The Ministry of Finance of the Republic of Slovenia is responsible for implementing government’s public finance and financial system policy. The aim of the ministry is to contribute to economic growth and assure stable economic environment by pursuing the sustainability and quality of public finance. The main policy areas include budget preparation and execution, taxation, assets and debt management as well as financial sector regulation. It also participates in the work of European Union and several international organizations.

The Ministry drafts the bi-annual proposal for the state Budget and proposes the overall budget of the general government which consolidates the balances of the state budget, local governments and extra budgetary funds.

The Ministry is a key player in the statutory bodies set up to regulate financial  relations between central and local government, and it also contributes to the preparation of the European Union budget through its involvement in the work of the Council of Ministers and its Budget Committee.

In accordance with the Organisation and Competence of Ministries Act other main activities are performed in the areas of public sector accounting, auditing and financial operation, public procurement, tax and custom duties system, gaming, avoidance of money laundering. 
The Ministry has six  general directorates including Treasury, Financial system, System of Tax, Customs and Other Public Finance Revenues, Budget, Public Accountancy and Public Property Directorate. Within these directorates there are several sectors dealing with specific responsibility areas.

Policy Priorities

The finance ministry’s economic objectives are to cut inflation while maintaining solid economic growth and low unemployment, and to meet the other convergence criteria for Slovenia’s entry into the euro zone in 2007. Within this framework the ministry will endeavour to reduce fiscal expenditure as a proportion of GDP and to improve its structure.

Thorough tax reform will be necessary for the structural adjustment of fiscal revenues. The goal of the reform is to modernise the tax system and within this framework to distribute the tax burden more fairly and more evenly, to expand the tax basis, to simplify the tax system and the administrative procedures, and to adapt to the acquis communautaire.

In the financial area the ministry will work for a financial system compar able to those in the European Union. In the process of restructuring the financial sector the finance ministry’s priorities include completing the ownership transformation of insurance agencies and authorised investment funds. The objective is also to establish universal financial institutions to raise competitiveness on the domestic financial market and to make them accessible throughout Slovenia. The ministry will also place particular emphasis on developing financial instruments and eliminating key causes of financial indiscipline.

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The Development Report

Institute for macroeconomic analysis and development published the first Development Report (hereinafter the Report) in 2001, following the adoption of the Strategy for the Economic Development of Slovenia (SEDS). The primary purpose of this Report was to monitor the implementation of the SEDS. In 2005 the SEDS was replaced by Slovenia’s Development Strategy (SDS) whose implementation will continue to be monitored by the Report. 

The Report presents the development level and developmental trends in four target areas and five priorities set out in the SDS. It does not, however, evaluate the implementation of the adopted two-year measures defined in the SDS and other measures defined in back-up documents (the Reform Programme for Achieving the Lisbon Strategy Goals of October 2005 and the Framework of Economic and Social Reforms to Increase Welfare in Slovenia of November 2005).

Slovenia’s Development Strategies

Slovenia's Development Strategy (SDS) defines four core national development objectives:

(1)   the economic development objective – to exceed the average level of economic development in the EU  in the first decade of EU membership, i.e. by 2013;

(2)   the social development objective – to improve the quality of living and welfare of the population;

(3)   the cross-generational and sustainable development objective – to apply the sustainability principle in all areas of development, including sustained population growth; and

(4)   Slovenia’s development objective in the international environment – to become an internationally recognisable and established country.

Although raw data are only available for 2004 and partly for 2005, we give an assessment of development according to these core objectives.

(1)  The objective regarding economic development

Slovenia has narrowed its developmental gap relative to the EU but the catching up has been too slow in view of the set objectives. In 2004 Slovenia achieved 79% of the average GDP per capita in PPS in the EU (81% according to the Eurostat’s estimate for 2005). This result ranks Slovenia 16th in the EU, one place higher than in 2000. However, if we compare EU countries according to the speed of their economic development in 2000-2004, Slovenia was only mediocre and ranked 8th to 10th.[1] If Slovenia continues to develop at such a pace it will only achieve 94% of the European average in 2013 instead of exceeding the average development level of the EU as set by the SDS. The comparison of real GDP growth rates leads to a similar conclusion. In 2000-2015, Slovenia’s average economic growth exceeded the average growth in the EU-15 by 1.6 p.p., while calculations indicate that it should have exceeded it by almost double this rate if the set strategic objective is to be met. These results show that Slovenia should bring about some radical changes in order to achieve the SDS goals.

