Slovenia

Slovenia’s fiscal stance remains relatively sound compared to the Eurozone average, but medium-term pressures are mounting. After large pandemic-related deficits, consolidation resumed. In 2025, the deficit is estimated to have widened to around 1.3% of GDP, driven by the first phase of the public sector pay reform, higher social transfers and the implementation of the long-term care system. Defense spending is set to rise from 1.4% of GDP in 2024 to 1.8% in 2026, financed mainly through debt, while reconstruction after the 2023 floods continues to weigh on expenditure. Public debt declined from its pandemic peak of 80% of GDP to around 65.5% in 2025, and is expected to fall slightly further in 2026, remaining below the Eurozone average. However, ageing-related costs pose significant risks: pension expenditure is projected to increase by 3.5pps of GDP by 2070, while healthcare and long-term care will add another 1.5 points.  

Slovenia’s revenue mix remains heavily skewed towards labor taxation, with a high tax wedge across income bands, while recurrent property taxes and environmental levies are underused. Recent measures have strengthened short-term revenues—most notably the temporary increase of the corporate income tax rate to 22% (2024–2028) and the bank asset levy to finance post-flood reconstruction, targeted VAT changes (e.g., on sugary drinks), and proposals to introduce a more effective property tax alongside a reduction of the labor tax burden via new in-work allowances. These steps help near-term resilience but leave cyclical vulnerabilities and spending rigidities if pension, healthcare and long-term care reforms do not progress apace. Moreover, despite a relatively contained VAT gap, there is fiscal space to broaden green taxation and align the tax mix with growth-friendly and climate objectives. At the same time, the capital market is shallow and bank-centric: stock-market capitalisation is only ~14–17% of GDP (vs ~68% in the EU), venture capital activity is minimal and households allocate limited savings to risk assets—leaving firms, particularly startups and scaleups, over-reliant on bank credit. The authorities have launched a Capital Markets Strategy, adopted alternative investment fund legislation, planned individual investment accounts (from 2026) and set up vehicles to support seed/early-stage funding. Yet, without stronger participation by institutional investors and a clearer pipeline of market instruments, equity financing will remain insufficient to back innovation, the green transition, and productivity growth. 

Slovenia is heading for a pivotal parliamentary election on 22 March 2026, marking a potential inflection point amid political fragmentation and governance pressures. The coalition led by Prime Minister Robert Golob (Freedom Movement, Social Democrats, The Left) faces sustained criticism over reform delivery and low polling, while the opposition—particularly SDS and NSi—has entered a long campaign, raising near-term uncertainty. However, despite the uncertain outcome, the institutional framework remains stable: Slovenia is a consolidated democracy with strong constitutional checks and balances, no extremist parties with a realistic chance of winning and broad crossp-arty support for the EU/Eurozone membership and fiscal discipline, which anchors policy continuity and sovereign creditworthiness.