Slovakia Announces Third Consolidation Package

The Slovak government has unveiled a new fiscal consolidation package aimed at reducing the public finance deficit to 4% of GDP by 2026. The move comes amid growing concerns over Slovakia’s deteriorating fiscal position, with public debt projected to hit a record 62% of GDP this year  –  approximately €84 billion.

The package seeks to raise €2.7 billion in 2026, with most measures set to take effect from 1 January 2026, pending parliamentary approval under an accelerated procedure. Parliament advanced the bill to a second reading yesterday, scheduled for next Tuesday. While some tweaks may emerge during the debate, the core framework presented by Finance Minister Ladislav Kamenický is expected to remain largely intact.

Key Measures at a Glance

The government plans to split the €2.7 billion package roughly evenly between spending cuts and revenue increases, though the latter is far more clearly defined, including:

• Corporate “tax licence” (minimum corporate income tax): New top band of €11,520 annually for companies with taxable income above €5 million

• Special levy on the collective investment sector: Raised to 15% from 4.36%

• Labour: Additional + 1% on health insurance for employees, sick leave cost shifted to employers (from original 10-day coverage to 14 days), cutting 3 holidays

• Progressive income tax changes: 25% rate for those earning twice the national average wage, with top earners taxed at 30–35

• “Negative externalities” (consumption & activity taxes)

  • VAT from 19% → 23% on selected high-sugar/salt foods & drinks; and salty snacks (exemptions for baby foods, dairy drinks, 100% juice, “DIA” foods)

  • Gambling: online levy 27% → 30%; higher effective rates for physical venues; 12m from card-deposit fee tax; tighter enforcement

  • Primary materials charge on new extraction of gravel/sand/stone: €1.35/t (€24m)

• General tax amnesty (2026H1): pay principal; penalties, interest forgiven

• Mandatory acceptance of cashless (QR) payments by merchants

• Holiday retail ban removed

• Freelancer and small business reforms: Elimination of tax advantages for contractors formally registered as self-employed but effectively working as employees, as well as higher minimum contributions

The spending-cut side remains vague. While headline measures include wage freezes for most public employees (excluding teachers and healthcare workers), deferred infrastructure maintenance, and administrative streamlining, the details of implementation are still unclear. Ministers have been instructed to propose €1.3 billion in savings, yet their responses have been fragmented and politically fraught. 

Unclear Path for Spending Cuts

Although part of the same ruling party, Finance Minister Kamenický lacks the authority to push fellow ministers toward politically costly decisions. Even with Prime Minister Fico’s backing, it's highly unlikely that the proposed savings will be achieved. The government’s unwillingness to touch politically sensitive areas such as pensions or large-scale social programs has already been evident in the previous consolidation rounds, effectively taking the most significant and sustainable reforms off the table.

This creates significant uncertainty about where the savings will ultimately come from. Concrete details are unlikely to emerge before October, when the draft state budget for 2026 is presented. Early indications – beyond the headlines measures – point to layoffs within ministries and smaller state agencies, sectors long criticised for over-employment. If carried out carefully, these cuts could improve efficiency without undermining essential services.

However, public-sector layoffs are politically sensitive, and poorly targeted reductions risk backfiring, particularly in agencies that are already chronically understaffed. Moreover, while the members of the ruling party SMER, including Fico himself, have long criticised over-employment, public-sector staffing expanded most significantly during Fico’s previous governments. This historical record casts doubt on whether the planned downsizing will be executed effectively.

Kamenický has also suggested using EU funds earmarked for state-financed energy aid to cover part of the shortfall. This approach faces two key challenges: actual EU disbursements may fall short of expectations, and such funds cannot credibly be classified as structural savings.

EU funds have been proposed to cover the shortfall, but payouts may fall short and cannot be credibly seen as true structural savings.

Economic Ripple Effects

While the expenditure side of the package remains unclear, the clearly defined revenue measures signal an unavoidable rise in costs for businesses and households, requiring companies to prepare for operational and financial adjustments.