Slovenia’s performance in the area of ensuring macroeconomic stability and employment was more favourable than the results regarding the competitiveness of the economy. Macroeconomic stability provided satisfactory conditions for development. According to macroeconomic indicators (except inflation), Slovenia was ranked in the upper half of EU countries, scoring highest in public debt which was only lower in four countries (the Baltic states and Ireland). Inflation continued to decrease in 2005 and converged with the Maastricht price stability criterion at the end of the year. The adoption of the euro in 2007 will additionally stabilise the national macroeconomic environment.

Economic growth also enabled a rise in employment. The employment rate is rising steadily and has been above the EU average since 2004. The unemployment rate is slightly below the EU average, as is Slovenia’s long-term unemployment, although the share of long-term unemployed is still high. The low employment rate of the elderly and high youth unemployment are a particular cause for concern. The situation in the labour market is still not satisfactory as regards employment although some progress has been made. Part-time employment represents the biggest unused potential where flexibility and employment could be enhanced.

Much poorer results were recorded in the area of competitiveness and promoting entrepreneurial development. In 2004, Slovenia was ranked in the last third among EU countries according to the competitiveness of its economy. Slovenia is still struggling with low productivity linked to the relatively unfavourable economic structure involving a high proportion of manufacturing, composed of high shares of labour-intensive and medium-tech industries that make up the bulk of Slovenia’s exporters. The entrepreneurial sector that could gradually replace the old low-tech industry and boost the development of those most dynamic, knowledge-based services by creating new firms and stimulating their growth is still underdeveloped. In addition, Slovenia’s FDI inflow is among the lowest in the EU. Knowledge-based market and non-market services have been strengthening gradually since 2000. Market services began to grow more intensively in 2004. The banking sector, which could play an important role in supporting dynamic entrepreneurial development, similarly remains poorly developed. Analyses made by international institutions (WEF, IMD, EBRD, World Bank) identify Slovenia’s weaknesses regarding competitiveness and entrepreneurship particularly in the following areas: efficiency of firms, infrastructure, competition, quality of the national  business environment, state ownership in the corporate sector, legal certainty and tax burden (notably labour costs).

The competitiveness of the economy also importantly depends on the efficient use of knowledge for economic development. Compared to other EU countries, Slovenia scores high in indicators measuring developmental investment (public and private expenditure on education was ranked in the top third among EU countries, expenditure on R&D was ranked in the upper half while the situation in investment in ICT has deteriorated). On the other hand, Slovenia scores much less favourably in indicators measuring the effects of developmental investment in the development of a knowledge-based society (the population with a tertiary education, number of patents, share of researchers in the corporate sector, number of science and technology graduates, links between the public R&D sector and enterprises). Changes in this area in Slovenia were among the slowest in the EU (23rd place); somewhat more optimistic trends were only observed in the increase in expenditure on R&D. Slovenia’s ranking according to the technology index (WEF) for 2005 is thus unflattering as well, placing Slovenia in the last third of EU countries.

EU countries with rapidly growing economies rank[2] relatively high in the EU according to macroeconomic indicators of competitiveness and indicators of knowledge (particularly when comparing the achieved level of development).[3] Slovenia’s performance is roughly level with Lithuania’s, the former exhibiting slightly lower values in macroeconomic indicators and slightly higher values in indicators of competitiveness and knowledge. According to the pace of improvement in all three groups of indicators in 2000-2004, Ireland is in the lead among countries with rapidly growing economies, followed by Estonia and Lithuania. Slovenia is ranked in the middle, which confirms the correlation between all three groups of indicators and economic growth, where Slovenia also records a median score.

