Will we cut our way to prosperity?

Does Fico’s last budget in this electoral term lead us “to Greece”? Judging by the interviews given after its approval by the chairman of the Supreme Audit Office of the Slovak Republic, it certainly seems so. Only austerity can save us – cutting pensions and healthcare. The real experience of Greece itself, as well as that of the United Kingdom, however, shows that it is impossible to cut one’s way to growth and prosperity. At the end of this road lie only misery, excess deaths and the rise of the far right.

Robert Fico’s government, at the last possible moment (due to EU requirements, the budget must be approved by 15 October), approved the state budget for 2027 without discussion and without complying with the requirements of the constitutional law on budgetary responsibility. Since this year will be an election year, the coalition did not even bother to pretend that it wanted to comply with the obligation to submit a balanced budget. Under the constitutional law, it should do so, since public debt exceeds 50% of the country’s gross domestic product (GDP). After three rounds of “consolidation”, the budget deficit is therefore still at the same level and the debt is not falling.

Who will oversee the overseers?

After this lightning-fast approval of the 2027 state budget, chairman of the Supreme Audit Office (SAO) of the Slovak Republic Ľubomír Andrassy entered the media carousel (for example, SME, Denník N, Expres). In many respects, he is right. He correctly points to violations of the constitution, the submission of the budget without an assessment by the SAO, as well as the country’s growing indebtedness and the influence of the oligarchy on state contracts.

In the interviews, however, he repeats that there are only two possibilities for how to proceed: either we will continue paying €25 billion for social spending and healthcare – thereby becoming indebted and eventually going bankrupt –, or we will slash those €25 billion, invest in “pro-growth” measures, and thereby gradually erase our debt. Where have I heard that before? Once again, we are told that taxes can no longer be raised, and that we must cut pensions and healthcare spending.

It sounds simple, but it is an argumentative fallacy. These are not the only two options. There are many taxes that are low or virtually nonexistent (property taxes, environmental taxes, luxury taxes). There are taxes that are insufficiently progressive and disproportionately affect average and low earners (VAT, but also income tax itself and social contributions). High taxes do not necessarily mean an absence of growth. For example, Denmark has been growing faster than Slovakia since the Covid-19 pandemic, despite a significantly higher overall tax burden. The United States grew at a spectacular pace after the Second World War, with the highest marginal income-tax rate standing at 91% (yes, ninety-one). Clearly, factors other than the level of taxation exist that are far more important for prosperity and economic growth.

The dominant economic ideology is evident in Mr Andrassy’s statements: according to it, the only path to growth and economic efficiency is slimming down the state, deregulation and tax cuts. He is right when he warns in interviews that “John from Great Britain or the International Monetary Fund (IMF) will come and take almost everything from us, as in Greece”. This is exactly how the IMF and other institutions of the international “capitalist order” operate; this is how the so-called troika (the European Commission, the European Central Bank and the IMF) gnawed Greece to the bone, without any concessions or losses on the part of the European banking sector, which made a handsome profit lending to Greece. The Greeks had no choice; they had to try to cut their way to prosperity (I recommend Yanis Varoufakis’s book Adults in the Room, in which he describes his experience as Greece’s left-wing finance minister during negotiations with the troika). Instead of prosperity, they cut their way to an increase in child mortality, suicides and social exclusion and poverty.

The chairman of the SAO presents himself as an impartial technocrat who merely describes an unpleasant truth. In reality, however, he is not impartial, since he does not put all the real (and financially responsible) options on the table. He advocates only one path.

Austerity kills

History repeatedly confirms, however, that it is impossible to cut one’s way to prosperity. When the Conservative Party, led by David Cameron, won the election in the United Kingdom in 2010, a few years after the Great Recession, it presented the world with an extensive and long-term experiment in whether it was possible to cut one’s way to growth. Conservative finance minister George Osborne prescribed an unprecedented diet of austerity for the British public sector (austerity). After taking inflation and population growth into account, public spending fell by 15% between 2010 and 2020.

By the beginning of the pandemic, however, the Conservatives had only managed to slow the pace of public-debt growth. Debt had risen sharply in response to the 2008 crisis, from around 35% of GDP to 65% of GDP. It continued to grow even under Cameron’s government and has still not fallen below 80% of GDP. Economic growth was weak because of the combination of the crisis’s “after-effects” and significant cuts in public spending, real wages fell by 10%, and the then governor of the central bank and today’s Canadian prime minister, Mark Carney, called this period a lost decade.

Cuts in public spending also have real, human consequences. According to a study from the London School of Economics, austerity between 2010 and 2019 caused almost 190,000 excess deaths (compared with the previous normal mortality rate) and shortened average life expectancy by as much as five months. The study’s authors show that the primary reason was cuts in social benefits and healthcare spending. For example, average ambulance response times increased, so-called deaths of despair rose (such as drug overdoses and suicides), and the British healthcare system remained insufficiently prepared for the Covid-19 pandemic. The effects of the cuts were also distributed very unevenly geographically. While public spending in London continued to grow even during the austerity period, in the traditionally poorer northeast of the country it fell by nine pounds per person each year.

During the first ten years of Conservative government, the United Kingdom therefore achieved a historically high debt, the historically largest decline in real wages and labour productivity, withdrawal from the European Union, collapsing public services at the local level (local governments bore the most radical cuts), and unnecessary additional deaths. And in the polls, the Conservatives are being caught up by the far-right Reform UK, led by the “British Trump”, Nigel Farage.

Slovak public finances should therefore really not take the British path. But is there another option?

