Comparison with previous programme 32

In this chapter, an overview is given of total revenues, expenditures and net lending/borrowing presented in the previous year’s PEP and this year’s PEP, along with an explanation of differences.

One of the most important changes that has taken place during the previous year and has led to changes in revenues, expenditures and net lending/borrowing as a share in GDP is the change in nominal GDP. The difference is a result of the revised calculation of nominal GDP for 2004 and for subsequent years, of stronger economic activity and also of higher inflation projections for the medium-term period. Thanks to higher levels of nominal GDP, the categories under review (revenues, expenditures and net lending/borrowing), expressed as a share in GDP, have been reduced.

However, the differences between certain fiscal values for the same years in last year’s PEP and this year’s PEP can also be accounted for by other reasons, which are all very characteristic for revenues and expenditures. The outturn of the general government revenues in 2006 was above the projection included in the last year’s PEP, and the contribution of that surplus to revenues outturn in the subsequent years has been calculated by reference to the baseline effect. Furthermore, in 2007 one-off revenues (concession and dividend revenues) are estimated to be higher than those projected under the last year’s PEP, which to a certain extent explains the change in revenues’ share in GPD during 2007. The rest of the 2007

revenue surplus compared to the last year’s PEP can be attributed to stronger economy activity, which is carried over into the subsequent years through the baseline effect. The changed macroeconomic assumptions used in the revenue projection lead to an increase in the anticipated general government revenues throughout the medium term-period.

Table 11: Comparison of revenues, expenditures and net lending/borrowing of the general government for period 2006-2009, according to 2006 PEP and 2007 PEP

2006 2007p 2008p 2009p 2010p 2007 PEP (% of GDP) Total revenue 44.8 46.2 43.7 42.8 41.8 Total expenditure 47.0 47.8 45.2 43.4 41.6 Net lending/borrowing -2.2 -1.6 -1.5 -0.6 0.2 2006 PEP (% of GDP) Total revenue 45.0 44.8 44.0 43.3 Total expenditure 47.2 46.6 45.7 44.7 Net lending/borrowing -2.2 -1.8 -1.7 -1.5

Difference: 2007 PEP and 2006 PEP (percentage points)

Total revenue -0.2 1.4 -0.3 -0.4

Explained by:

Revision of GDP -0.5 -0.9 -1.7 -2.4

Difference due to final outturn of 2006 0.3 0.2 0.2 0.2

Increase in one-off revenues in 2007 0.9

Difference due to projection for 2007 1.2 1.2 1.1

Difference due to projection for 2008 0.0 0.0

Difference in projection for 2009 0.5

Total expenditure -0.1 1.2 -0.5 -1.3

Explained by:

Revision of GDP -0.5 -1.0 -1.8 -2.5

Assumption of guarantees in 2006 0.3

One-off expenditure associated with court rulings 0.1

Subsidies 0.1

Clearance of arrears 0.1

Increase in motorway construction expenditures 0.8

Compensation of employees 0.2 0.3 0.5

Increase in health expenditure 0.2 0.2 0.2

Increase in expenditure for pensions 0.1 0.4 0.4

Increase in material cost 0.3 0.3

Increase in expenditure for interest 0.1 0.1

Other 0.1 0.5 0.0 -0.3

Net lending/borrowing -0.1 0.2 0.2 0.9

Source: MF

In 2006 the level of expenditure was higher than projected in the last year’s PEP. The reason for this lies in the guarantees assumed during 2006 and accounting for 0.3% of GDP.

A number of effects during 2007 have caused the levels of expenditure to change between the two PEPs. Note should be made of one-off expenditures for enforcement of judgements regarding compensation of employees. Also, the level of subsidies has risen, particularly as a result of larger amounts allocated to agricultural subsidies. A substantial portion of the increase in expenditures during 2007 can be attributed to intensified motorway construction works, and there has also been a one-off increase related to the payment of arrears in the health care system.

For all the years during the period 2007-2009, this year’s PEP foresees higher expenditures for compensation of employees, which is mainly associated with the increase in projected expenditures for compensation of employees at the local government level. It should be pointed out that the local government expenditure projections have been revised compared with the last year’s PEP mainly because of the fact that the 2006 budget execution by the local government units at end-2006 was much above the relatively pessimistic projections from the

In addition to the above mentioned one-off expenditures in 2007 aimed at eliminating the accumulated arrears in the health care system, the 2007 budget includes also higher health expenditures which should prevent further build-up of arrears, and the effect of the increase in this expenditure category will be felt in subsequent years.

Expenditures for the pensions of war veterans are moderately growing during 2007 as a result of the payment of dues from previous years. The pension expenditures will grow somewhat faster in the years ahead due to the equalising of pensions of the so-called „old” and „new” pensioners, i.e. reducing of existing differences in pension amounts paid to persons who retired at different times.

Increased material expenditures in 2008 and 2009 can be explained by two factors. Firstly, the level of utilisation of EU aid funds is expected to be higher, and those are largely channelled into material expenditures. The other reason is the revision of expenditure projections at the local government level, as described above. According to their revised projections, interest expenditures are expected to be somewhat higher in 2008 and 2009 than projected in the last year’s PEP.

Under the new projections for total revenues and expenditures at the general government level, an improvement is foreseen with the regard to the level of net lending/borrowing, from 0.2 percentage points in 2007 to 0.9 percentage points in 2009.