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Business reforms would bring in millions

REFORMS to improve the business environment, while costing the state millions of crowns, could actually return billions of crowns to the state budget in just a decade, said representatives of the Business Alliance of Slovakia (PAS) and the Institute for Economic and Social Reforms (INEKO). Their calculations were made using World Bank methodology and were part of a proposal for a 10-year project called "Planting a Cherry Tree".

REFORMS to improve the business environment, while costing the state millions of crowns, could actually return billions of crowns to the state budget in just a decade, said representatives of the Business Alliance of Slovakia (PAS) and the Institute for Economic and Social Reforms (INEKO). Their calculations were made using World Bank methodology and were part of a proposal for a 10-year project called "Planting a Cherry Tree".

One of the main problems today is that it is not worth it for governments to take steps that would only have results after the next parliamentary elections, said Eugen Jurzyca, head of INEKO.

"They are trying to take measures that bear fruit immediately, or at least by the next election year," Jurzyca said.

If the government used Sk100 million to implement the project's proposed reforms, it would see a return of Sk3.5 billion just one year after the reforms came into effect, executive director of PAS Róbert Kičina said.

Thus, the return on such an investment would be more than 3,500 percent, which means that the reforms would be much more profitable than investments made in the business world.

"Companies have about a five-percent return on their investments," Jurzyca said.

In 10 years, the reforms would bring more than Sk202 billion to the state coffers, which "today represents about two-thirds of public administration expenditures," Kičina said. After 10 years, each citizen would gain an extra Sk21,000.

INEKO and PAS said that the most problematic issue is the protection of investors.

"There should be three targets: The prevention of conflicts of interests, more responsibility towards investors on the management's part and the simplification of acquiring internal company documents in the case of a lawsuit," Kičina said.

Slovakia has the worst results in these areas and thus the state could create a set of laws that would make the whole business environment more transparent, Kičina said.

"Some large companies already established codes of ethics when they started business here," Kičina said.

For example, private health insurance companies have created their portfolio of clients and if the state decides to take it from them, it would be "an action of state directed against the investors, and we will sink even deeper," Jurzyca said.

Changes to the social insurance system and payroll taxes that have been announced by the Labour Ministry could bring Slovakia's value down even more, Kičina said.

According to Jurzyca, we have one of the lowest ratios of taxes to GDP in Europe, below 30 percent, having gone down by more than nine percent over the past decade.

"It will be interesting to see how this ratio will develop under the current government," said Jurzyca.

A steep drop in the tax and payroll taxes is not related to ideology, but rather to the government's ability to manage its affairs and collect taxes effectively, he added.

No one questions the role of taxes, but it must be clear where the tax optimum lies, he said.

"The philosophy of the past - the higher the taxes, the higher the yield - has been proven to be wrong," Jurzyca said.

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