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CHANGES TO CALCULATION OF PAYROLL TAXES ON THE HORIZON

Tomanová worries about self–employed pensions

LABOUR Minister Viera Tomanová, who has been at the vanguard of the Fico government’s social policies, has expressed concern about the retirement benefits of low-earning self-employed Slovaks, suggesting that if the state does not intervene such people might end up with pensions beneath the level required to provide for their basic subsistence. As a result, Tomanová has proposed a change in the way payroll taxes are calculated for the self-employed.

LABOUR Minister Viera Tomanová, who has been at the vanguard of the Fico government’s social policies, has expressed concern about the retirement benefits of low-earning self-employed Slovaks, suggesting that if the state does not intervene such people might end up with pensions beneath the level required to provide for their basic subsistence. As a result, Tomanová has proposed a change in the way payroll taxes are calculated for the self-employed.

The Confederation of Trade Unions, who have consistently called for higher payroll taxes for the self-employed, have firmly backed the minister.

Now an expert group, including representatives of the government, trade unions and employers are working on replacing the minimum wage as the basis from which minimum social and health insurance contributions are calculated with a different measure.

“Maybe it could be defined as a percentage of the average wage in the national economy,” the minister suggested as a possibility for the new minimum calculation base for social contributions, as quoted by the SITA newswire. The new calculation base must be defined in a way that would guarantee that self-employed people are entitled to at least the minimum pension when they retire, she added. With the current minimum wage set at Sk8,100 (€268.9), their pensions would be far below the subsistence level, she added.

However, what Tomanová has called an effort to shield the low-earning self-employed from paltry pensions in the future, some have interpreted as a move to raise payroll taxes in the present. Market watchers have also suggested that Tomanová’s ministry should first analyse what impact the change would have on the 90 percent of the 300,000 self-employed who currently have their payroll taxes calculated from the minimum wage.

Meanwhile, the Sme daily quoted tax expert Jozef Mihál as saying that if the ideas of the minister are implemented those self-employed who currently pay payroll taxes from the minimum base might see their payments rise by 60 percent.

However, the Labour Ministry rejected claims that its plans were intended to boost payroll taxes.

“Minister Tomanová again publicly declares that the Labour Ministry has neither prepared nor is it preparing legislative changes which would mean increasing payroll taxes for either employees or employers,” the ministry said in a memo sent to The Slovak Spectator. “On the contrary, the ministry started working on new rules for determining payroll taxes which would not be bound to the minimum wage.”

Radovan Ďurana of INESS, an economic think-tank, said that before the ministry starts making changes to the method of calculating payroll taxes, it should analyse how many self-employed would close their businesses and join the ranks of the unemployed as a consequence of the change.

“Part of the self-employed run their business with minimal profit and pay minimum payroll taxes because they cannot find a job; employers in turn cannot create that job because of the high payroll burden on labour,” Ďurana told The Slovak Spectator. “The attitude of the minister once again shows that she does not trust the self-employed to realise that they should provide for their old age.”

According to Ďurana, an eventual increase in minimum payroll taxes would elevate the costs of business and thus deter those self-employed who already run marginally profitable businesses.

“One should not forget that part of the self-employed run businesses because they are unable to find jobs in their region, so the result might also be higher unemployment,” Ďurana said.

However, Ďurana said that the whole system of social security in Slovakia requires a fundamental change of approach, not only in terms of the volume of payroll taxes but also in the type and volume of benefits.

“Today the system cannot make a distinction between well- and poorly-paid jobs and thus creates barriers in the employment of low-qualified labour,” Ďurana said. “There should be a comprehensive approach to any changes, and not a selective one as has happened so far.”

Market watchers, businesses and even the World Bank have been calling on Slovakia to lower payroll taxes since a heavy payroll tax burden has been seen as one of the most serious obstacles to doing business.

According to Ďurana, the current government has not reacted to calls by economists to reduce payroll taxes. On the contrary, the steps it has taken have only increased them.


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