crucial questions of international
relations and foreign policy of the SR;
 Publish periodical and non–periodical expert publications that serve to
deepen knowledge in the field of international relationships and foreign policy
of the SR;
 Arrange expert events and take part in international scientific co-operation in
the field of international relations and security;
 Enhance expert discussion on international relations and foreign affairs of the
SR;
 Create a favorable conditions for the growth of the next generation of Slovak
experts in the field of international relationships;
 Incite the interest of the wider Slovak public in events throughout the world,
as well as a deeper understanding of the significance of foreign policy and its
link with domestic policy.

3. About us no. II.
 6 research programs:
 European Studies
 International Security
 Central and Southeastern Europe (mostly V4, Balkan + Turkey)
 Eastern Europe (Ukraine, Russia, Central Asia)
 Economic Policies and Development Assistance
 Slovak-Ukraine Research and Educational Center (SUREC)
 Periodical publications: Foreign Policy (SK), International Issues (EN),
Yearbook of the SR foreign policy (SK, EN), SUREC newsletter (SK, UA)
 Staff: 7 senior + 4 junior researchers, 3 project managers/assistants
 Resources: 45% own projects (EU & US funds and donors + Norway
grants), 35% MFA (incl. Slovak Aid) & SK institutions (contracts, grants),
15% contracts (private sec. + Universities), 5% Membership fees

4. Slovakia – Ukraine
Indicator Ukraine Slovakia
The population - (July 2014) 44 291 413 5 410 267
Area - sq km 603 550 49 035
HDI 2014 (total score/ranking in
the world)
0,734 / 83 0,830 / 37
Index of Economic Freedom 2014
(total score/ranking in the world)
49,3 / 97 66,4 / 33
Corruption Perceptions Index
2014 (total score/ranking in the
world)
26 / 142 50 / 54
Doing Business 2014 (celkové
skóre / poradie vo svete) 59,21 / 112 71,73 / 35
GDP per capita in PPP (1993 /
2013)
1 258 / 7 400 7 453 / 24 700
Inflation in % (1993 / 2014) Over 100! / 0,7 25,1 / 1,7
Unemployment in % (1993 /
2014)
0,4 / 8 12,7 / 14,4
Public debt in % of GDP (1997 /
2013)
? / 40,6 33,7 / 55,5
Current account balance (2013)
11,92 bil. USD 3,315 bil. USD

5. Unique reforms in Slovakia 1999-2005
 1999 – 2005: Fiscal reform
 2000/2001: Banking system reform
 2002: Administration reform – 8 higher self-governments,
transfer of competences to municipalities
 2003: Tax reform – unitary tax (19% - VAT and income tax),
programming in government budget
 2003/2004: Social system reform – decrease of social benefits,
active searching for a job, public works, retraining
 2004: Pension system reform – private accounts, private
pension funds
 2000-2005: Privatisation of state monopolies
(telecommunication, gas distribution, energetic sector, banks)
Unsuccessful reforms: health care system, educational system,
justice

6. Fiscal and banking system reform
 Fiscal reform: to increase the effectiveness of the use of public
financial resources
 Transparency of expenditures

Limitation of state guaranties to private and state owned companies

Implementation of EU standards to public administration (ESA 95 + IPSAS, budgeting,
reporting, accounting)
 Strengthening of the strategic planning

Midterm framework of public finances (multiyear budgeting at least for 3 years),
programming in budgeting (aims>activities>budget)
 Joint prognosis for public administration

New analytical centre of government IPF

Macroeconomic and tax prognosis system using independent experts and private sector
 Centralisation of financial flows of public administration

System of state treasure-house - one account for whole public administration (except
municipalities and higher self-governing units)

Creation of the Agency for management of debt and liquidity (ARDAL)
 Bank system reform
 Independence of National bank of Slovakia
 Strict regulation of banks esp. in the area of loan supervision
 Paying off “bad” loans in amount if 4,5 bil. EUR
 Bankrupting “bad” banks and privatisation of the whole banking sector

