Boris Cournède
Erik Frohm
Michael Koelle
OECD Economic Surveys: Slovak Republic 2026
Abstract
The Slovak economy is being shaped by fast-evolving domestic, European, and global factors that create significant short- and long-term macroeconomic challenges. This chapter analyses current trends in activity and inflation, giving special attention to the impact of the global trading environment on the automotive sector. Demographic shifts are explored for their influence on future growth and public debt developments. The chapter documents the benefits for economic prosperity as well as fiscal sustainability of integrated strategies that foster lasting increases in employment while overhauling spending and tax programmes.
Growth is faltering
Economic activity has slowed significantly since the beginning of 2024 (Figure 1.1, Panel A). Real GDP growth slowed from 0.3% (quarter-on-quarter) in the last quarter of 2025 to 0.2% in the first quarter of 2026. Housing investment and private consumption have weakened on account of weak consumer confidence and persistent economic uncertainty (Figure 1.1, Panel B). Growth is still somewhat supported by investment (excluding housing) due to the absorption of EU funds, although uncertainty is weighing on private fixed capital formation. Manufacturing production, a cornerstone of the Slovak economy, has stagnated since the end of the COVID-19 pandemic, as exports and foreign demand slowed significantly (Figure 1.1, Panels C and D). Muted dynamics in industrial production and retail trade, alongside weak business sentiment and consumer confidence, point to sluggish growth in the near term.
Note: Panel B, values of the confidence indicators range from -100 (responses of all respondents are totally pessimistic) to 100 (responses of all respondents are totally optimistic).
Sources: OECD Economic Outlook: Statistics and Projections database; Eurostat; OECD Main Economic Indicators database; OECD calculations.
The Slovak Republic is highly exposed to trade barriers and changes in foreign demand, due to its specialisation in the highly trade-dependent automotive value chain. The sector and associated industries account for 10% of total value added, among the highest in the OECD. Exports to the United States account for roughly 6% of GDP, of which more than 80% of gross exports come from the automotive sector and related industries that are now facing a tariff of 15%. Furthermore, Slovakia’s deep linkages to the European automotive value chain will transmit the effects of lower foreign demand for automotive output.
1. OECD estimates.
2. Contribution to changes in real GDP.
3. Index of consumer prices excluding food, energy, alcohol and tobacco.
Source: OECD Economic Outlook: Statistics and Projections database.
Exports were strong at the start of 2025 due to stockpiling among trading partners ahead of the implementation of tariffs. Exports fell back in the second quarter as tariffs started to affect foreign demand. Although US automotive import tariffs have been reduced to 15% from the 27.5% announced in April 2025, effective tariff rates to the United States remain very high compared to the beginning of 2025. With its specialisation in automotive production, the Slovak Republic faces a larger increase in effective import tariff rates from the United States than the rest of the Visegrad countries or the European Union as a whole (Figure 1.2). The higher effective tariff rate almost fully stems from the automotive sector and related industries.
Contributions to the rise in effective tariff rates on exports to the United States, percentage points
Note: Visegrad 3 refers to the average of the data for the Czech Republic, Hungary and Poland.
Source: OECD Economic Outlook: Statistics and Projections database.
Inflation remains elevated
Harmonised consumer price inflation was 4.0% year-on-year in May (Figure 1.3, Panel A), close to its level at the turn year. Food prices continued to fall, reducing inflationary pressures, while household energy price increases were constrained by energy subsidies and price caps (Figure 1.3, Panel B). Caps on regulated heat, gas and electricity prices introduced after the energy price shock following Russia’s war of aggression against Ukraine were extended, covering nearly 90% of all households, and pump prices for Diesel have been restrained. Harmonised core inflation continued to fall to 3.6% in May, reflecting a strong fall in service price inflation since December 2025 (Figure 1.3Panel A). Lower interest rates have eased financing conditions and house price growth has strengthened.
The labour market remains tight despite a slight increase in the unemployment rate to 5.6% as economic activity has slowed. The employment rate among people aged 15-64 remains very near historic highs. The employment rate among older workers (55-64) has fallen from 68% in the last quarter of 2023 to around 67% in the latter half of 2025, while the employment rate among prime-age workers (25-54) is at historic highs of 86%. Many firms still experience labour shortages as skills mismatches are frequent between labour supply and demand, highlighting the importance of upskilling and easing reallocation of workers across occupations and sectors (see Chapter 2). Real wage growth remains strong and is contributing to inflationary pressures.
Fiscal consolidation and lower foreign demand will weigh on growth
Real GDP growth is projected to remain subdued, at 0.7% in 2026, before recovering to 1.6% in 2027. Weaker foreign demand for transport equipment in Europe and the rest of the world, as evidenced by lower car registrations, will weigh on the sector’s output. At the same time, trade will increase in 2027 due to the operations of new automotive plants. Higher absorption of EU funds in 2026 will temporarily support investment growth, whereas this positive impulse on fixed investment will reverse in 2027. As fuel prices recede and inflation normalises, private consumption will drive a modest recovery in 2027. A mild fiscal consolidation is expected to weigh on growth over 2026. The current account deficit is anticipated to narrow as a result of fiscal consolidation in 2025 and exports from new automotive plants in 2027 but it will remain substantial (Table 1.1) Inflation will remain high in 2026 at 4.2% due to a slow return of energy prices to previous levels following the evolving conflicts in the Middle East and robust nominal wage growth, before slowing to 2.6% in 2027.
These projections assume a limited-disruptions scenario where energy production in the Gulf economies gradually recover from the second quarter of 2026 and energy prices recede accordingly, in line with futures markets pricing for oil and gas. However, a lengthy conflict in the Middle East with a prolonged disruption of global energy supply and lasting increases in global energy prices would have significantly stronger impacts on GDP and inflation. As highlighted in the June 2026 OECD Economic Outlook, a scenario of prolonged disruptions would lower GDP growth in the average OECD country by 0.6 percentage points in 2026 and 1.2 percentage points in 2027 while it would raise inflation by around 0.4 and 1.1 percentage points in 2026 and 2027 respectively (OECD, 2026[1]).
Risks to the central projections are large and mainly on the downside (Table 1.2). As a trade and manufacturing-heavy economy, the Slovak Republic is highly vulnerable to risks from higher tariffs, geopolitical tensions – including Russia’s war of aggression against Ukraine – higher global energy prices and possible energy shortages as in the June 2026 Economic Outlook prolonged disruptions scenario, and structurally lower growth in the European automotive sector. The composition of future fiscal consolidation, if it does not address existing distortions and inefficiencies, could further deteriorate the business climate, dampen private consumption and reduce growth.
Public finances deteriorated following the pandemic and the energy price spike, bringing public debt above pre-pandemic levels and the general government deficit to 5.4% of GDP in 2024. To reduce the fiscal deficit, the Parliament adopted a consolidation plan for 2025 in October 2024 with the aim to bring the general government deficit below 3% of GDP in 2027 – a target later delayed to 2028. Special levies were introduced on banks, refineries and mobile operators. For larger companies (above EUR 5 million taxable income), corporate income tax rates rose from 21% to 24%. Social contributions increased for high-income employees, as the cap on the amount considered when calculating the contributions was raised from seven to eleven times the average wage. A financial transaction tax (FTT) for companies and self-employed workers was also introduced from 1 January 2025, with the first taxable period beginning in April 2025. The tax applies to bank transactions and ATM withdrawals made by businesses. As of 1 January 2026, the self-employed will no longer have to pay the FTT. The standard VAT rate increased to 23% from 20%. Fees for motorway stamps, tolls and vehicle taxes for companies also increased.
Although past consolidation plans have been significant, deficits have remained above targets owing to four main factors according to the Council for Budget Responsibility (RRZ, 2025[2]):
additional spending measures (energy subsidies and hikes in teachers’ wages);
increases in tax expenditures (VAT reductions on products, beverages, electricity as well as accommodation services, books, e-books, medicines and restaurant meals);
increased spending on interest and, in relation with NATO commitments, on defence; and
a worsening economic environment.