Labour and Employment

The package is set to push labour costs higher. A one-percentage-point rise in employee health insurance contributions, together with a more progressive income tax schedule, is likely to further erode cost-competitiveness. Among the V4, Slovakia already carries one of the highest labour tax burdens, widening the gap with neighbours such as Poland and Hungary.

Over the next 12–18 months, companies are likely to respond cautiously: slower wage growth, selective hiring freezes, and – in some cases – shifting activity to lower-cost jurisdictions. Extending employer-paid sick leave from 10 to 14 days will weigh most on labour-intensive sectors such as manufacturing, logistics, and retail.

Self-employed workers and contractor-heavy models also face material changes. Shortening the contribution holiday for new sole traders from 12 to six months, a 20% uplift to the minimum contribution base, and tighter rules against “forced self-employment” will narrow the cost advantage of flexible contracting. Many firms should budget for higher conversion rates from contractors to employees.

Consumer Demand and Domestic Market

Household budgets will come under pressure as higher taxes and selected price increases reduce disposable income amid already elevated energy and housing costs. Consumption growth is likely to slow sharply, with more price-sensitive behaviour, stronger demand for discounts, and longer decision cycles. A prolonged dip in spending would ripple into domestically exposed manufacturing and local supply chains.

Corporate Costs and Compliance

Several provisions will raise operating costs. A new top tier of corporate tax licences for companies with taxable income above €5 million will capture larger firms, while higher levies on parts of the financial sector and new fees on raw-material extraction will lift input costs for construction and real estate.

From March 2026, mandatory acceptance of QR and card payments will require retailers, restaurants, and service providers to upgrade point-of-sale systems and train staff. The measure targets tax evasion and should improve efficiency over time, but it adds near-term capex and operational complexity before benefits are realised.

The Broader Picture

The consolidation package arrives at a delicate moment. Slovakia’s economy is expected to grow by just 1.5% this year, reflecting weak eurozone demand and external shocks. Introducing simultaneous tax increases and spending cuts risks further depressing growth.

This could create a self-reinforcing cycle: as households and businesses cut back, tax revenues underperform expectations, forcing the government to introduce yet another round of consolidation. If this happens, Slovakia could find itself trapped in a recurring pattern of fiscal tightening, each round hitting growth harder while failing to address the root causes of the deficit.

What to watch: Another Consolidation Ahead

While the new measures may temporarily reduce the deficit, they are unlikely to fix Slovakia’s underlying fiscal problems. Many announced savings are one-off or temporary, while the revenue measures could weaken growth and reduce future tax collection.

Without structural reforms targeting pensions, broader welfare programs, and public administration, fiscal pressures will continue to grow. As the 2027 parliamentary elections draw closer, the political appetite for genuine spending reforms will likely decline, leaving the government increasingly reliant on new taxes.

As the 2027 parliamentary elections draw closer, the political appetite for genuine spending reforms will likely decline, leaving the government increasingly reliant on new taxes.

Among the most-discussed future options is a digital tax, pushed by the Ministry of Investment, Regional Development, and Informatization, aimed at large technology companies. Early calculations suggest it could bring in €50–100 million per year, but specific rates are not yet known. However, such a tax would risk straining Slovakia’s external relations, as it would primarily target U.S. tech firms and could invite retaliation from Washington. Other possibilities include higher levies on banks and large retail chains, though these remain at the discussion stage.

Conclusion

Barring a late parliamentary surprise, Slovakia will approve the consolidation package in the coming days. The lack of clarity around spending cuts, combined with the government’s unwillingness to tackle politically sensitive areas such as pensions, signals that meaningful reform remains off the table. While the package will narrow the deficit in 2026, higher taxes and labour costs risk slowing growth while providing only temporary fiscal relief.

Looking ahead, Slovakia is likely to face another consolidation round in late 2026, focused on new or higher sectoral levies and taxes rather than systemic reform. As the 2027 elections draw closer, political appetite for deeper, more costly measures will diminish further, locking the country into a cycle of short-term fixes and persistent fiscal instability.

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