7. Tax reform
 Aim: support of the production side of the economy, simplicity and
effectivity of the tax system
 Direct taxes:
 introduction of flat individual tax for private persons and companies (19%)
 elimination of dividend, inheritance, gift taxes, and real estate transfer tax
 elimination of virtually all exceptions, exemptions, deductions, special rates, and
special regimes
 Indirect taxes
 introduction of one single rate of 19% (before: 20% and 14%), 2007 – introduction of
decreased VAT rate 10% for pharmaceuticals and health material, 2008 - books and
newspapers
 harmonisation of excise taxes with EU
 Results:
 shift from direct to indirect taxes
 radical simplification of the tax system
 introduction of low nominal rates (at that time lowest in EU)

19% flat individual income tax, 19% corporate tax,19% unified VAT on all goods and services
- without any exception
>>> transparent tax system that motivates investments
Changes in income tax rates
191; 5; 10; 15; 20; 25Allowance tax
1915; 18; 25Corporate income tax
19
2; 2,25; 2,5; 2,75;
10; 20; 28; 35; 38
Personal income tax
20042003(in %)
Changes in income tax rates
191; 5; 10; 15; 20; 25Allowance tax
1915; 18; 25Corporate income tax
19
2; 2,25; 2,5; 2,75;
10; 20; 28; 35; 38
Personal income tax
20042003(in %)

8. Decentralisation of public administration
(2001-2005)
 Aim: more effective functioning of the public
administration, supporting subsidiarity
 Transfer of more than 400 competences to municipalities
and higher self-government units
 Transport, social affairs, regional schools (basic and secondary schools),
agriculture, health, construction, regional development ...
 Fiscal decentralisation
 Right to have and manage own taxes of municipalities
 New distribution mechanism for income tax of private persons
 New fiscal rules (balanced current budget, limitations for loans)
 Programming (Programs of economic and social
development + 3-years budget programming)
 Problems: unfinished municipalisation: plenty of small
villages (not economically effective)

9. Dual system of public administration in Slovakia
2004
decentralisation
New 50 district offices of general administration
??? Missing district level
Some ministries made
their own regional
units, e.g. 46 Social
offices, 8 Educational
offices etc.
decentralisation

10. Pension system reform
 Aim: sustainable public finances, introduction of 3 pillar system
 Changes in 1st
pillar (continuous system)
 increasing the working/retirement age till 62 years, valorisation of pensions based
on combination of inflation and wage growth
 increasing the meritoriousness (increasing maximum pension limits)

contributions at 18% of the assessment base payable solely to the PAYGOcontributions at 18% of the assessment base payable solely to the PAYGO
systemsystem

(early) old-age pension paid exclusively by the Social Insurance Agency(early) old-age pension paid exclusively by the Social Insurance Agency

recommended option particularly for people who will not be able to accumulaterecommended option particularly for people who will not be able to accumulate
sufficient pension savings to purchase life annuity at the time of retirementsufficient pension savings to purchase life annuity at the time of retirement
 Introduction of new 2nd
pillar (capitalisation/saving system) since
January 1, 2005
 change of ownership: individual pension accounts managedindividual pension accounts managed by private pension
funds, the contribution ratio - 9% DB : 9% DC,the contribution ratio - 9% DB : 9% DC, possibility to choose from
conservative, balanced and growth saving strategies, survivors’ pensions
(widow’s, widower’s and orphan’s pensions)
 minimum 15 years’ period of saving

designed primarily for people who will be able to contribute to their pensiondesigned primarily for people who will be able to contribute to their pension
accounts for at least 20-25 yearsaccounts for at least 20-25 years
 3rd
pillar (supplementary pension saving)
 special-purpose saving and the life insurance with tax incentive (400 EUR
annually)

11. Social system reform
 Aim: increasing targeting of social system and motivation
to work
 Help to working families
 children allowances: single whole territory allowance and tax
incentive (motivation for parents to work)
 Supporting working mobility
 Targeted social benefits
 decreasing the basic social benefits and introduction of work
incentive benefits (activation and motivation benefits)
 Changes in unemployment allowance
 tightening the conditions for applicants, reduction of time for
support
 Changes in health support allowance
 first 10 days of inoperability are paid by employer

