Slovakia will slash public deficit to 2.9 per cent in 2013

(BRATISLAVA) - Slovakia said Wednesday it would cut its public deficit to 2.9 percent of output in 2013 despite a European Commission forecast pegging it at 3.2 percent.

"We will keep our commitment to cut (the public deficit) to 2.94 percent of GDP," Prime Minister Robert Fico told journalists in Bratislava hours after Brussels said Slovakia's deficit would sour due to external factors.

Fico's 2013 target is just below the European Union ceiling of 3.0 percent and would put Slovakia, a member of the eurozone, in better shape than many other countries in the debt ravaged 17-member eurozone and across the 27-member European Union.

The European Commission said Wednesday Slovakia would be the fastest-growing eurozone economy this year, with output at 2.6 percent as the 17-member single-currency bloc as a whole contracts by 0.4 percent.

In 2013, Slovakia will stay on top of the eurozone along with Estonia, posting a 2.0 percent growth, the commission said.

Slovakia's left of centre government, in power since April, created a 530-million-euro reserve in next year's budget to be used to offset any revenue shortfall should the economy, driven by exports of cars and electronics mostly to Germany, slow down.

Slovakia is home to several global electronics plants and car makers including Germany's Volkswagen, South Korean Kia and France's PSA Peugeot Citroen, whose production is expected to soar this year.

In a bid to consolidate the public finance gap, the government scrapped the country's trademark 19-percent personal and corporate flat tax, replacing it with higher taxes on the rich and corporations from 2013.

Next year, the corporate tax rate will go up to 23 percent, while personal income tax will jump to 25 percent for individuals earning more than 3,300 euros ($4,300) gross a month.

Under a law pushed through by Fico, all senior politicians including the president, ministers and members of parliament will also pay an extra five-percent tax on their salaries.

Fico's austerity package also includes a higher levy on banks and big corporations and changes to the pension system.

The nation of 5.4 million joined the European Union in 2004 and adopted the euro in 2009 during Fico's first stint as prime minister.