WHILE the programme statement of the government of Robert Fico faces little likelihood of being voted down by MPs – the ruling Smer party controls 83 of the 150 seats in parliament – discussion of it has been lengthy, with the opposition criticising many of the ideas through which Fico aspires to bring about what he calls a “modern and thrifty state that intervenes in the economy only when reasonably necessary and avoids approaches that deform the market”.
As of May 10, there was still a queue of 28 deputies waiting in parliament to comment on the draft programme, which among other things promises heavier taxes for high earners and profitable businesses, as well as enhanced protection from growing indebtedness for low-income citizens.
Regardless of the phrasing of the 60-odd-page document, the Fico team faces a very specific near-term challenge.
Slovakia must cut the state budget deficit to below 3 percent of the country’s GDP in 2013 in order to satisfy EU rules. It is a task that even the opposition acknowledges will be difficult.
Hitting deficit goals
“We are at a crossroads and the government of Robert Fico will not be able to do anything because it will not have the money,” said former finance minister Ivan Mikloš, now an MP for the Slovak Democratic and Christian Union (SDKÚ), adding that there will not be record economic growth, nor will indebtedness or high deficits be permitted.
Prime Minister Robert Fico earlier emphasised that fiscal consolidation will not take place at the expense of poorer citizens, while confirming that he intended to end the 19-percent flat tax on personal and corporate income (the VAT rate, the third element in the original flat tax scheme, was increased from 19 to 20 percent in January last year). Mikloš on May 4 described this as an unfortunate move with the potential to harm Slovakia’s international competitiveness.
Fico responded that if income taxes were not hiked the only alternative would be to increase excise and property taxes or VAT, adding that the state could not squeeze excise taxes on tobacco and alcohol more since “even the unborn children will have to drink and smoke”, the SITA newswire reported.
Meanwhile, Finance Minister Peter Kažimír confirmed on May 3 that the state will not, for now, include a tax on inheritance in its consolidation package, despite his and Fico’s own earlier suggestions to the contrary. A previous tax on inheritance was cancelled in 2004.
The programme statement as it now stands includes: a minimum pension level for retirees; mergers of certain regulatory bodies; dissolution of the National Property Fund (FNM), the state privatisation agency which holds shares in many state-owned and private enterprises; no privatisation of state-run or other public hospitals; changes in how public health insurers operate; support for the development of air transport; the creation of a government real estate agency; and the entry of private capital into the construction of public housing.
Reactions from business
Parliament is not the only setting where the government programme is being scrutinised. Róbert Kičina, the executive director of the Business Alliance of Slovakia (PAS), said that the programme has many positive elements, especially those aimed at improving the business environment.
“On the other hand, I view some of the measures as risky since these contradict the above commitment; for example, through introducing progressive taxation on firms, increasing the bank levy or increasing state subsidies for particular businesses,” Kičina told The Slovak Spectator, adding that the quality of the programme will depend on which specific measures prevail in the upcoming work of the government.
Unfortunately, he said, emphasis is being laid on the revenue side of the budget, which means a higher tax burden for either firms or individuals. He added that he had expected a greater willingness to cut government spending.
Regarding the imminent demise of the flat tax, Kičina said that taxes are one of the key parameters used by investors to make investment decisions. He noted that while the introduction of progressive taxation on corporate income would not mean that tax rates would double, he said that for larger firms it would still have a negative impact by transferring more money to the state. He added that in most European Union countries companies pay taxes only at a single tax rate on their profits.
Kičina noted that since independence in 1993 Slovakia has not had progressive taxation of corporate profits. The original corporate tax rate was set at 40 percent, and this gradually dropped to 19 percent over time. But he stressed that there had always been one rate, regardless of the volume of profits.
Kičina said he regards the government’s effort to scrutinise the operation and effectiveness of regulatory offices as a positive approach, assuming the state merges certain regulatory bodies based on serious analysis.
The business alliance would also welcome more effective law enforcement in Slovakia, with Kičina stating that “all businesses in Slovakia would welcome such a development since today enforcement of the law is very low, something which has been harming Slovakia”.
Radka Minarechová contributed to this report