The government presented its third consolidation plan in September 2025, approved by Parliament in October. The package aims to reduce the general government deficit to 4.1% of GDP in 2026. No detailed consolidation plans have been presented for 2027.
Notes: Panel D, average wages refer to the national accounts-based total wage bill divided by the number of hours worked (by employees) in the total economy. Real average wages are deflated by a price deflator for private final consumption expenditures in 2024 prices.
Sources: OECD Price Statistics database; OECD Labour Statistics database; OECD National Accounts database; and OECD calculations.
The consolidation package for 2026 lays out a broad array of revenue-side measures totalling 1.0% of GDP. It raises taxes on above-average earners, VAT on sugary drinks and fatty foods, and taxes on gambling (0.3% of GDP). Health insurance contributions will rise for employees and the self-employed (0.3% of GDP). The plan also eliminates two national holidays, with a view to raising revenue by 0.2% of GDP while expanding supply.
The plan aims to reduce spending by 0.9% of GDP in 2026. It restricts new purchase of equipment, goods, services and capital expenditure, and reduces the budgets covering the operating costs of individual ministries and local authorities. Salaries of state and local officials will be frozen, apart from teachers, doctors and nurses. The plan also foresees abolishing or merging government offices and reducing unemployment benefits. The OECD projections foresee a general government deficit of 4.3% in 2026 and 2027.
The strong use of taxes, especially when considering that they made up most of the 2025 consolidation, and across-the-board spending cuts (as opposed to a strategic reprioritisation of expenditures), is detrimental to growth. A more balanced mix of long-lasting expenditure cuts (e.g. on energy subsidies and pensions) and relying more on less distortionary taxes (while reducing the most distortionary ones) would have fewer negative effects on growth and could support labour participation. Consolidation for 2026 and 2027 could bring forward elements from the structural tax-and-spending reform options that this Chapter later discusses to keep debt stable and growth strong in coming decades.
Evidence from successful debt-reduction episodes in OECD countries shows that effective consolidation requires establishing a primary surplus for many years (Pina, Hitschfeld and Miyahara, 2025[3]; Sutherland, Hoeller and Merola, 2012[4]). The presence of stabilisation-oriented fiscal frameworks, broad political support, and adequate duration all significantly enhance consolidation prospects. The Slovak Republic’s approach should therefore ensure sufficient duration and avoid premature relaxation of consolidation efforts. Operationalising the National Medium-Term Fiscal Structural Plan would help reduce uncertainty about future fiscal measures.
A way of giving consolidation efforts more credibility over time would be to specify measures to deploy if planned adjustment fails to materialise. For this purpose, it would be valuable for the government to stress test consolidation packages learning from OECD country experience (Box 1.1). Stress tests provide a quantitative basis for specifying detailed measures to adopt if implementation, economic or other risks materialise, resulting in an adjustment shortfall. For this purpose, fiscal performance should be continuously monitored to be assessed against objectives and rules (Koske, 2009[5]).
Governments of OECD countries including Australia, Finland, the Netherlands and the United Kingdom, have been testing the sensitivity of budgets and fiscal plans to potential shocks (Table 1.3). These exercises typically evaluate the impact of shocks on the trajectories of the fiscal balance and government debt (Moretti, Boucher and Giannini, 2021[6]). The nature of the risks covered in these stress tests varies across countries, ranging from standalone changes in specific variables (such as iron ore prices in Australia) to fully fledged global and domestic shock scenarios (e.g. in the United Kingdom). Experience suggests that fiscal stress testing has improved fiscal transparency and helped fiscal authorities to better prepare for shocks (Moretti, Boucher and Giannini, 2021[6]).
Notes:The table refers to analyses conducted by finance ministries and other government bodies (including fiscal councils if part of the executive branch). Exercises performed by other branches of government, including parliamentary budget offices and national audit offices attached to the judicial branch, fall outside its scope.For Australia, the table refers to the sensitivity analyses reported in budgetary documents.
The banking sector appears robust
Banks maintain strong capital buffers (Figure 1.4). When measuring bank capital against risk-weighted assets, as is the norm in European countries, the ratio is comparatively high in the Slovak Republic (Figure 1.4 Panel A). The bank capitalisation ratio is smaller but still above the OECD average when using the less sophisticated but more prudent measure of unweighted assets as the denominator (Figure 1.4 Panel B).
A rising spread between lending and deposit rates supports bank earnings (Figure 1.5). However, the financial transaction tax (FTT) that came into effect in April 2025 poses a risk to banks’ resources by creating incentives for deposit outflows into cash. While no substantial shift materialised in the six months after the FTT was introduced, as corporate deposits increased by 5% over April-October 2025, this risk can materialise with a lag. After Hungary introduced a tax on bank transactions in 2013, there was no immediate effect on the split between electronic and cash transactions (Ilyes, Takacs and Varga, 2014[9]), but over time large-amount cash transactions became more frequent among Hungarian SMEs (Vegso, 2020[10]). In addition to this risk, the FTT involves additional adverse side-effects, including distorting business activity, which warrant abolishing it (see Chapter 2).
Note: 2025Q4 for the Slovak Republic.
Source: IMF Financial Soundness Indicators database.
Commercial real estate (CRE) shows some remaining vulnerability. Compared with the pre-COVID-19 period, higher interest rates and the spread of remote work have put pressure on commercial real estate especially office space. Nearly three out of four CRE loans are served by firms that have negative equity, negative earnings before interest and taxes, or low interest coverage (National Bank of Slovakia, 2025[11]). Lending to commercial real estate weakened in 2024-2025. However, non-performing loan ratios on CRE loan portfolios have remained close to their historical nadir below 1% (National Bank of Slovakia, 2025[11]). There are signs of a turnaround with asking rental prices rising by 5% in the first half of 2025 (National Bank of Slovakia, 2025[11]). Furthermore, the 2025 easing of monetary conditions means that the average interest rate on CRE loans is estimated at 4.4% in 2025, down from 6.0% in 2024 (National Bank of Slovakia, 2025[11]).
Note: Data shown up to 2025Q4.
Source: IMF Financial Soundness Indicators database.
Rising house prices do not pose immediate financial risks but bear on the cost of living
House prices have been rising faster than consumer prices since mid-2024 (Figure 1.3, Panel A). On the demand side, lending conditions have been supporting price increases. Because of monetary policy easing in the euro area, average interest rates on new housing loans fell from a peak of 4.6% in January 2024 to 3.7% in April 2026. Anticipations of further rate cuts are fuelling expectations of additional house price increases. On the supply side, house prices have been rising against a backdrop of a shrinking share of homebuilding activity in GDP (Figure 1.6, Panel B). While the population is set to shrink, internal migration towards economically more dynamic areas, especially around Bratislava, together with the need to upgrade the housing stock inherited from the communist era, are spurring housing investment needs.
Rising house prices call for considering potential risks to financial stability. Many financial crises have occurred following housing booms (Cournède, Sakha and Ziemann, 2019[12]). The current Slovak situation, however, is one where, while rising, the ratio of house prices to incomes remains well below its level prior to the global financial crisis (GFC) of 2007-09 (Figure 1.6. Panel C). Furthermore, mortgage debt has been broadly stable relative to incomes, albeit at higher levels than in neighbouring countries (Figure 1.6. Panel D).
Relative to incomes, Slovak housing costs are among the highest in the OECD area (Figure 1.7). The key to lasting reductions in the burden of housing costs is to unlock supply in places of high demand including the Bratislava area (De Pace, 2024[13]). Doing so would also provide a welcome boost to economic activity. The previous Survey provided detailed policy recommendations to make homebuilding more responsive to housing demand (Table 1.4). Facilitating residential construction is essential in this regard, by swiftly implementing the 2025 Construction Act . Priority should be given to provisions that streamline zoning and permitting processes to reduce costs as well as the time between the consideration of a potential homebuilding project and its delivery. Besides, basing the annual recurring property tax on market values and increasing it, as discussed below and developed in (De Pace, 2024[13]), would encourage a more efficient use of the existing dwelling stock, including by making it more expensive to own secondary homes.
