Slovakia’s left-right cabinet of populist Prime Minister Robert Fico has unveiled a tougher than expected €2.7bn package of cost-cutting measures to consolidate public finances.

Slovakia was put under the EU's Excessive Deficit Procedure (EDP) in June and by the end of this week it must explain to the European Commission how it aims to bring its budget deficit within the 3% of gross domestic product rule under the bloc's stability and growth pact.

On September 18 the cabinet approved several legislative measures in connection with the package, which includes levies on financial transactions, and it wants to pass the necessary legislative amendments in the parliament in a shortened legislative procedure.

Fico’s cabinet aims to bring the budget deficit down below 5% of GDP next year. This compares with the June projection of the country's Council for Budget Responsibility (CBR) of a budget deficit of 5.7% next year. Fico’s cabinet prediction for the 2024 budget deficit is 5.9% of GDP. 

Some of the key changes include raising the basic VAT rate from 20% to 23%, while textbooks, some medications and food will be taxed by 5% instead of 10%. Energy will be taxed at 19%. These measures are calculated to bring some €1.02bn for the state, daily DennikN reported.

The levy on financial transactions affecting businesses and entrepreneurs should be in place as of April 2025 and should secure €610mn, while the levy on refinery, telecom and energy companies should bring in €156mn.  

The sizeable package, which includes further tax changes and changes to social benefits and government assistance programmes for households, a hike on highway tolls, and wage increases for public employees including the troubled health sector has already sparked a controversy when it transpired that the tax on books is to be raised from 10% to 23%.

“We made an analysis. Books are a domain of the mostly rich layer of the population,” said Minister of Finance Ladislav Kamenicky from Fico’s leftist Smer party.

Kamenicky’s words sparked a wave of criticism and the vice chair of the University Students Council, Marek Vojtko, issued a statement saying that  “if the tax hikes on books are introduced, it will negatively influence access to education and development of skills”.

Matus Sutaj Estok, minister of interior and chairman of the centre-left Hlas party, Smer’s key ally in the ruling coalition, which also includes far-right SNS, said “we will yet talk about it [the tax hike on books] in the coalition”.

The package also marks a major shift in Fico's long-term policy of opposing tax hikes. "The most notable opponent of tax hikes is going to move [the tax] rates among some of the highest in the European Union," a leading daily SME wrote in its editorial, recalling that Fico attacked the idea of raising taxes to 25% mulled by the previous cabinet of Eduard Heger during the pandemic year of 2021. 

"I speak very clearly. I am an opponent of raising taxes and if we are to consolidate, we have to find other ways to cope with the public finances," SME recalled Fico saying as recently as this spring.