(2) The objectives regarding social development

Slovenia has recorded very positive results in the areas of a modern welfare state and higher employment. According to the indicators measuring the situation in these areas, Slovenia belongs to countries with favourable balances in the labour market and the social protection system. It has also performed relatively well in the areas of living standards, risk of poverty and income inequality. Slovenia’s poorest result in social development (12th place) was recorded in the indicator of long-term unemployment. These positive results in social development were achieved despite the lowering of expenditure on social protection as a share of GDP as a result of the pension reform that cut expenditure on pensions. Slovenia scores relatively high in the human development index and has small differences between male and female income. Slovenia’s at-risk-of-poverty rate is the lowest in the European Union when measured before social transfers and second lowest after social transfers. Despite these optimistic results, the low trust of people in institutions could present a developmental problem.

The EU member states with rapidly growing economies generally record lower scores in indicators of modern welfare state and employment[4]. International comparisons show that the level of social development in Slovenia is above the average relative to the achieved level of economic development.

Health care and health insurance are relatively good in Slovenia, while the conditions for development (in terms of public and private funds) relative to GDP are better than generally in the EU. Access to public services is relatively good as well. The main weaknesses are non-participation of part of the population in insurance schemes and long waiting periods. The latter is also the result of the deterioration of the ratio between the number of doctors and the population, which is below the EU average. This also affects the quality of health services.

(3) The objective regarding cross-generational and sustainable development

Slovenia scores around the EU average in terms of the integration of environmental components into economic development. The biggest burdens for the environment are energy intensity and the high consumption of nitrate fertilisers per unit of agricultural land. Other indicators in this area rank Slovenia in the highest third or the top of the middle third of EU countries. From 2000 to 2004, the integration of environmental issues into economic development in Slovenia increased more than in the EU on average (Slovenia was ranked 9th). An unfavourable result was only recorded in the share of road transport in total goods transport (19th place)[5].

Demographic trends in Slovenia are not sustainable. Slovenia was ranked 22nd in the EU according to the situation in 2000 and 24th according to trends in 2000-2004. The critical indicators here are low birth rates and the galloping growth of the proportion of the population aged over 65.

After the regional disparities measured in GDP per capita narrowed in the last two years they have begun to widen again. The main reason for this was the faster development of the capital city region, rather than a decline in Pomurska, the least developed region. Regional variation in Slovenia is small and among the lowest in the EU. The narrowing of cross-regional differences in unemployment that began to show in 2002 has continued, while regional disparities in income (measured as the personal income tax base per capita) have been small and stable since 1995. Similarly as at the national level, regional demographic trends are deteriorating. The population continues to concentrate in Central Slovenia while the number of people living in the peripheral regions is falling.

We can sum up that Slovenia’s development in 2000-2004 was unbalanced. The Strategy for the Economic Development of Slovenia (SEDS, adopted in 2001) advocated that the economic, social and environmental components of development should be balanced. Since Slovenia had the biggest gap vis-à-vis the developed countries in the economic area, faster economic development was prioritised in the SEDS in order to strike a better balance of overall development. Despite this strategic goal data show that during the implementation of the SEDS social development has overtaken economic and environmental development, the latter being measured only by the level of environmental protection integration into economic development.

Such uneven development is not uncommon in the EU countries with rapidly growing economies and partly reflects their different priorities and initial circumstances. The development mix has varied across the rapidly growing economies; however, in none of the ten other analysed countries did social and environmental development outstrip economic development. The situation in Slovenia is an anomaly that resulted mainly from a policy mix which focused on social development, the integration of environmental policies into economic development and macroeconomic stability while neglecting the competitiveness of the economy.

Role of the state in development

The institutional framework has not sufficiently supported development so far. Slovenia was only ranked 18th in the EU according to the IMD’s government efficiency index (2005). Slovenia also performs poorly according the WEF’s public institutions index (17th place in 2005)[6]. This report also points out several problems in different areas related to the efficiency of government bodies and public institutions. They may be divided into three groups: administrative and other barriers to development of enterprise and investment; persistently high ownership shares and management role of the state in the enterprise sector; and the too slow liberalisation of network industries and poor competition protection.