Source: OECD Analytical House Prices Indicators database; OECD Economic Outlook: Statistics and Projections database; and OECD calculations.
With sound capital buffers and high profitability, the banking sector appears able to withstand economic shocks. The National Bank of Slovakia (NBS) conducted in 2025 stress tests including adverse scenarios involving a GDP contraction of 8.5% over two years (National Bank of Slovakia, 2025[14]). In these scenarios, the deep recession results in credit demand drying up and loan defaults increasing. Banks in both scenarios however remain profitable with their ratio of regulatory capital to risk-weighted assets dropping by 1.4 percentage points to a still robust 19%. Stress tests conducted by the IMF in 2024 had also concluded that the Slovak banking sector possesses strong capacity to absorb shocks (IMF, 2025[15]). Large corporate borrowers seem resilient to shocks. In addition, stress test results suggest that banks are diversified in their exposures to individual non-financial corporations (IMF, 2025[15]).
Housing consumption costs, as % of household disposable income, 2024 or latest available year
Note: Housing consumption costs and household disposable income are computed according to National Accounts methodology, implying that both include owner-occupiers’ imputed rents. Last available year is 2024 for the Slovak Republic.
Source: OECD National Accounts database; and OECD calculations.
This section starts by describing the benefits of responding to the fiscal and growth challenges of ageing in a way that combines fiscal adjustment with structural reforms to boost employment. The following subsection describes the impact of rapid ageing before discussing policy options to respond to the fall in the working-age share of the population. The next tackles pension and health spending. The last subsection discusses public-finance reforms to put fiscal accounts on a durably sound footing.
Debt stabilisation hinges on integrated fiscal-structural strategies
The fiscal consolidation trajectory for 2026-2027 needs to be followed by considerable additional reforms to ensure fiscal sustainability. If tax and spending structures remain after 2027 as projected in the OECD Economic Outlook of December 2025 while public pension and health-care trajectories evolve as in the 2024 Ageing Report, general government debt will follow a quickly rising trajectory. Illustrative simulations suggest that, without further adjustment, the debt-to-GDP ratio could exceed 100% over the next fifteen years (Figure 1.8).
General government debt, ratio to GDP, %
Notes: In the scenario with unchanged tax and expenditure structure, the cyclically adjusted primary balance, as a ratio to GDP, evolves only as a result of two factors. The first is changes in spending on public pensions, health and long-term care, which are taken from the EU Ageing Report 2024 (EU Economic Policy Committee; European Commission, 2024[17]). The second is changes in the employment-to-population ratio (Guillemette and Turner, 2017[18]). In the scenario on unchanged tax and expenditure structure as well as the one with fiscal adjustment without structural reform, GDP follows the central scenario of the OECD Economic Outlook long-term baseline. The scenario with 2.4% of GDP fiscal adjustment and structural reform incorporates the illustrative reform estimates presented in Box 1.1 on employment and GDP. Short and long-term interest rates are derived endogenously in each scenario, mostly from nominal trend growth for short rates and from forward-looking short-term rates and term premia for long rates, following Guillemette and Turner (2018[19]). The debt-GDP trajectory of explosive paths can be considered an underestimate as it does not incorporate the negative effect on GDP of very high interest rates.
Source: OECD Economic Outlook 119 database, OECD long-term model and OECD calculations.
Long-term debt simulations also underline the worth of debt stabilisation strategies that combine fiscal adjustment with structural reforms that boost the employment rate. If fiscal adjustment is undertaken alone, the primary balance needs to be improved by as much as 5.1 percentage points of GDP from its projected 2027 level to reduce the debt-to-GDP ratio to 40% of GDP within the coming two decades. By contrast, if reforms in the areas outlined in the next subsection deliver meaningful progress in the employment of women, older workers and the Roma, the required adjustment to bring debt to 40% of GDP within two decades narrows to 2.4 percentage points of GDP.
The experience of OECD countries over the past 45 years shows many more precedents for fiscal adjustment of the size required in the scenario with structural reforms than in the purely fiscal scenario. Coming after the 2% of GDP projected improvement in the underlying primary balance over 2025-2027, a subsequent 2.4% of GDP consolidation implies a total of 4.4% of GDP. There are 49 recorded precedents of such, or larger, improvement in the underlying primary balance over six years or fewer among the 33 OECD countries for which the data are available over at least half the 1980-2024 period. By contrast, a 5.1 percentage point post-2027 consolidation would imply a total of 7.1% of GDP: such adjustment has been achieved only 19 times across the same group of countries and over the same period.
Furthermore, integrated strategies that jointly improve fiscal accounts while reforming the economy also keep debt more robustly under control in the long run. Indeed, an integrated fiscal-structural strategy is much more likely to keep debt below 40% of GDP over decades than a purely fiscal one (Figure 1.9). The main reason is that reforms that successfully bring more people into work bring cumulative increases in employment compared with a business-as-usual scenario. Such increases can offset the impact of demographic and technological changes on public expenditure on pensions, health and long-term care.
Purely fiscal vs. integrated debt reduction strategies: stochastic simulations
Notes: The simulations show two different scenarios to bring debt to 40% of GDP, the level at which the first sanctions foreseen by the debt brake start to apply. For the sake of illustration, a twenty-year horizon is selected within which this ratio should be reached. In the “all fiscal” scenario, the primary balance immediately improves after 2027 while employment and GDP follow the same trajectory as in the OECD Economic Outlook long-term baseline. In the “integrated scenario”, employment and GDP improve over the OECD Economic Outlook long-term baseline by the illustrative estimates reported in Table 1.6. In each scenario, the size of the fiscal adjustment is chosen to reach the 40% ratio within two decades. Stochastic simulations around these two scenarios illustrate the impact of interest rate risk. These simulations depict the impact of uncertainty over the formation of long-term government bond yields by showing the effects of different levels of term premia. For this purpose, a Gaussian kernel was fitted on the historical distribution of Slovakia’s ten-year term premia (between government bonds and money market rates) since euro area accession. Then, debt simulations for both the “all fiscal” and the “integrated” scenarios were run for 100 random draws from this Gaussian kernel. The resulting fan charts depicted on the chart are asymmetrical because the historical distribution of term premia (and hence the Gaussian kernel) are skewed to the upside.
Sources: OECD Economic Outlook 119 database, OECD long-term model and OECD calculations
Table 1.5 brings together illustrative estimates of fiscal impacts of tax and spending recommendations. They report direct budgetary impacts from spending and tax changes as well as the fiscal gain from the recommended reform package through higher employment. The realisation of this gain is more back-loaded and more uncertain than changes in the budget: consequently, it is important to monitor the effects of reforms aimed at boosting employment, especially efforts to increase the labour-force participation of women, older workers and the Roma. Medium-term budget plans need to be regularly adjusted depending on the results achieved in these areas.