12. Key reforms 2011-2015
 Deductions reform (social and health deductions) – “super-gross-salary” – only
employee will pay deductions, not employer + continuously uniting deductions for
employees and small entrepreneurs
 Constitution law on government budget responsibility (limits for expenditures based
on GDP growth + limit for public debt – will be probably 60% of GDP) for future
governments + establishing special independent Fiscal Council
 Reform of the justice sector – all decisions of the courts will be published at the web
page; changes in procedures of elections of judges and career planning of judges
and prosecutors …
 Reform of the education system - opening market for school books (e.g.
teacher/school can decide from which books they will teach); digitalization of schools;
independent and regular evaluation and tests of schools quality = changing system of
payments for schools – better schools will receive more money; reform of the system
that supports research; discussion about introduction of payments for education
(students will pay for studying) …
 Reform of the health care system: defining minimum state system of health care
system (e.g. only few hospitals will receive GOV state financial support, other will
bankrupt or will be privatized); independent evaluation of quality of services of
hospitals and binding support for best hospitals; changing medicine policy e.g. GOV
support only of the cheapest medicine
 Reform of pension and social system of military and police service - same conditions
as other state servants

13. Real GDP growth

14. Sources of GDP growth
Tax reform (2004) 21%
Privatisation by foreign investors (1998-2002) 17%
Entry to the EU (2004) 12%
Labour Code Amendment (2003) 10%
Reforms before 1998 10%
Pension reform (2004-2005) 4%
Other sources 26%
Source: INEKO survey among SK economists, March 2007

15. Public deficit (% of GDP)
Source: Eurostat

16. SK and EU
 Strong synchronization of
economies (SK – export
oriented)
 SR – healthy banking system
 Huge inflow of foreign
investment (esp. car industry)
-8
-6
-4
-2
0
2
4
6
2000Q01 2002Q01 2004Q01 2006Q01 2008Q01
-10
-5
0
5
10
15
Eurozóna (ľavá os) Slovensko (pravá os)
GDP, %-growth
Public support of
banking sector in
EU 27 during crisis
(% of GDP), end of
2011
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
FDI Inflows into Slovakia 1993-2007 (mil. USD)

17. Regional “status” of Slovakia
GDP per capita to EU 28
average in % 1996 2000 2004 2007 2008 2009 2010 growth
Prague (CZ) 128 139 163 177 175 176 172 +44
Central Morava (CZ) 65 58 62 64 64 66 64 +1
Chemnitz (GE) 81 77 81 83 81 80 83 +2
Stuttgart (GE) n.a. 143 139 141 142 133 144 +1
Észak-Magyarország (HU) 36 35 41 39 40 40 40 +4
Wien (AT) n.a. 182 170 160 161 163 165 -17
Mazowiecke (PL) n.a. 74 78 87 89 97 102 +28
Podkarpackie (PL) 34 34 35 37 39 41 42 +8
Bratislava region 104 109 129 160 167 177 176 +72
West Slovakia 48 47 54 66 69 68 68 +20
Central Slovakia 41 41 47 54 59 58 59 +18
Eastern Slovakia 38 38 42 46 51 49 49 +11
- Slovakia is doing great in
economic policy making > growth
strategy
- but week in fighting with regional
disparities + facing local problems
→ treat and challenge for the
future

18. Slovakia – cars producing nation
 Subcontractors location

20. Key problems and challenges of
SK regional policy
 Huge regional differences, big disparities in unemployment
→ Key question: how to coordinate economic policies ???
→ huge debate on priorities
 No money to realize regional policy – dependence on EU
funds, but big troubles to use them (system set up, project
preparation, corruption ...)
 New institutional set up (since 1999) – capacity problems
even until today
 Centralization of decision making and finances, but
competences and responsibility at regional level
 Wasting of money because of non-consistent policy
making – each government different approach (e.g. public
works) + corruption

21. System problems and longtime solutions
- „politicization“, corruption and ineffectiveness (wasting
of funds and time) ... at all levels ...
- missing strategic political decision (e.g. Finland 50-years
strategy for innovations) + year-to-year changing approaches and
strategies - programming for the „drawers“
- chaotic institutional set-up of regional policy making
(plenty of institutions at each level, plenty of programmes and funds,
bad coordination, problem of capacities ... example: CBC)
- problematic territorial division and performance of public
administration (??? 3 macroregions + 12/16 counties (zhupa),
municipalisation ???)
- bureaucracy of EU funds implementation caused by SK
institutions
- absence of evaluation and „sick“ control (not results, but
„bills“)

