AT ITS SESSION on September 28, the Slovak cabinet approved a set of changes to the country's tax laws including a new "millionaire's tax" and a reduced VAT rate for medicine and selected health care equipment.
While the left-wing government says the changes will contribute to greater "solidarity" among Slovak people, the political opposition says they will inflate the budget deficit and endanger some of the country's long-range economic goals.
In one of many decisions taken at the cabinet session, people earning over Sk47,600 per month will henceforth pay more in taxes to the state. Starting from this gross wage, taxpayers who earn more will no longer be able to deduct the full basic non-taxable amount of Sk95,000. This tax-free allowance will gradually be reduced for higher earners, and will drop to zero for people earning Sk88,500 or more per month. The result is that higher earners will pay up to an additional Sk19,000 to the state budget annually.
On the other hand, the government decided that people saving for pensions in supplementary accounts in the "third pillar" of the pension system will continue to be allowed to deduct Sk12,000 per year from their tax base, even though the cabinet originally planned to cancel this advantage.
The cabinet also softened its original position on the planned cancellation of the possibility for firms to donate 2 percent of their taxes to NGOs. Firms will next year still be able to assign 0.5 percent of their taxes to non-profit organizations.
The cabinet increased the monthly minimum wage from the current Sk6,900 to Sk7,600 as of October 1. Originally, the Labour Ministry had proposed that the minimum wage be raised to Sk7,500, but the government gave in to the lobbying of the KOZ labour union confederation, which demanded a hike to Sk7,600.
Because the minimum wage also serves as a basis for the calculation of contributions to social insurance funds, the minimum payments to social security provider Sociálna Poisťovňa also rose from October to Sk2,520 per month, up from the previous Sk2,288.
Finally, the government reduced the VAT rate on selected health care equipment and medicines from the current 19 percent to 10 percent.
It was not made clear after the cabinet session what impact these changes would have on the state budget.
However, former finance minister and opposition SDKÚ party vice-chairman Ivan Mikloš said that the proposed changes in the tax system would increase the state budget deficit and threaten the government's goal of introducing the euro in Slovakia in 2009.
Mikloš also claimed that the information that the government released on September 28 was so confusing that various media were contradicting each other.
Altogether, the amendments could generate an additional Sk1 billion in state revenues, but will increase public expenditures by Sk8.8 billion, Mikloš claimed.
The tax amendments must now be approved by parliament, where the ruling coalition has a comfortable majority with 85 MPs in the 150-seat house.
- Spectator staff
9. Oct 2006 at 0:00