THE ACCESSION of the Fico government to power last summer has so far not changed Slovakia's status as a low-tax country. On the contrary, the combined burden of taxes and social insurance dues should fall again this year as the left-leaning Fico government continues with a trend started by its right-wing predecessor.
While taxes and dues in traditional social states such as Denmark and Sweden swallow up almost half of what their economies produce every year, Slovakia has been under the 30-percent mark since 2005. This year the ratio of taxes and social dues to GDP should fall to 26.3 percent from 27.5 percent in 2006, according to Ján Marušinec of the MESA 10 economic think-tank in Bratislava.
Finance Ministry spokesman Miroslav Šmál told The Slovak Spectator that the trend should remain the same in the coming years. "There is no reason for any increase in taxes. The Finance Ministry is planning only to tweak the country's tax laws, but not to make any deeper changes."
The Finance Ministry said of other tax promises contained in the government's program that it is not planning to introduce a tax on dividends, while any move to increase the range of goods in the 10 percent VAT bracket will be up to the government to decide.
Marušinec said the falling tax-to-GDP ratio in 2007 was due to a reduction in the amount of social insurance dues collected relative to GDP, especially because of the introduction of the second pension savings pillar. Beginning last year, pension savers could opt to divert half the dues they had formerly paid into the public pay-as-you-go system into private pension funds, meaning that much of those same pension dues are now no longer considered part of the tax and social dues burden.
According to the Organization for Economic Cooperation and Development, in 2005 in Slovakia 29.4 percent of GDP went towards taxes and dues, compared to 38.5 percent in the Czech Republic and 37 percent in Hungary.
This year Marušinec predicts that the ratio of direct taxes to GDP in Slovakia will rise slightly from 5.5 to 5.6 percent due to increased employment and higher wages and corporate profits, as well as minor tax changes the new government passed last year.
For example, the 'millionaire's tax', which will impact tax returns next year, eliminated the basic tax-deductible sum for people earning over about four times the national average wage.
And although the government lowered the VAT rate on medicine and medical aids from 19 to 10 percent last year, the state's income from VAT should also rise in 2007 due to the expected stockpiling of cigarettes. As of the beginning of 2008, consumer taxes on tobacco will rise in line with EU rules.
"The current government so far is continuing in the trend of reducing the overall tax burden with the exception of direct taxes, where the burden has increased slightly," said Marušinec.
"This is a paradox given the government's interest in building a stronger social state."
Due to strong economic growth of around 8 percent, the public finance deficit fell in 2006 to Sk31.7 billion from Sk33.9 billion the year before. The result was far better than expected, as the state budget had forecast a deficit of Sk57.5 billion.
State budget income rose 12.9 percent from the year before to Sk292 billion, while expenditures rose only 10.6 percent to Sk324 billion. Compared to the plan, the government spent Sk6 billion less and earned Sk20 billion more, mainly from taxes.
The positive result seemed to provide a cushion for some of the Fico government's social spending plans, including Christmas bonuses for pensioners, mortgage subsidies for young families, and possible compensation for depositors who lost money in failed pyramid schemes in 2002.
However, Šmál denied that higher tax revenues would go towards social spending.
"The government's expenditure policy is above all determined by the goal of adopting the euro in 2009, one of the goals of which is keeping the public finance deficit under 3 percent of GDP," he said.
"That's what really determines how generous we can afford to be on our social goals."
According to the state budget for 2007, tax income this year should rise to Sk248 billion, up from the Sk236 billion recorded in 2006.
- with files from Pravda
5. Feb 2007 at 0:00 | Tom Nicholson