22. Further problems ...
- balance between the knowledge economy - vs. integration of
a large part of unemployed to the labor market (Romas, young, 50
and above ... we need the assembly plants) + integration of
regional policy to the economic policy based on long-term
priorities (the balance between the center and village)
- questions relating to the support of the private sector (not to
restrict competition and market economy) - support only public
projects??? (labor market, clustering, ...)
- fulfillment of the obligations of the Accession Treaty to the EU
and international agreements (especially environmental issues ..)
- Roma - a comprehensive approach needed to address key
development challenges in SR, especially in Eastern Slovakia
- flat rates + public infrastructure without competition in submitting
projects

23. Village Kechnec (www.kechnec.sk)
 1991: 734 → 2014: 1053 inhabitants (by economic development) – mayor, Mr. Jozef Konkoly is
in charge since 1990
 Kechnec Industrial Zone - 332 hectares - green field
 First idea in 1996 – buying land from inhabitants – building basic infrastructure – April 2002 Government
grant for infrastructure (6,12 mil. EUR) – October 2003 „Grand“ opening of the Zone (1st investor
MOLEX Slovakia – US company) – February 2004 Government grant for completion of infrastructure
(0,96 mil. EUR) – now more than 15 companies with more than 2500 employees + BMW is cosidering
huge investment
 GETRAG FORD Transmissions Slovakia, Kuenz-SK, Magneti Marelli Slovakia, SWEP Slovakia,
Doppelmayr Slovakia
 New Logistic Center opened in 2011 with 10.000 m2
 Plan for the Science & Technology Park with TUKE (University) and KSK (Reg. Gov.)
 New infrastructure built within 10 years:
 Social-healthcare complex, Sporting center, Kindergarten with English classes, European Integrated
School (Kindergarten, Elementary school , Vocational school, External school of the Engineering
Faculty), Apartment complex, Stores + services, Aquapark (under construction), Congress center and
cultural house, Open air cinema, Complex renovation of the village center, Plant for meat processing
and production of bakery products – village „social“ company, Connecting bridge over the river Hornad
to Hungary + plenty of „soft“ projects

24. Cluster AT+R (www.clusteratr.sk)
Established: 3rd
March 2010 as Association of
Legal Entities (PPP)
Aims: - joint development, research, designing
and implementation of automated production
systems;
-to concentrate R&D capacity, deepen the
home specialization profile and participation in
international groupings as well as to approach
the domestic and international markets with
higher complexity and quality of production.
-Last success: magnet possitioning system for
the Large Hadron Collider (CERN)

25. The Small Carpathian Wine Route
 One of six viticultural regions in Slovakia: vineyards covering 7,303.5 ha, which is
about one third of the total vineyard area in Slovakia (22,847 ha).
 Association established in 1995. It unites vintners, wine-producers, municipalities and
tourism businesses (more than 30 municipalities and almost 250 companies and
individuals).
 Aim and activities: to foster the development of the Small Carpathian region,
especially in terms of tourism connected to its wine-growing and winemaking
traditions. The association provides marketing and educational activities for the
region and its members, and organizes regional events focused on the promotion of
wine and vintners:
 Wine competitions
 Wine festivals + Municipal days
 Vineyard's day
 St. Urban’s day of open wine cellars (May)
 The Day of Open Wine Cellars (November)
 http://www.mvc.sk/

26. Information sources
 National Bank of Slovakia: www.nbs.sk
 Statistical Office of the SR: www.statistics.sk
 Slovak Government: www.government.gov.sk
 Ministry of Finance: www.finance.gov.sk
 Ministry of Transport, Construction and
Regional Development: www.mindop.sk
 EU structural funds in Slovakia: www.nsrr.sk
 NGOs’ web sites: www.sfpa.sk, www.ineko.sk,
www.iness.sk, www.ivo.sk, www.mesa10.sk

27. Thank you for your attention!