Fiscal saving (+) and costs (-) after ten years
Notes: Some totals differ from the sums of displayed numbers due to rounding. The estimate for the 13th pension comes from calculations using data in Box 1 of the 2024 Ageing Report Country Fiche (Institute for Financial Policy, 2023[20]) and estimates in IMF (2025[21]). The estimate for potential fiscal savings from reforming early retirement is taken from (IMF, 2025[21]). The estimate for potential savings on ending energy subsidies is equal to the budgeted amount for 2026 (0.3% of GDP). The estimate for non-investment government expenditure on transport assumes hypothetical convergence from 2.0% of GDP to the OECD average of 1.5% of GDP in 2024, the latest year for which internationally comparable COFOG data are available. The illustrative saving estimate for public order and safety hypothetically closes two thirds of the gap between Slovakia (2.3% of GDP) and the OECD average (1.7% of GDP) in 2024. The estimates for mortgage subsidies and capital gains are rough orders of magnitude computed using data and assumptions on real-estate transactions together with information on the mortgage subsidy in (European Commission, 2025[22]). The estimate for savings on parental leave allowances assumes that effective duration decreases by 10%. The estimate for removing reduced VAT rates is based on (Ministry of Finance, 2025[23]) with an adjustment to take into account recommended compensation for low-income households. The hypothesis for improved VAT collection is that it narrows the VAT compliance gap from 10.5% in 2023 down to the EU average of 9.5% with both estimates taken from European Commission (2025[24]). The estimate for property taxes closes two thirds of their distance to the OECD average as a ratio to GDP in 2024. The lost revenue from ending the financial-transactions tax is based on outturns from April to December 2025 (0.3% of GDP on an accrual basis) scaled to a full year. Additional revenue from implementing ETS2 is estimated as the yield from increasing effective levels of carbon pricing to a hypothetical permit price of €75 per tonne of CO2 (across the covered categories where effective levels were below €75/tCO2) using the data plotted on Figure 4.8 (Panel A). Energy subsidies are left outside this calculation to avoid double counting. Fiscal effects of higher employment come from the OECD long-term modelling framework (Guillemette and Château, 2023[25]).
Sources: OECD COFOG database, (Institute for Financial Policy, 2023[20]), (Ministry of Finance, 2025[26]), (IMF, 2025[15]), OECD long-term model and OECD calculations.
Table 1.6 provides illustrative estimates of the effects of selected recommendations in this Survey on GDP per capita. Chapter 4 lays out options for reforms to improve the business environment that would boost long-term growth. They start with reducing corruption and strengthening the rule of law, reducing the cost of starting a limited liability corporation, improving its ownership principles of state-owned enterprises, dismantling entry barriers in professional services and speeding-up insolvency procedures. Furthermore, reducing the large labour tax-wedge, abolishing the financial transactions and harmonising corporate tax rates would durably encourage stronger activity (Chapter 4). Cutting red tape involved with importing and liberalising services trade would boost trade, foreign direct investment and productivity. Strengthening efficiency of government investment and making R&D more accessible to smaller companies would boost investment. The estimated quantitative effects of these reforms on GDP per capita over time come from Égert & Gal (2017[27]).
This chapter outlines a range of areas where reforms could raise the share of the population that is in employment over the coming decades, boosting growth. The scenario of labour-market participation reforms lies on the prudent side: it assumes that women’s employment rate slowly rises to equal men’s by 2080, that the Roma close half of their employment gap with the rest of the population by 2080, and that the employment of workers aged 55-74 closes half of its gap with prime-age workers by 2080. The effects of the different reforms are combined using the OECD long-term modelling framework (Guillemette and Château, 2023[25]).
Relative to baseline
Notes: Some totals differ from the sums of displayed numbers due to rounding. The illustrative quantification of the GDP boost from higher R&D spending after ten years starts from the long-term elasticity for R&D in Égert & Gal (2017[27]). In the absence of an estimated adjustment speed for R&D effects in Égert & Gal (2017[27]), the average of adjustment speeds across other reforms boosting multi-factor productivity is used to gauge quantitative effects over time.
Sources: (Égert and Gal, 2017[27]), (Guillemette and Château, 2023[25]), OECD long-term scenario database
Responding to a shrinking, ageing population
Looking ahead, large demographic changes are looming. The population aged 15-64 is set to shrink by nearly 30% over 2025-2065. In the same period, the number of people above 64 years of age is set to increase by 52%. Consequently, the share of the employed in the population will diminish unless employment rates rise markedly, especially in groups where they are currently low (see below). A shrinking population and falling employment share will both weigh on future economic growth (Figure 1.10). These anticipated trends also contrast with the OECD average though not with neighbouring countries (Figure 1.10).
The shrinking workforce is creating deeply intertwined long-run challenges not only for living standards but also for fiscal sustainability. A reduction in the employed share of the population, all other things being equal means that fewer people work and pay taxes while more receive pensions and other transfers: GDP per capita diminishes and the primary balance deteriorates under unchanged tax and spending arrangements (Guillemette and Turner, 2017[18]).
These trends place the Slovak Republic among the OECD countries facing the largest downward impact of ageing on GDP per capita (Figure 1.11). Compared with a hypothetical situation where the ratio of employment to population would remain constant, the impact of a shrinking employment ratio could be as large as 17.5% if the employment rates by age group and gender remain unchanged over 2021-2050. This illustrative long-term scenario provides an upper bound, as it abstracts from cohort effects and impacts from policies in place. Cohort effects mean that higher employment rates today among young people, compared with the employment rates of older generation when they were young, will translate into higher employment rates tomorrow. Furthermore, legislated policies such as the link reintroduced since 2023 between retirement age and life expectancy can support employment rates among older workers (see below). Incorporating cohort and legislated policy effects, the employed share of the population is set to decrease by 4 percentage points over 2025-2060, among the five largest falls in the OECD area (OECD, 2025[28]).
Long-term scenarios underline the importance of broadening the workforce. Key avenues include further increasing participation of women, older workers and minorities while considering the possibilities of raising net immigration and, for long-run outcomes, fertility. The rest of this section considers these in turn before discussing options for reforming public finances.
Contributions to potential GDP growth from population, the employment share and labour productivity, estimates for the past 25 years and simulations on unchanged policy settings for the next 25 years
Notes: Visegrad 3 refers to the average of the data for the Czech Republic, Hungary and Poland. The OECD and Visegrad 3 are unweighted averages.
Source: OECD Economic Outlook 119 long-term database and OECD calculations
A key to broadening the workforce is to encourage more women to join the workforce. The employment gap between men and women, while below the OECD average, is non-negligible at 8 percentage points (Figure 1.12 Panel A). Raising the employment rate among women aged 15-64 by 8 percentage points in coming decades would halve the 2025-2060 fall in the share of employed people in the entire population compared with the no-policy-change baseline presented in OECD (2025[28]).
The gender employment gap in part stems from the fact that many women in Slovakia step aside from their jobs to care for their children in the years after they are born. The gender employment gap, which lies below the OECD mean when computing it across all working-age groups, widens to above the OECD mean around the average childbearing age (Figure 1.12 Panel B). While the choices that underpin this situation may to some extent stem from cultural factors and preferences, they also reflect policy settings. Parental leave is among the longest available in the OECD area (Figure 1.13 Panel A) even when adjusting for the replacement rate (Figure 1.13 Panel B). Furthermore, the supply of early childcare is very limited. Narrow supply comes together with high costs: net childcare costs per child in full-time centre-based care averaged 17% of the average wage in 2023, well above the OECD average of 9% (OECD, 2025[29]).
Notes: Panel A, the old-age dependency ratio is defined as the number of people aged 65 and over (old) divided by the number of people aged 20-64 (working age population). Panel B shows the loss in per capita income stemming from population ageing under the assumption that age- and gender-specific employment rates in 2050 remain the same as in 2021. Population ageing implies a fall in employment-to-population ratio, dragging down GDP per capita growth.
Sources: UN World Population Prospects database; André, C., P. Gal and M. Schief (2024), “Enhancing productivity and growth in an ageing society: Key mechanisms and policy options”, OECD Economics Department Working Papers, No. 1807, OECD Publishing, Paris, https://doi.org/10.1787/605b0787-en; and OECD calculations.
In this environment, most mothers take care of their young children at home. The share of 0-2-year-olds in childcare is the lowest observed among OECD countries (Figure 1.13 Panel C). While both parents are entitled to parental leave, 97% of beneficiaries are mothers (OECD, 2024[16]). After an extended period of childcare, many mothers do not return to employment. It should be noted that the employment gap apparent in the statistics does not reflect the direct effect of maternity leave, as women on parental leave are still in employment from a statistical perspective. In addition to adverse effects on employment, an extended period outside of paid work hurts subsequent earnings prospects, fueling the gender compensation gap (Thévenon and Solaz, 2013[30]).