The Nordic paradox

Lower debt, higher spending on the social system and healthcare, higher overall taxation and lower taxes on the work of the average female employee. I call this combination of facts the “Nordic paradox” – one that characterises the Nordic countries of Denmark, Sweden and Norway. In public debate – as Ľubomír Andrassy also demonstrates – we usually hear about only two ways of managing public affairs: low debt and a small state, or a generous social system and the “Greek path” – and that high taxes necessarily mean investors leaving and a poor business environment. In a surprisingly factual article, Lukáš Krivošík of Postoj also pointed to this fact; in his article, he shows that – paradoxically – generous social systems and greater redistribution do not necessarily mean high debt or a lagging economy.

In his article, Krivošík emphasises the importance of institutional budgetary rules, which Slovak governments do not concern themselves with very much (expenditure limits, binding multi-year budgeting) – as well as the fact that the Nordic countries are richer and growing faster than Slovakia, and can therefore afford a generous state. However, when we measure all aspects of the Nordic economies relative to GDP (that is, when we do not compare absolute amounts, which are naturally higher in wealthy Nordic countries), Scandinavia spends and taxes more not only in absolute figures, but also in relation to domestic product. And this figure is not some recent development – they did not introduce a generous welfare state as a reward for many years of belt-tightening.

The greatest bogeyman of the Slovak right is pensions, especially the thirteenth ones. By separating the financing and payment of pensions from the rest of the state budget through social contributions and the Social Insurance Agency, Slovak society has deeply internalised the idea that old-age pensions are based on merit. If I earned well, I have a right to a good pension. Those who earned little should continue to live in poverty in old age. In several countries, however, the basic state old-age pension is a social benefit – an unconditional income, equal for everyone. This is the case, for example, in Denmark, which spends 11% of GDP on old-age pensions (Slovakia only 8.5%). Overall, the Nordic countries spend 4–9% more of GDP on social security and healthcare than Slovakia (an additional €5 to €11 billion in 2023 values).

On the other hand, Denmark also has the highest tax-to-GDP ratio in the EU, again 9% higher than Slovakia. Yet paradoxically, if you earn the average Slovak wage (€1,620 gross in 2025) and have no family, you will pay higher income taxes (including contributions) in Slovakia than the equivalent worker in Denmark, Sweden or Norway. Compared with Denmark, the difference is as much as 7%.

How is this possible? The Nordic countries are less generous in their tax support for families (if you have two children and only one parent earns an income, you pay lower taxes in Slovakia. If both parents work, Denmark is two percentage points more advantageous and Sweden a few percentage points less advantageous). Nordic taxes therefore cover a broader section of the population, while also being more progressive for high wages. In Denmark and Sweden, a larger share of social spending takes the form of “benefits in kind”: the provision of public services instead of cash benefits and tax breaks.

Denmark also taxes returns on capital much more strictly: dividends, shares and mutual funds. The highest rate can reach 42%. Capital taxes are negligible in Slovakia’s aggregate statistics, while in Denmark they account for half a percent of GDP. In Norway, net wealth (that is, after deducting debts) is taxed from approximately €184,000 (1.9 million Norwegian kroner), at a rate of 1–1.75% annually. This is a low threshold compared with the current public debate, in which economists such as Gabriel Zucman and Thomas Piketty, as well as some political parties such as the British Green Party, propose taxing wealth above tens or hundreds of millions of euros. Norway’s experience shows that even such a “strict” wealth tax does not cause an economic catastrophe – quite the opposite, it reduces inequality in society. Taxing parents’ wealth reduces the income inequality of the next generation. And wealthy people with investments do not actually flee the country.

A very rough estimate of introducing a wealth tax on net wealth above €250,000 (for partners who, for example, jointly own a property, the threshold would be double), based on data from the World Inequality Database, suggests that such a tax would affect slightly more than 200,000 adults in Slovakia and, at a rate of 1% annually, generate approximately €1.3 billion. For comparison, corporate income tax yields just under €5 billion annually and applies to all companies in Slovakia. A similar amount is generated by personal income tax. 

The Nordic paradox is therefore not really a paradox, but rather holds up a mirror to Slovak politics: a weak welfare state, high taxes for ordinary people and high debt are political choices made by Slovakia, not laws of nature. They are political choices to prioritise low taxes for the wealthiest and capital owners over quality public services and sustainable public finances for everyone.

Where’s the youth?

Ľubomír Andrassy repeats that Fico’s budget is unfair to future generations, to today’s youth and children. Although he means it differently, I agree with him: Slovak public finances really are unfair to future generations. Low taxes on wealth, property, capital gains and emissions genuinely threaten young people’s future ability to secure housing and a dignified livelihood on a planet that will remain habitable. Missing funding for education, sport, culture and social services threatens not only the education, outlook and health of the younger generation, but also the prevention of far-right radicalisation among young people.

In Spain, France and Italy, it is mainly young people who are protesting en masse against rising living and housing costs, undignified conditions in schools and police aggression. Judging by events in the streets of Slovak cities, however, it seems that awareness among our youth of how they are truly being robbed of their future does not exist. Decades of the dominant neoliberal ideology with which political parties and the media have fed us have convinced us all that our greatest and only obstacle on the road to a bright future is high taxes and Robert Fico. Yes, Robert Fico must be defeated in the elections. But if we try to treat the consequences of his government with the “proven” British cure of austerity and the devastation of public services, bright beginnings do not await us, but rather a rise of the far right.

The author is an economist and data analyst

The text was created with the support of the Friedrich Ebert Stiftung, representation in the Slovak Republic