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Tax change angers opponents

TAX CHANGES are frequently the cause of explosive disputes both between and within political parties, drawing in advocates of tax cuts and proponents of increased state spending (and hence higher taxes). But not this time: MPs have quietly frozen the non-taxable portion of Slovaks’ income.

TAX CHANGES are frequently the cause of explosive disputes both between and within political parties, drawing in advocates of tax cuts and proponents of increased state spending (and hence higher taxes). But not this time: MPs have quietly frozen the non-taxable portion of Slovaks’ income.

The government of Robert Fico said the move was to help struggling local governments who are already running out of money. The freeze in the non-taxable portion of personal income should generate an additional €33 million, which will go towards local budgets.

In March 2009, the government, through a revision to the Income Tax Act, increased the non-taxable portion of income from €3,435 to €4,026 as part of its anti-crisis measures.

The regular practice in Slovakia until now has been that the non-taxable portion of income is changed in line with the subsistence level.

However, following a change made by parliament this month, the non-taxable portion of income will next year be calculated using the 2009 subsistence level instead of the 2010 figure.

Jozef Mihál, a member of the centre-right Freedom and Solidarity (SaS) party, which is not represented in parliament, highlighted the change on his blog and suggested that it would affect low-earners most.

Opposition parties have since described the move as an “indirect tax hike”. Juraj Karpiš of the economic think-tank, the Institute for Social and Economic Reforms (INESS), though surprised by the government’s move, said he would not describe it as tax hike but rather as “reducing the promised savings on the income taxes of private individuals”.

“The government, as part of the anti-crisis measures it introduced during the spring, increased the non-taxable part of the tax base for individuals,” Karpiš told The Slovak Spectator. “Now it has secretly taken away part of these savings.”

According to opposition Slovak Democratic and Christian Union (SDKÚ) MP Ivan Štefanec, however, it is an unambiguous tax hike, amounting to €33 million.

“Per taxpayer it means €27 higher taxes per year,” Štefanec told The Slovak Spectator. “The way in which the cabinet pushed it through without interdepartmental review is typical of the current ruling coalition, which fears discussion and argument.”

However, Finance Ministry State Secretary (i.e. deputy minister) František Palko described such interpretations as a “great misunderstanding” during a political debate on TV private news channel TA3. He said that the increase to the non-taxable portion of income in March was quite considerable.
“It is the other way around,” Palko told TA3. “…parliament approved a revision to the law on income taxes for private entities according to which, from March 1 of this year and for the whole tax period of 2009, the non-taxable part of the tax base was increased by almost €600 annually, from approximately €3,400 to more than €4,000; this increase has poured also [sic] to 2010 and 2011, while citizens can see an actual monthly effect on their purses amounting to €10 on average.”

The government has several times assured the public that it is not planning tax hikes.

“I see this as further proof of the discrepancy between their words and deeds”, Štefanec said. “I hope that more and more people will understand that building a so-called social state according to [governing party] Smer’s plan is only a cover-up for ripping the country off while everyone pays the bill, particularly the weakest. It is also true that increasing taxes through freezing the non-taxable base, will hit hardest those who earn the least.”

Štefanec said that “tax hikes are a road to hell” while Karpiš suggested that one would have to look hard to find a less suitable time for a tax increase than the present.

“At a time when Germany and Hungary are getting ready for substantial tax cuts, the competitiveness of Slovakia could be significantly affected,” said Štefanec.

Both Štefanec and Karpiš recommended that the government start seriously seeking ways to save public funds.

“The government should immediately cancel unnecessary institutions such as the National Property Fund, reduce its own spending and install obligatory electronic public tender procedures in the state administration,” said Štefanec. “Instead of [doing this], the government only continues with its non-transparent and dubious tenders and wasting money.”

Slovak towns and villages announced in August that if they were not given help quickly some municipalities, especially smaller ones, might collapse due to income shortfalls stemming from the economic downturn.

The Club of Mayors of Towns of Slovakia said that even if towns and villages manage to hobble through 2009 by making budget cuts and other savings, 2010 will hit them even harder if no change is made to the way that towns and villages are financed.

“Some towns and villages are no longer able to perform fully some of their duties and services as defined by the law, despite the savings measures they have applied,” Helena Poláková, spokeswoman of the Slovak Association of Towns and Villages (ZMOS) told The Slovak Spectator earlier this year.

Ján Pallo contributed to the report

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