This situation calls for reforming parental leave arrangements. The length of parental leave entitlement should be reduced towards more commonly observed levels in OECD countries. Simultaneously, ongoing efforts to expand early childcare should intensify. In 2025, expenditure to expand and staff early childcare facilities increased by over EUR 40 million under the Action Plan for 2023-2025 of the National Strategy for the Development of Coordinated Early Intervention and Early Childhood Care Services 2022-2030. International evidence suggests that childcare and early childhood education provision improve parent’s labour-market participation as well as children’s ulterior development (OECD, 2023[31]).
Employment gender gap, men-women rates difference, percentage points, 2024
Note: The average childbearing age in Slovakia was 28.9 years in 2023 (OECD, 2025[32]).
Source: OECD Labour Force Statistics
Further expanding early childcare would extend recent achievements in pre-primary education. Broader provision of pre-primary education has been an important outcome of the EU Recovery and Resilience Plan. In the Slovak Republic, the EU Recovery and Resilience Plan will be used for broadening the capacities of kindergartens. Pre-primary education became compulsory from the age of 5 in 2021. Since 2025, all children from age three have the right to a place in kindergarten. Given these recent advances for the 3-5 year-group, accelerating the supply of kindergartens would make it easier for parents to combine childbearing with professional careers. Since 2025, kindergartens have been switched to a per capita financing rule to encourage municipalities to increase capacity and enrolment. Pre-primary education, through full-time attendance at kindergarten or at home education, will become mandatory for 4-year-olds from September 2027 and for 3-year-olds from September 2028.
Greater enrolment in pre-primary education and childcare should bring additional benefits in addition to making it easier for parents to work. Early childhood education has been found to bring large benefits for the well-being of pupils later in life as well as their prospects in the labour market in terms of employment and wages while reducing inequalities (OECD, 2025[33]; OECD, 2020[34]). For the greater provision of early childhood education to deliver its full potential, it needs to be followed up with quality primary and secondary education. Furthermore, international evidence suggests that supplying more early childhood and care may help to raise fertility rates (OECD, 2024[35]), with attendant positive long-run effects on the employed share of the population.
With rapid ageing, increasing the share of people above 55 in work is key to boosting overall employment (Figure 1.14). Two opposite forces are acting on their prospects in the labour force.
On the supporting side, since 2023, the retirement age is set to rise by two months each year until 2030 and with life expectancy afterwards. Empirical evidence suggests that retirement age increases can substantially boost the employment of older workers (Hwang and Roehn, 2022[36]; Morgavi, 2024[37]). Longer working lives imply a greater need for reskilling and larger benefits of upskilling in ways that include older workers. Given the current low share of workers above 55 who participate in job-related training (Figure 1.15), the lifelong learning measures foreseen by the National Active Ageing Program 2021-2030 are essential, especially the acquisition of digital skills (see also Chapter 4).
On the opposite side, early retirement has been facilitated. A new pathway to early retirement became available in 2023 for people with 40 years of service with a penalty of 3.9% per year. This option was much more attractive than the pre-existing scheme allowing retirement two years before the statutory age for a penalty of 6.5% per year. Early retirements rose to 36,000 per year (half an age cohort) in 2023-2024 from 14,000 previously. The indexation of pensions to inflation, which exceeded wage growth in 2022-2023, inflated the incentives to benefit from the scheme. Penalties for early retirements were increased by a reform passed in 2024 to 6.5% per year, which should reduce take-up in the future. Another provision of this reform makes sure that the minimum years of service before being eligible rises one-for-one with increases in the retirement age.
Besides the early retirement scheme, a change to the formulas introduced in 2024 for all old-age pensions further raised the attractiveness of retiring in years of high inflation (Šaling, Starek and Martiška, 2025[38]). The pension is calculated using the relative level of lifetime wages and the average wage in the economy before increasing its level by the adjustment made to existing pensions on 1 January of the retirement year. These provisions mean that, in a year of high inflation, people retiring near year end will see their pensions incorporate two nominal adjustments (yearly wage growth and the 1 January pension adjustment). The impact is large: a person working for 40 years at the average wage level would retire with a monthly pension of EUR 613 in 2022, EUR 815 in 2023-2024, and EUR 765 in 2025. The double counting of retirement-year nominal changes should be removed from the pension formula to avoid artificially making retirement more attractive at times of high inflation.
There is considerable scope to raise employment rates among the Roma community (8% of the Slovak Republic’s population). Only 23% of Roma women and 43% of Roma men aged 20-64 are in paid work (EU Agency for Fundamental Rights, 2022[39]). The proportion of young Roma not in work, education or further training is 65% against 14% for the rest of the Slovak population aged 16-24 (Holubova et al., 2021[40]). As developed in previous Surveys (OECD, 2024[16]; Bednarik, Hidas and Machlica, 2019[41]), improving the labour-market integration of the Roma requires integrated advances across many areas including education, starting with early childhood education, active labour-market programmes and lifelong learning. A very large gap separates the average educational attainments of Slovak Roma and other students (OECD, 2020[42]). A key point for action is the transition from lower to upper-secondary education, where disparities between groups are particularly pronounced (Havirova, 2021[43]): strengthening support at this stage with mentors, pedagogical assistants and bridging programmes would be helpful.
Against this background, it is essential to make sure that the right to a place in kindergarten from the age of three becomes fully effective in Roma communities. Throughout the education system, the presence of specialised teaching assistants speaking Roma has proven to help Roma pupils attain better educational outcomes (Rutigliano, 2020[44]; Bednarik, Hidas and Machlica, 2019[41]). Second-chance education, which is currently insufficiently developed in the Slovak Republic, would be particularly valuable to members of the Roma community where leaving school early is particularly prevalent (Lukáč and Lukáčová, 2024[45]; OECD, 2020[42]). One way of integrating more low-educated adults in lifelong vocational education would be to expand the network of second-chance education providers (Bednarik, Hidas and Machlica, 2019[41]). Better labour-market inclusion of the Roma would also contribute to narrowing regional disparities, which are particularly acute in the Slovak Republic (Demmou et al., 2015[46]).
Notes: Panel A, data refer to paid maternity, parental and home care leave available to mothers. Panel B, data are reported in full-rate equivalent, i.e. the length of the paid leave if it were paid at 100% of previous earnings. Panel C, the net childcare cost (NCC) indicator is the user cost, as a share of average wage and net of any childcare allowance, tax concessions, fee rebates or increase in other benefit entitlements, to parents working full-time in a job that pays the average wage, for two children aged 2 and 3 using full-time centre-based childcare. Data refer to 2023. Enrolment rate refers to the percent of children enrolled in early childhood education and care (ISCED 2011 level 0) or primary education (ISCED 2011 level 1), 3- to 5-year-olds, for 2021 or latest available year.
Source: OECD Family database; OECD Net childcare cost for parents using centre-based childcare database; and OECD calculations.
Immigrants in 2025 made up 4.7% of employment, with the main origin countries being Romania, Serbia and Ukraine. They contributed 0.5 percentage points to employment growth each year during 2022-2025, offsetting much of the effect of early retirements in 2023-2024. While net immigration is likely to continue in coming years, it is most likely to diminish at longer horizons as origin countries experience demographic dynamics similar to the ones observed in the Slovak Republic.
Source: OECD Labour Force Statistics database.
Immigration improves the employment share in the population. The reason is that the age distribution of immigrants is more concentrated in the 20-40-year-old group (André, Gal and Schief, 2024[47]) than the rest of the population. Immigrants nonetheless age, so that large levels of sustained net immigration are required to have a large effect on the demographic structure. Net immigration into the Slovak Republic would need to evolve for decades at high levels, compared with historic averages, to maintain the dependency ratio stable until mid-century (Figure 1.16).
Higher fertility would raise the employment share in the population in the very long run. That effect would occur only after a generation’s delay, since at first higher fertility implies a higher share of children and teenagers, thereby temporarily reducing the employment-population ratio. A recent OECD study found that supplying more early-childcare and, to a lesser extent, providing higher child benefits are associated with higher fertility rates (OECD, 2024[35]). Rising housing costs are linked with falling fertility (OECD, 2024[35]), suggesting that policies to make housing more affordable can facilitate decisions to have children.