Cumbersome administrative regulations are a serious barrier to entrepreneurship (the time needed to obtain permits, costs of registration), investors (application for building permits) and the operation of enterprises (financial indiscipline, court backlogs). Some progress has been made with the programme aimed at reducing the administrative burden and its upgrading into the one-stop-shop programme. Court backlogs are still too long in the area of enforcement, which are very important for enterprises. Another critical area is spatial planning where land use is being restricted by complicated requirements for spatial documentation and a number of other restrictions that further prolong the building permit application procedures and raise their costs by requiring expert analyses. The operation of the land market is also still hindered by real estate registers.

State control and ownership remains high in the business sector and weakens entrepreneurial initiative. Although the government has adopted several plans to speed up the state’s withdrawal from company ownership, this has not happened so far. Privatisation programmes for the financial sector and network industries similarly remain on paper. The state’s large ownership and control share affect business initiatives of firms and consequently their performance, which is usually poorer than in privately owned enterprises. Company performance in Slovenia was also assessed as poor by international institutions (19th in the EU according to the IMD). Similarly poor results were identified by the WEF’s company operations and strategy index (21st place).

The liberalisation of network industries scored low as well due to the slow creation of competition and the relatively high market share of the incumbent operator even where competition exists. In telecommunication services, particularly in the mobile telephony sector where competition has already been created, the first positive impacts have been recorded as prices have started to fall. The price cuts seen in industrial electricity can similarly be attributed to the stronger competition. Due to the slow liberalisation of network industries and foreign mergers and takeovers in Slovenia’s small market, international institutions (EBRD, WEF) gave Slovenia unfavourable marks for competition. Further reasons were inadequate and insufficient control by the competition protection authority which focuses on concentrations rather than also restraining other kinds of infringement in the market.

The total tax burden in Slovenia is high, with above-average taxes being levied on both consumption and labour[7]. The overall tax burden in Slovenia totals 40.1% of GDP. This ranks Slovenia 10th among the EU countries, 10.7 p.p. below the leading Sweden and 11.6 p.p. above Lithuania which has the lowest taxes in the EU. Slovenia has particularly high taxes on consumption (4th place) and labour (7th place). On the other hand, taxes on capital are very low in Slovenia – only the Baltic states have lower ones.

The high level of general government expenditure as a share of GDP has been reduced over the last two years, but its structure and use are still not sufficiently efficient[8]

Slovenia is ranked around the middle among the EU member states in terms of the level of general government expenditure. However, the high expenditure on 'state-building tasks' in Slovenia (8th place) reduces the funds that contribute more to economic growth. Particularly the expenditure on economic activities, residential and spatial development are below the EU average in Slovenia. On the other hand, expenditure on education and health care places Slovenia in the upper half of EU countries. Low spending on economic activities in Slovenia is partly the result of inappropriate budgeting. Since this is generally the most flexible category of expenditure, the government cuts these funds (subsidies and investment transfers) when it needs to reduce the overall budget expenditure. High general government expenditure and its distribution have a negative impact on economic growth and development. The total expenditure should therefore be reduced and its distribution adequately restructured in Slovenia (these observations are not based solely on international comparisons but also on the recommendations of international institutions).

The efficiency of public finance in Slovenia is not optimal. The level of general government expenditure and other instruments (tax relief, state guarantees, loans, debt takeovers, etc.) alone does not warrant the successful achievement of goals financed by these funds and other instruments. It is evident that public funds in Slovenia are inadequately distributed and inefficiently spent in a number of areas (education, health care, research and development, state aid, social transfers). As a result, they also do not produce the desired outcomes. There are several reasons for this situation. The most important ones include the poor co-ordination of policies at the national level, budgeting that does not ensure quality control over financed programmes, and lacking records and post-evaluation of programmes and their impact on the recipients.

