Slovenia adopts austerity action plan to avert bailout

(LJUBLJANA) - Slovenia's government said Thursday it was confident it could avoid a much-dreaded bailout and satisfy the EU, as it adopted an action plan including privatisations, tax increases and austerity measures.

The plan, which is to be sent shortly to Brussels, is seen as crucial to bolstering the economy of the recession-hit eurozone nation and underpinning its troubled banking system, just seven weeks into the mandate of Prime Minister Alenka Bratusek.

"This is a programme that will not only satisfy the troika (of the European Commission, European Central Bank and International Monetary Bank), but will enable Slovenia to stay fully sovereign," Bratusek said in a reference to bailout fears, as she presented the programme together with Finance Minister Uros Cufer.

"If this was not enough, I would not (send it to Brussels)," she added.

The action plan was expected to raise as much money through tax increases as it would save from spending cuts, for a total 1.0 billion euros ($1.31 billion) per year.

Two-million-strong Slovenia, once a model EU and eurozone nation, has been struggling to jumpstart an economy in recession since 2011, and has repeatedly faced doomsday predictions that it might become the next country to need a bailout.

Last week, Moody's cut its sovereign debt rating by two notches to "junk" level, while the government must also convince voters who are fed up with their political leadership.

In the plan a proposed "crisis" tax of 0.5-5.0 percent on all wages was dropped, although it could be used as a "plan B" if the new measures failed to provide expected revenues, Bratusek said.

On the other hand, a hike in value-added tax (VAT) -- initially foreseen in 2014 -- was to take effect as early as July 1, while a new property tax was to be introduced in January, rather than in 2015.

"We are aware that no tax increases have a positive impact on economy," Bratusek told journalists.

"That is why we chose the one that we believe has the smallest negative effect on economic growth," she said.

The general VAT of 20 percent will increase to 22 percent, while a separate one on food, newspapers and other everyday products, will go up to 9.5 percent, from the current 8.5 percent.

No details were given about the size of the property tax.

"We need permanent measures rather than temporary ones, as it would have been with a crisis tax," Cufer said to explain the hike in VAT rather than other levies.

He said the government also planned to completely privatise 15 companies, including the country's second-largest bank NKBM, flag-carrier Adria Airways, Ljubljana's airport, telecom provider Telekom Slovenije and food producer Zito.

The full action plan was to be published on Friday on the government's website.

"To stabilise its public finances, Slovenia needs measures that will bring in up to one billion euros per year," said Cufer.

But spending cuts should contribute more over time, he said.

"Our objective is that two-thirds of that amount will, at the end, be ensured on the spending side."

"Measures have to have the smallest possible impact on economic growth, have to be quick and possible," he added.

The reaction from the main opposition party SDS was swift, with MP and former economy minister Andrej Vizjak calling the VAT hike "a wrong decision."

"These measures do not lead us out of the crisis but unfortunately will only deepen the recession and fail to provide the desired financial consolidation.

"We doubt also that the EU will welcome such an approach," he said.

Brussels meanwhile remained non-committal in a first reaction on Thursday.

"The Commission takes note of the adoption of the Slovenian national reform and stability programmes. We will study the programmes carefully in the coming weeks and present our detailed assessment and policy recommendations on 29 May," a Commission spokesman said.

With Ljubljana expected to inject up to 1.3 billion euros into its troubled banks -- 3.7 percent of gross domestic product -- Bratusek confirmed Thursday that the country's deficit this year would reach 7.8 percent of gross domestic product, well above the three-percent EU ceiling.

Next year however, it will fall again to 3.3 percent, she insisted.