Share of adults who participated in formal or non-formal job-related adult learning, by age group, %
Note: Data based on the OECD Survey of Adult Skills (PIAAC) 2023.
Source: OECD (2025), Trends in Adult Learning: New Data from the 2023 Survey of Adult Skills, Getting Skills Right, OECD Publishing, Paris, https://doi.org/10.1787/ec0624a6-en.
Scenarios for net immigration rates to stabilise the old-age dependency ratio, % of the population
Source: Simulations for the Slovak Republic based on André, C., P. Gal and M. Schief (2024), “Enhancing productivity and growth in an ageing society: Key mechanisms and policy options”, OECD Economics Department Working Papers, No. 1807, OECD Publishing, Paris, https://doi.org/10.1787/605b0787-en.
Managing pension, health and long-term care spending
Strong upward pressure is expected on pension, health and long-term care expenditure (Figure 1.17). Rapid ageing is exerting strong pressure on the Slovak public pension system. However, the reform that entered into force in 2023 has the potential to keep public pension expenditure in check. Among the many adjustments that the reform introduced (Institute for Financial Policy, 2023[20]), two changes dramatically reduced future spending needs: first the statutory retirement age was linked again to life expectancy from 2030; second, the pension point was indexed to 95% of average wage growth down from 100%. Together with the rise in the employment rate (and updates in demographic and other assumptions), the reform contributed to revising the expected increase in public pension expenditure as a ratio to GDP from 5.9% over 2019-2070 in the 2021 Ageing Report to 2.8% over 2022-2070 in its 2024 instalment (Institute for Financial Policy, 2023[20]). After 2060, public pension (“Pillar I”) spending is anticipated to decrease relative to GDP as funded pensions (“Pillar II”) become increasingly important.
The anticipated improvement in the long-term public pension outlook however comes with risks and options to mitigate them:
The payment in 2023 of an exceptional additional pension benefit of EUR 300 per pensioner may have created expectations that such measures could be repeated in future bouts of inflation or other adverse economic developments, thus undermining the credibility of the long-term public pension outlook.
Also in 2023, the thirteenth pension (formerly called “Christmas bonus”), was increased. Reverting the part of the increase that went to middle and high income pensioners could yield long-term savings of around 0.3% of GDP (see note to Table 1.5).
The possibility for mothers to retire earlier (by 6 months per child, up to 18 months) as well as the pension bonus for parents have been adopted to encourage higher fertility, with the justification that more births substantially improve the pension outlook in the long run. Despite the theoretical channel (Fenge and Meier, 2005[48]), there is little empirical evidence that parental pension benefits influence fertility decisions. The cost of these provisions should be evaluated against the fertility benefits that can come from other previously mentioned policy interventions in the areas of childcare, child benefits and housing affordability.
The long-term stabilisation and fall of pension spending relative to GDP hinges on the success of funded Pillar II pensions. Since the 2023 reform and after a transition period, fees are capped at 0.4% of fund assets, a low level by international comparison, as fees average 0.7% of assets across OECD countries with Pillar II pension systems (OECD, 2023[49]). This capping is helpful for future pension income, since fees have long been recognised as the dominant driver (with a negative effect) of fund performance (Carhart, 1997[50]). Recent changes that relaxed investment restrictions by allowing more investment in Slovak-based assets can in principle improve performance, but effects must be monitored to ensure that risks remain well managed.
Public spending needs from healthcare are anticipated to intensify as ageing and technological advances lead to expensive treatments. This outlook calls for continuous vigilance. By international comparison, many Slovak elderly consider themselves in poor health (Figure 1.18 Panel A). When focussing on low-income people above 65, the share of respondents judging their health as poor is the highest in the OECD: since this group has limited resources, the need to provide them with adequate health care will have consequences for the public purse. Nevertheless, there are possibilities to deliver efficiency gains: a spending review identified potential savings in the order of 0.4% of GDP including by strengthening the evaluation of drugs that are fully reimbursed and promoting the use of generic and biosimilar alternatives (Ministry of Finance, 2022[51]).
Long-term care needs will also create strong public funding pressure. Only 12% of old people with long-term care needs are receiving formal care. Informal provision is the dominant form of long-term care (Figure 1.18 Panel B): with the ratio of older to prime-age people rising rapidly, informal care will become increasingly difficult to provide on the same scale over time. The consequence will be a greater call on formal care. Formal long-term care at home is comparatively underdeveloped in Slovakia (Halubova, 2025[52]). In this environment, demand is set to rise for institutional long-term care, which is currently below the OECD average (Figure 1.18. Panel C).
Forthcoming pressure on long-term care expenditure makes it important to regularly review the organisation of the system. Funding for long-term care in institutions and at home comes from local budgets (62%), the ministry of social affairs (12%) and users (Kubekova, 2020[53]). Eligibility rules for institutional care, which were relaxed in 2008, may be worth re-examining: in particular, there may be a case for introducing income and wealth checks before paying compensation allowances as is practiced in many OECD countries (Llena-Nozal, Araki and Killmeier, 2025[54]). Eligibility for publicly funded institutional care, which is income-tested, could also be reserved for people whose wealth lies below a certain threshold. As for home care, recent advances suggest possibilities to reduce costs by using digital monitoring and AI to reduce in-person visits (Wrede, Braakman-Jansen and van Gemert-Pijnen, 2025[55]). More broadly, there is scope to explore the extent to which private insurance products could play a greater role in offering protection against the risk of dependency, reducing needs for public funding of long-term care (OECD, 2021[56]).
Source: European Commission Ageing Report 2024; and OECD calculations.
Sources: Eurostat database; and Llena-Nozal, A., J. Barszczewski and J. Rauet-Tejeda (2025), “How do countries compare in their design of long-term care provision?: A typology of long-term care systems”, OECD Health Working Papers, No. 182, OECD Publishing, Paris, https://doi.org/10.1787/44f5453a-en; and OECD calculations.
Improving the budgetary position through measures that preserve long-term growth
Restraining spending
At 47% in 2024, the ratio of public expenditure to GDP lies well above the OECD average (Figure 1.20, Panel A), suggesting that fiscal adjustment needs to involve cuts in spending. High expenditure on social protection (Figure 1.20 Panel B) largely reflects expenditures in the pension and health areas, which can be reduced as discussed in the previous subsection. It is also important to regularly review social transfer and assistance programmes to reduce their funding in areas where they are found insufficiently efficient.
A spending category that stands out is energy subsidies (Figure 1.20. Panel C). At the height of the energy crisis in 2023, which is the most recent year for which detailed expenditure data are available on a comparable basis across countries, the Slovak government was spending more than any other OECD country on energy subsidies. The end of electricity price subsidisation for heavy industry and falls in energy prices have brought about a reduction of nearly one percent of GDP in the cost of energy price caps (Ministry of Finance, 2025[26]). The authorities developed the necessary infrastructure to target energy subsidies to 90% of households from 2026. While this threshold is high, the targeting infrastructure means that the threshold can be adjusted in the future; it also opens the door for conditioning other social benefits to income criteria.
Besides fiscal gains, phasing out energy subsidies would bring considerable economic and environmental benefits. First, restoring market-based signals would encourage more economically efficient use of energy. Second, ending subsidies that lower the cost of using fossil fuels would accelerate the transition to less carbon-intensive forms of energy.
There is a case for reviewing government non-investment spending on transport. High levels of public investment in transport infrastructure are warranted as part of the convergence process towards higher-income economies among the OECD area and the energy transition (Figure 1.20, Panel C). While public investment in transport is mostly EU-funded (OECD/UCLG, 2022[57]), current (i.e. non-investment) expenditure on transport is domestically funded. It reaches in Slovakia one of the highest ratios to GDP observed across OECD countries at nearly 2% (Figure 1.20, Panel D). This situation suggests that strong benefits may flow from reviewing government spending in this sector.
