Slovak 2006 budget gap below plan on strong GDP

    Slovakia's central state 
budget deficit totalled 31.68 billion crowns ($1.21 billion) for 
the full year 2006, well below the projected ceiling of 57.47 
billion, as the economy grew more quickly than expected. 
    The finance ministry said on Tuesday end-2006 revenues 
totalled 107.1 percent of the full-year plan, boosted by tax 
income driven up by GDP growth at a near double-digit clip. 
    Overall tax revenues of 236.272 billion crowns exceeded the 
full-year plan by 9.6 percent, benefiting from tax reforms 
introduced by the previous government that lost a June 2006 
election and was replaced by a leftist cabinet. 
    Meanwhile, the ministry said expenditures represented only 
98.0 percent of the full-year projection. 
    "The deficit (calculated according local cash-flow 
methodology) is below plan mainly due to higher tax collection," 
said Slovenska Sporitelna analyst Maria Valachyova. 
    "This is the result of strong economic growth, growth of 
corporate profits and households spending," she added. 
    The ministry did not say what the state budget deficit was 
as a percentage of GDP, but the smaller than expected gap meant 
its latest forecast of a 3.6 percent of GDP gap for the broader 
public sector balance should be easily met, analysts said. 
    In 2004, Slovakia adopted a 19 percent flat tax system, 
which alongside other business-friendly reforms of the former 
government of Mikulas Dzurinda lured billions of dollars in 
foreign direct investment and fuelled economic growth. 
    Leftist Prime Minister Robert Fico, who beat Dzurinda in the 
election, has backed away from his campaign promises to 
dismantle the flat tax system and left the corporate and 
headline tax rates intact. 
    The EU member's economy grew at a record 9.8 percent pace in 
the third quarter, driven mainly by the combined effects of the 
country's booming automotive sector investments and increasing 
export capacities. 
    The budget data are closely watched by financial markets 
looking to see if Slovakia can achieve its goal of adopting the 
euro in 2009.  
    Several other countries in the region have been forced to 
put off euro accession due to high public sector deficits. 
    Fico's recently approved 2007 budget sees the public finance 
gap at 2.9 percent of GDP in 2007, just under the 3 percent 
limit for euro adoption laid out in EU's criteria. 
 (Reporting Martin Santa, Editing by Gerrard Raven; RM: 
martin.santa.reuters.com@reuters.net; 
Email: martin.santa@reuters.com; +421-2-5341-8402)) 
 ($1=26.18 Slovak Crown) 
  Keywords: SLOVAKIA BUDGET/ 
    

[BRATISLAVA/Reuters/Finance.cz]