The government responded to the described deficiencies by adopting the SDS and subsequently the more detailed Reform Programme for Achieving the Lisbon Strategy Goals, thus joining in in the structural policies of the EU. In order to carry out radical changes in its economy and social policy, Slovenia further adopted the Framework of Economic and Social Reform to Increase Welfare in Slovenia, which is primarily aimed at boosting the competitiveness and growth of the economy. This aim must be backed by knowledge, quality jobs and an efficient and cheaper government. The reform addresses all key structural problems of Slovenia (business environment and administrative burden, privatisation, taxation, general government expenditure and its efficiency, and the spending of structural funds, both national and those acquired from the EU budget). The implementation of the reform has only been launched this year, hence the effects will become measurable next year when we can also begin monitoring the achievement of the objectives and priorities of Slovenia’s Development Strategy.

Gross domestic product per capita in purchasing power standards

In January 2006 Eurostat released data on the levels of gross domestic product per capita expressed in purchasing power standards (GDP in PPS) for 2003 and 2004. The results for 2003 are based on the final calculations of purchasing power standards (PPS)[9] used as conversion rates for GDP in national currencies, whereas the results for 2004 are based on preliminary PPS estimates.

Slovenia achieved 79% of the average GDP per capita recorded in the EU in 2004, which is three percentage points more than in 2003. The bulk of this difference can be explained by the considerably faster real growth of the Slovenian GDP per capita compared to the average growth in the EU-25 in 2004 (4.1% in Slovenia and 1.9% in the EU-25).

Among the new EU member states, only Cyprus still had higher GDP per capita in PPS in 2004 (83%). In comparison to the old members, Slovenia approached Greece, reducing its gap vis-à-vis this country to three percentage points.  In 2003, Slovenia still lagged behind Greece by 4 p.p. according to GDP per capita. Slovenia outstripped Portugal (72%) already in 2003. Otherwise Portugal, France, Italy and Malta belong to the group of member states whose GDP per capita fell in 2004 over 2003 – in Portugal by 1 p.p., in the others by 2 p.p. Among the new members, the Czech Republic (70% of the EU average) was the second best country after Slovenia.

According to GDP per capita in PPS, EU countries achieved between 43% and 226% of the EU-25 average in 2004. Luxembourg[10] remains the most affluent country with GDP per capita in PPS twice higher than the European average (226%). Ireland outstripped the EU average by 37% in 2004. The Netherlands, Austria, Denmark, Belgium, Sweden and the UK were 20% above the average. Finland, France and Germany surpassed the average by 10%, while Italy and Spain were level with the European average. Cyprus, Greece and Slovenia hover around 20% below the EU average; Portugal, the Czech Republic and Malta fell 30% short of the average, while Hungary lagged behind by 40%. The lowest GDP per capita in PPS in the EU was recorded in Latvia (43%) and Lithuania (48%). Poland also achieved less than 50% of the EU average, while Estonia and Slovakia are just above this value.

Table: GDP per capita in PPS, level indices, EU-25 = 100

(Source of text: Development report 2006; Institute for Macroeconomic Analysis and Development; http://www.gov.si/zmar/aindex.php)

[1] Slovenia narrowed its development gap vis-à-vis the EU-25, measured as GDP per capita in PPS, by 4 p.p. in 1996-2000 and by 6 p.p. in 2000-2004. The pace of development also accelerated in other less developed EU countries in this period. Among these (13) countries, Slovenia was ranked between 6th  and 8th. Countries that recorded faster development were Estonia and Lithuania (by 10 p.p.), Greece (9 p.p.), Latvia (8 p.p.) and Hungary (7 p.p.).  

[2] In the EU-15, the UK ranks in the top third in the EU according to all three groups of indicators; Ireland and Luxembourg lag behind slightly in knowledge indicators but they compensate for this weakness by their very high inward foreign direct investment. In the EU-10, Estonia scores highest, recording slightly poorer results only in macroeconomic indicators.

[3] EU countries with rapidly growing economies were defined on the basis of GDP per capita in PPS and average real growth of GDP in 2000-2004. According to these indicators, the following countries have rapidly growing economies: Ireland, Greece, Luxembourg, Spain, the United Kingdom (EU-15) and Estonia, Latvia, Lithuania, Hungary, Slovakia and Slovenia among the new member states (EU-10).