One avenue to explore in the transport sector is the extent to which funding of the transport operators can rely more intensively on user payments. The 2025-2026 hikes in the motorway vignette and road tolls could be followed by further increases. The electronic toll collection (ETC) system of road pricing, which has the advantage over the vignette of reflecting effective use, could be extended to individual cars, while ensuring proper privacy safeguards. Besides, the pricing of long-distance rail and urban public transport could be evaluated to determine where higher user charges could in part substitute for public subsidies. For the sake of comparison, Slovakia’s public current expenditure on transport lies 0.5 percentage points of GDP above the OECD mean (Figure 1.20, Panel E).
The Slovak Republic stands out for the amount it spends on public order and safety (Figure 1.20, Panel F). Despite this high level of expenditure, public trust in the police, the reported feeling of safety and the perception of independence of the judiciary are all comparatively low (Value of Money Unit, 2023[59]). A spending review of the police force suggested, over time, substituting employees with standard public-service contracts for police officers in many supporting positions such as information technology, human resources and administration (Value for Money Unit, 2023[60]).
While decisions on the level and allocation of public expenditure first and foremost need to reflect national conditions and preferences, international comparisons can provide indications about where to look for savings. An exercise was conducted in this spirit, taking advantage of the strong advances achieved over the past ten years in the quality and coverage of the OECD Classification of the Functions of Government (COFOG) database. Econometric regressions aimed at establishing to which extent underlying drivers can explain spending. These drivers are income per capita and the age structure of the population for many spending categories. They also include specific indicators for specific categories (such as the share of private provision for health and the amount of waste generation for environmental protection).
The main aim of this exercise is to detect outliers: countries where spending on certain countries is well above what can be expected given observations in other countries. For the Slovak Republic, it mainly identifies transport as well as public order and safety (Figure 1.19). The absence of energy subsidies from this finding stems from the period considered (1995-2019), which was chosen to abstract from the swings in public spending during the COVID-19 and energy-crisis periods.
As % of GDP, 2019
Note: Sum of potential savings on individual categories if actual spending was reduced to the model predicted value. The United States does not appear in this analysis due to lack of sufficiently dis-aggregated data for some categories.
Public expenditure, as % of GDP, 2024
Sources: OECD Annual government expenditure by function database; OECD Economic Outlook: Statistics and Projections database; and OECD calculations.
Favouring less distortive ways to raise revenue
Revenue raising should contribute a smaller amount to long-term fiscal adjustment than spending restraint (Figure 1.22 Panel A). Relative to GDP, government revenue stands above the OECD average (Figure 1.22 Panel A). In such a situation, fiscal consolidation ought to prioritise spending measures. Further raising taxes on labour and capital would amplify the economic distortions they already entail, harming growth prospects and in some cases threatening the tax base (Cournède, Fournier and Hoeller, 2018[61]). Furthermore, increasing taxes in an economy where they are already relatively high amounts to entrenching a higher size of government, a change that is generally associated with lower long-term growth prospects (Fournier and Johansson, 2016[62]).
Fiscal space should be generated to reduce taxes on labour and corporate income:
Elevated social security contributions, together with personal income taxes (Figure 1.22 Panel B) contribute to a high labour tax wedge that weighs on work decisions. The effect is substantial: the rise in the labour tax wedge over 2010-2024 (from 38.1% to 42.6% for a single person earning the average wage) was accompanied by a 9.7% fall in hours worked per person employed. As developed in Chapter 2, lowering the tax wedge on labour would support economic dynamism. The impact of high taxes is compounded by tax compliance procedures that are perceived as particularly cumbersome (Figure 1.21). The 2022 and 2024 National Reform Programmes report plans to put in place pre-filling of income tax declarations for taxpayers with typical sources of income, which offers the potential to considerably reduce the administrative burden of tax compliance for many.
At 24% since 2025, the statutory corporate income tax (CIT) rate is high by international standards, hurting competitiveness (see Chapter 4). It is also in the middle of the empirically estimated range where further increases, in addition to impairing economic growth, could reduce revenue by shrinking its base (Akgun, Bartolini and Cournède, 2017[63]). As developed in Chapter 4, the efficiency of CIT could be improved by narrowing the large difference between the statutory and preferential rates. Such a reform should not be seen as a way to raise more revenue, as the Slovak Republic is already around the OECD average for this particularly growth-detrimental form of taxation (Figure 1.22 Panel C). Instead, the CIT burden should be lowered.
Selected answers to: “How easy or difficult is it for you to complete your tax returns?”, % of respondents
Source: Flash Eurobarometer 562.
Consumption taxes raise a large amount of revenue (Figure 1.22 Panel D). Even if VAT is a low-distortion source of revenue that is comparatively growth-friendly (Cournède, Fournier and Hoeller, 2018[61]), renewed hikes would risk being counter-productive after the increase of the standard VAT rate to 23% in 2025. In a small open economy such as Slovakia’s, increasing the standard VAT rate would run the risk of reducing revenue through base shrinkage (Akgun, Bartolini and Cournède, 2017[63]). As recommended in the previous Survey, there is however a strong case for making the VAT more efficient and high yielding by eliminating the reduced rates on selected products, which are estimated to cost 1.4% in 2025 (Ministry of Finance, 2025[23]). The social objectives pursued by these reduced rates would be reached at lower cost to the public purse through targeted transfers to low-income households. Direct assistance would avoid the large costs that stem from the lost VAT income on products that are purchased at reduced VAT rates by people outside the low-income group.
Property taxes are underused in the Slovak Republic, with receipts that stand well below the OECD average as a ratio to GDP (Figure 1.22 Panel E). They are also more compatible with long-term growth than most other taxes (Cournède, Fournier and Hoeller, 2018[61]), suggesting that they represent a promising lever for fiscal adjustment. In central and eastern European countries, increasing recurring property taxes has often run into the difficulty that many homeowners have low income (Blöchliger and Diagne, 2023[64]). With modern, digitised tax administrations, however, this obstacle can be overcome by offering the option to pay in instalments or defer payments until the property is transferred to another owner (typically when sold or transmitted to heirs) as done by Denmark and Ireland (De Pace, 2024[13]). Designing the rules to encourage payment by instalments over deferral until sale or inheritance offers the advantage of reducing risks that people may find it increasingly difficult to move as a growing property tax liability accumulates.
A pre-requisite for raising more income from the property tax in ways that are efficient and acceptable is to reform the way in which it is computed and upgrade the capacity of the tax administration. Currently, property tax is based on the area of the property rather than its value. As recommended in the previous Survey (Table 1.4), market values should be used instead as the tax basis. To be able to do so, tax authorities need to develop adequate capacity, including through digitisation, to keep track of property ownership and market values.
Further tax revenue could be raised in an economically efficient way from housing. The previous Survey recommended ending the exemption of owner-occupied properties from capital-gain taxation. In addition to raising revenue, this reform would also improve the allocation of capital, with potential long-term benefits for productivity, by removing a distortion in the taxation of savings that favours homes over other investments.
Public revenues, as % of GDP, 2024
Note: Panel C, taxes on income, profits and capital gains of corporations. Panel F, year 2023.
Sources: OECD Global Revenue Statistics database; and OECD Environmentally related tax revenue database.
Finally, revenue can be raised from measures to reduce greenhouse gas emissions. Overall, environmental taxes produce high revenue by international comparison (Figure 1.22 Panel E), mostly owing to motor fuel taxes. However, carbon dioxide emissions from fossil fuels used in buildings remain taxed at very low levels (see Chapter 4): the planned extension of the EU emissions trading scheme to this sector should therefore bring additional revenue of roughly 0.2% of GDP (at 2023 emission levels and September 2025 ETS prices).
Strengthening the fiscal framework
The Slovak fiscal framework is built around a debt brake enshrined in a constitutional law and multi-year expenditure ceilings (Box 1.4). By aiming to introduce increasingly strong incentives to consolidate fiscal accounts when government debt goes above 40% of GDP, the debt brake is pursuing an objective of strong fiscal sustainability. However, debt has been above the so-called sanctions threshold for most of the period since the brake was introduced (Figure 1.8). An empirical investigation of the data indicates that, since the introduction of the debt brake, the response of the primary balance to the debt level has not changed significantly (Box 1.4).
