BUSINESS ENVIRONMENT - FLEXIBLE LABOUR CODE ACKNOWLEDGED AS BENEFICIAL

Ministry takes frank look at business environment

WHILE the Robert Fico government has so far pleased the business community by not following through on some of its more radical left-wing promises last year, such as rolling back economic reforms and re-introducing graduated taxation, entrepreneurs are looking towards 2007 with trepidation.

WHILE the Robert Fico government has so far pleased the business community by not following through on some of its more radical left-wing promises last year, such as rolling back economic reforms and re-introducing graduated taxation, entrepreneurs are looking towards 2007 with trepidation.

The reason for their angst is that the government plans to make several major changes to legislation regarded as crucial to the country's business environment, such as the Labour Code (see article above).

Martin Hošťák, the secretary of the National Employers' Union, said that "this will be a year of many changes influencing the business environment.

"In the first half of the year we will see a revision of the Labour Code. Our Union has already called for labour market flexibility to be preserved in order to reduce unemployment, especially in the weaker regions of Slovakia.

"We also hope and believe that the parameters of the pension reform will be preserved, and that there will be no further changes to the tax reform.

"We expect the country's high economic growth to continue and for unemployment to fall. One of our main goals will be to convince the government to preserve or even complete those reforms that have a significant impact on the economy."

The government has not yet said whether it will continue to pursue the promises made by its constituent parties before June 2006 elections, but as a report presented to cabinet by the Economy Ministry on January 10 made clear, the country's leaders are not oblivious to the improvements made to the business environment in Slovakia by its right-wing predecessor.

In the report, cabinet was told that the business environment in the country from 2004 to 2006 had "gone through significant changes that have been regarded as positive not only by domestic entrepreneurs but also in the reports of global institutions".

Among the main improvements that have been made the ministry document listed the following:

* the tax reform, which resulted in a unified 19 percent personal income, corporate and VAT tax rate, and the introduction of the taxation of identical business activities according to the same rate, regardless of the form of the enterprise;

* the easing of the process of registering businesses in the commercial register, and the shortening of the process to five business days;

* the introduction of flexible labour legislation;

* increased protection for investors; and

* the increased availability of credit.


Among the continued barriers to doing business the report identified the following:

* the relatively large number of procedures required to begin doing business, and the related issue of individual (separate) state registers for recording data on entrepreneurs;

* the relatively large amount of capital required for launching a business;

* the high burden of "payroll taxes", i.e. surcharges on employee salaries that must be paid to the state social insurance fund;

* the long-term problem of complicated and quickly-changing legislation;

* the absence of evaluations of the impact of regulation on the business environment; and

* problems in the functioning of the courts, the low enforceability of the law, and widespread corruption, which puts Slovakia more in the camp of non-free countries.

The report said that all of these negative elements needlessly reduced the output of businesses, deformed the free market, and caused unnecessarily high expenses related to doing business.

However, the ministry also said that Slovakia's cooperation with the European Commission to reduce administrative barriers to doing business, and the aligning of Slovak government priorities with the EU's 'Lisbon Strategy' to build knowledge-based societies in Europe, had been "significant steps".

The report was based on indicators showing the development of the Slovak business environment from the World Bank's Doing Business international comparison, as well as Slovakia's ranking in the Global Competitiveness Report.

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