[4] Spain and Hungary achieve relatively poor results in the areas of employment and labour market flexibility. Ireland and the United Kingdom lag behind in social development. Modest results in both sets of indicators were observed in Greece, Estonia, Latvia, Lithuania and Slovakia.

[5] Among the EU countries with rapidly growing economies, four countries exhibited much poorer integration of the environment into economic development (Ireland, Luxembourg, Spain and the United Kingdom). Similar levels of environmental integration as in Slovenia were observed in Slovakia and Hungary. Only the UK and Hungary made faster progress in this field than Slovenia in 2000-2004.

[6] Among the analysed rapidly growing economies, the IMD only gave a poorer mark for government efficiency to Greece in 2005. Lithuania and Latvia were not included in the ranking, while the countries at the top were Ireland, Luxembourg, Estonia and Slovakia. All four countries are ranked in the top third within the EU. The efficiency of public institutions was assessed by the WEF which placed Slovenia in the middle of the analysed countries. Ireland, Luxembourg, the United Kingdom, Estonia and Hungary did better than Slovenia.

[7] Among the countries with rapidly growing economies, Luxembourg is the only one with a higher overall tax burden than Slovenia, while taxes on consumption and labour are the highest in Slovenia.

[8] Within countries with rapidly growing economies, only Luxembourg, Greece and Hungary have higher general government expenditure. Slovenia spends 11.2% of its GDP on public administration, defence, law and order, and security (the ‘state-building tasks’). Ireland, by comparison, earmarks about 50% less for these purposes, and the Baltic states around 30% less. Expenditure on social protection in rapidly growing EU countries is higher than in Slovenia only in Greece and Luxembourg. On the other hand, expenditure on economic activities is lower than in Slovenia (3.5% of GDP) only in the UK, Estonia and Latvia, while they range between 4.2% and over 5% of GDP in other countries. Expenditure on health care varies widely, from 2.3% of GDP (Slovakia) to 6.6% and 6.7% of GDP (Slovenia and Ireland, respectively). Although Slovenia’s expenditure on education (5.8% of GDP) exceeds the EU-15 average (5.4%), the Baltic states and Hungary allocate even more to this sector.

[9] PPS is a unit of artificial value reflecting differences in the national price rates that are not accounted for in exchange rates. This unit allows international comparisons of economic indicators.

[10] The exceptionally high GDP per capita in Luxembourg is largely attributable to the high proportion of foreign employees in the country, who are not counted as residents.

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First Releases

• http://www.gov.si/mf/angl/tekgib/atek_gib.html

Mrs. Katja Božič, M.Sc.
Director-General
Phone: +386 1 369 66 70
Fax: +386 1 369 66 79
E-mail: katja.bozic@mf-rs.si  

Budget

Mrs. Alenka Bratušek
Director-General
Phone: +386 1 369 64 71
Fax: +386 1 369 65 98
E-mail: alenka.bratusek@mf-rs.si 
  

System of Tax, Custom and Other Public Finance Revenues

Mrs. Irena Erjavec
Director-General
Phone: +386 1 369 67 25
Fax: +386 1 369 66 19
E-mail: irena.erjavec@mf-rs.si 
  

Treasury

Mrs. Stanislava Zadravec Caprirolo, M.Sc.
Director-General
Phone: +386 1 369 64 00
Fax: +386 1 369 65 99
E-mail: stanka.zadravec@mf-rs.si 
  

State Financial Assets

Mr. Žiga Andoljšek, Ph.D.
Director-General
Phone: +386 1 369 66 90
Fax: +386 1 369 64 37
E-mail: ziga.andoljsek@mf-rs.si  
  

Public Accountancy

Mrs. Marija Janc
Director-General
Phone: +386 1 369 60 11
Fax: +386 1 369 60 99
E-mail: marija.janc@mf-rs.si

National Contact Points

• Ministry of Finance of Slovenia
• Tax Administration
• Customs Administration
• Office for Money Laundering Prevention
• Office for Gaming Supervision
• Public Payments Administration
• Budget Supervision Office
• Center of Excellence in Finance
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• Public relations and media office
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