The limited effectiveness of the sanctions mechanism stems from limitations in the debt brake:
First and foremost, the debt brake is suspended for two years after the government passes a programme statement in Parliament. In a country holding general elections every four years, this clause means that the debt brake fails to apply at least half the time. Furthermore, a government holding a majority in Parliament can pass a new programme statement to restart the clock.
Second, the requirement to present a balanced budget applies to the bill tabled by the government rather than the final act adopted by the Parliament.
A revised debt brake ought to provide more time for convergence towards the target while involving more effective sanctions. Importantly, the two-year exemption period should be removed. The requirement to present a balanced budget bill should be replaced with an obligation to pass a final budget including multi-annual targets that are consistent with debt going below the target ratio within the target horizon. For this purpose, a multi-year target horizon should be set: this would avoid overly rapid adjustment while doing away with exemption periods, thereby allowing sanctions to apply as soon as budgetary outcomes deviate from the set multi-year adjustment path.
Multi-year expenditure ceilings are the other key component of the Slovak fiscal framework: the difficulties met after their introduction call for resolute steps to establish their credibility. In January 2024, the government tabled a resolution setting out expenditure ceilings for 2024-2027. The National Council (Parliament) however did not approve them when voting on them at its 27 February 2024 session. The national ceilings however enable meeting a milestone agreed with the EU authorities as part of the EU Recovery and Resilience Plan [see OECD (2025[65]) for a description of EU and euro area budget rules]. Consequently, the European Commission notified a reversal of milestone in April 2024 (Bobkova and Sanicek, 2025[66]). Subsequently, the Slovak Parliament approved a binding limit on public expenditure for 2024 (Box 1.3). Accordingly, the limits on public expenditure for 2025–2027 were approved by a Resolution of the National Council of the Slovak Republic of 3 December 2024.
The debt brake’s track record together with the current fiscal situation call for reform. Slovakia’s fiscal position means that the consolidation trajectory embedded in the debt brake is unrealistic. The debt brake would imply aiming at a balanced budget from 2026 down from a 4.5% of GDP deficit in 2025, an amount of consolidation that would imply a large slump that would most likely result in a higher debt-GDP ratio. Debt stabilisation and reduction, while requiring moving the primary balance into surplus in a few years, is compatible with more gradual approaches such as an overall budget balance (including interest payments) in deficit of about 1% in 2030 narrowing to around 0.3% in the subsequent decade.
Making expenditure ceilings credible requires strengthening underlying public financial management capabilities. International experience (Moretti, Keller and Majercak, 2023[67]) shows that effective medium-term expenditure frameworks depend on several building blocks.
1. First, the frameworks must be integrated with the annual budget process.
2. Second, they require strong technical capacity within the Ministry of Finance to produce credible medium-term expenditure baselines and update them regularly. The medium-term baselines, by laying out the assumptions underpinning the multi-year ceilings, allow observers to determine to which extent adjustments in subsequent years represent a relaxation of the initial ceiling trajectory or simply the impact of deviations of economic and fiscal outcomes from assumptions.
3. Third, the ceilings must be established in a way that is supporting credibility while providing necessary flexibility. Strengthening the public financial management system would therefore support transforming expenditure ceilings from aspirational targets into effective fiscal responsibility tools that guide resource allocation decisions, demonstrate trade-offs transparently and enhance fiscal credibility.
The debt brake
The debt brake is a constitutional fiscal rule designed to maintain sustainable public finances. It was introduced in 2011 and became effective in March 2012, with a transition period until 2028. From 2028, sanctions will start to apply from 40% of GDP with an upper debt limit of 50% of GDP. As of December 2025, the upper limit stands at 52%.
The sanction tiers are specified as follows for 2026 based on public debt as of end-2025:
42% - 45%: the government must explain to the National Council (Parliament) why the debt has increased and propose corrective measures;
45% - 47%: in addition, the government must freeze the salaries of its members;
47% - 49% : in addition, the ministry of finance blocks 3% of total state budget expenditures. Subnational governments need to approve budgets that do not exceed those of the previous year.
49% - 52%: in addition, the government must propose a general government budget bill that is balanced or in surplus. Subnational governments must approve budgets that are balanced or in surplus.
Above 52%, the government shall initiate a vote of confidence in Parliament.
Sanctions from the third tier onward are not applied in the following cases:
For two years following the approval of the government’s programme statement (“Manifesto”) and after a successful vote of confidence in the government.
For three years if GDP contracts by at least 12 percentage points.
For three years if spending on banking sector recovery, natural disaster relief, or obligations under international treaties exceeds 3% of GDP in a given year.
Expenditure ceilings
The Ministry of Finance translates net expenditure growth from the National Medium-Term Fiscal-Structural Plan prepared under the EU fiscal framework into nominal expenditure ceilings. This new system, anchored on the EU framework, has been in force since May 2024. It replaces the previous arrangements whereby the expenditure limits were set by the Council on Budget Responsibility in relation with the debt brake (OECD, 2024[16]). The new system aligns the national legislation with the new European fiscal rules, in particular by linking the public expenditure limit to the trajectory that the European Commission sets for expenditures net of interest payments, discretionary revenue measures, EU-funded programmes, the cyclical component of unemployment benefit spending, and one-offs.
A fiscal reaction function has been estimated to explore the extent to which public authorities adjust fiscal balances to stabilise debt. The capacity of fiscal policy to satisfy the intertemporal budget constraints can be gauged by estimating if the primary balance significantly improves in response to a higher level of debt (de Mello, 2008[68]). An error-correction framework evaluates if the underlying primary balance changes in the current period in response to previous-period deviations in an equilibrium relationship between the ratio of debt to GDP and the primary balance as well as to inflation, the output gap and interest rates (Berti et al., 2016[69]). Data from the OECD Economic Outlook database cover the 1995-2024 period at quarterly frequency. Indicator variables are added for the COVID-19 outbreak period.
Probability (p) that the year marks a structural break towards greater debt stabilisation
Notes: The chart depicts the probability that a break occurs in the year under consideration making the reaction of the primary balance more stabilising in response to the debt level. For each year in 1998-2019, the fiscal-rule equation is run allowing for a break in the coefficient measuring the effect of the debt ratio: the chart shows the one-sided p-value that this coefficient is positive. The estimation is conducted over 1995-2024, but break tests are performed only over 1998-2019 to have enough observations before and after the break tests (and avoid the COVID-19 period where dummy variables are included).
Source: (Cournède, forthcoming[70])
The estimation finds no significant stabilising response over the entire period but identifies that one took hold since the Slovak Republic decided to join the European Union and prepare for euro area membership. Estimation over the full sample shows no statistically significant response. However, tests identify break in 2001-2003: the relationship, which is insignificant before, becomes stabilising in a statistically and economically strong way afterwards (Figure 1.23). By contrast, there is no statistically significant break around the introduction of the constitutional debt brake in 2012.
Source: (Cournède, forthcoming[70]).
Independent fiscal institutions can substantially strengthen the credibility of fiscal rules (OECD, 2014[71]). The Slovak Council for Budget Responsibility (CBR), established in 2012 by a constitutional law adopted in 2011, is widely regarded as independent and non-partisan with strong analytical skills (OECD, 2020[72]). By comparison with other OECD countries of similar size, it has a relatively large workforce (OECD, 2021[73]). With rising impact in the media and highly respected by its peers, the CBR has served as a benchmark in the evaluation of other fiscal councils (Hellenic Fiscal Council, 2024[74]). Some countries have increased transparency about the appointment process by introducing formal parliamentary hearings for selected independent fiscal institution members (OECD, 2020[72]). Such a procedure is in place for the Parliamentary Budget Officer in Canada, for the Federal Audit Office in Switzerland and the Congressional Budget Office in the United States.
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