The state can use at least 370 million in subsidies more efficiently
Last update: 01.03.2023 13:00
Of the EUR 1.5 billion that the state spends annually on subsidies, at least EUR 370 million could be used more efficiently. This results from the recommendations of the spending review prepared by the analytical units of the Ministry of Finance, the Value for Money Unit and the Financial Policy Institute.
The spending review, which is a standard tool used by developed countries to increase the efficiency of public finances, assesses subsidies amounting to EUR 1.46 billion per year. This amount represents 1.5% of GDP and 3.5% of public spending. Subsidies are provided in the form of public spending (EUR 876 million), tax relief (EUR 471 million) or reduced fees (EUR 116 million). The state should try to correct market failures through subsidies. However, if they are not set up correctly, they can distort competition and reduce firms’ motivation to invest. Until now, the state did not know exactly how much money it was spending to support companies through subsidies. The spending review thus represents the very first overview of all subsidies provided by the state.
“We have tried to identify which subsidy schemes are not working best and should be abolished. We have also formulated measures for other schemes that are justified but need improvement,” says Martin Haluš, Director of the Value for Money Unit.
In its current form, the review proposes to maintain the schemes worth EUR 630 million. It recommends cancelling the schemes worth EUR 291 million and suspending the disbursement of a further EUR 80 million until their justification is proven or the conditions for disbursement are changed. The other schemes need to be adapted and made more efficient.
Energy sector
Most subsidies go to the energy sector. Even before the energy crisis, it was more than EUR 800 million a year. The 117 million support for the production of electricity from domestic coal and the 40 million compensation to companies for the tariff for the operation of the system have lost their justification.
Sport
State support for sport amounts to EUR 110-150 million a year, with spending more than doubling in recent years. In order to support infrastructure in particular, the Sport Support Fund was created with an annual allocation of around EUR 20 million. The review recommends making the continued payment of allocations conditional on the exhaustion of accumulated reserves.
Agriculture
Slovak agriculture is mainly subsidised by the EU, with an amount of almost EUR 600 million. Support from the state budget averages EUR 64 million per year. It often takes the form of flat “compensation schemes” that do not sufficiently motivate beneficiaries to be efficient. Subsidies are mostly oriented towards supporting farmers’ incomes, as in the case of Green Diesel. The recommendation of the review is to suspend the scheme and modify its terms and conditions. It also proposes to abolish non-transparent support to food producers for completing questionnaires.
Culture
For culture, the review proposes to maintain and modify most of the subsidy schemes. They lack explicit targets and appropriate indicators to measure results. The total amount of cultural subsidies is around EUR 60 million per year. Without the subsidy, the Slovak Matica (Matica slovenská) would probably not function. The review recommends continuing with its funding only after examining which tasks could be carried out by other institutions and for which it could try to compete for competitive grants.
Research and development
Subsidies and tax expenditures for research and development from the state budget amount to an average of EUR 86 million. Total spending on research and development in Slovakia is lower than in most EU countries and the lowest of all V4 countries. The review recommends targeting existing support in the form of research and development super-deductions more towards small and medium-sized enterprises. The measure is now mainly used by large companies, which would probably have carried out the research even without state support. It also proposes to abolish the patent box, which is virtually unused in practice.
Tourism
Tourism subsidies from the state budget amount to an average of 46 million euros per year. In addition to these, approximately 20 million euros are directed to the promotion of the country as a tourist destination through the Slovakia Travel organisation. The review recommends reducing its approved budget to a level comparable to foreign tourism promotion agencies. Compared to them, it has a budget twice as large in proportion to the size of the tourism sector.
“In Slovakia, the evaluation of the efficiency of subsidy schemes is not carried out systematically. In most cases, they do not clearly state what their objective was and what the measure is supposed to improve,” Michal Havlát, Director of Tax Analyses and Forecasts at the Financial Policy Institute, summarises one of the findings of the review. “In other words, measurable indicators and targets are missing. Often the redistribution of funds itself is mistaken for the target,” he added.
The review does not assess expenditure from EU funds, social transfers or transfers to municipalities and higher territorial units (devolved government). Of the total tax expenditures, the review focuses on those that are mainly intended to support the private sector and have similar objectives to subsidies.
Final report of the review of subsidy expenditure (SK)
Press Department
Ministry of Finance of the Slovak Republic