EC recommends focus on tax, social policies

THE COLLECTION of taxes, long-term joblessness and the business environment are areas where Slovakia still has much to improve, the European Commission stated in country-specific recommendations issued in mid May.

(Source: Sme)

Though the EC praised Slovakia for following the Stability and Growth Pact, calling its predictions of the decrease in deficit to 0.5 percent of GDP in 2018 and the public debt to 50.3 percent in 2018 “ plausible”, it still has not provided more details on measures to achieve it. The country also has to tackle the problems rising from weaker areas, especially in its tax and social policy.

Compared with the previous years, the recommendations are more targeted on specific areas. The reason is that they should have a real impact on the policies of the EU member states, said Valdis Dombrovskis, EC vice president for the Euro and Social Dialogue.

“They focus on fewer and more specific macro-economic and social priorities than was the case in the past,” Dombrovskis said. “They are tailored to each country’s challenges.”

In Slovakia it is namely the call to improve the cost-effectiveness of the health-care sector, to take measures to increase tax collection, to address long-term joblessness and to improve the incentives for women to remain in or return to work, to improve teacher training and the attractiveness of teaching as a profession to stem the decline in educational outcomes and to increase the participation of Roma children in education. The country should also boost investment in infrastructure, improve and streamline the administrative procedures for obtaining land-use and construction permits, and increase competition in public tenders.

Tax measures not sufficient

One of the achievements often praised by the government is the improvement of the collection of taxes via several measures, including the establishment of the special team called Tax Cobra and the national tax receipt lottery, which both help to reveal and fight tax evasions. Though the EC noticed the contribution of these provisions to better public finances, it stressed there are still “inefficiencies in tax collection and administration”.

The Finance Ministry, however, claims that its measures to fight tax evasion have proven to be an “effective tool” for improving  tax collection.

This includes the VAT ledger statement, a detailed list of issued and received invoices which provides comprehensive information to the tax authority about when and with whom a given business person conducted transactions and in what amount, but also many others whose aim was to “improve the business environment and increase tax justice”, ministry spokeswoman Alexandra Gogová said.

The country already increased the incomes to the state budget by €248 million in 2013 and €650 million in 2014. For 2015 the ministry predicts that tax collection will bring an additional €744 million to the state budget, Gogová added.

“Slovak public finances do not have a problem with the lack of sources, but the excess of ineffective spending,” Radovan Ďurana of the Institute for Economic and Social Studies (INESS) told The Slovak Spectator.

The increase in VAT collection effectiveness still has not approached the expected volume, with the gap amounting to hundreds of millions of euros, he added.

Business environment struggles

The EC also pointed to the poor quality of the country’s business environment which “reduces the attractiveness of the country for both foreign and domestic investment”. In this respect, it mentioned the inadequate efficiency and quality of the public administration and of the justice system. Regarding the civil service, Slovakia suffers from high staff turnover and inefficient management of human resources. In addition, the EC criticised the limited efforts to tackle corruption.

“The business environment in Slovakia is improving only very slowly, which comes as a result of the low priority of this topic, slow electronisation of the public administration and judiciary immune to reforms,” Ďurana said.

The EC emphasised the drop in private investments between 2008 and 2013, with non-financial corporations accounting for around 90 percent of the fall in total investment due to the decrease in foreign direct investment inflows.

Though the drop in public investments was much lower, it especially impacted large-scale transport infrastructure projects which are essential for benefiting the growth potential of Slovakia’s central and eastern regions, according to the EC. Moreover, both the administrative and regulatory barriers related to investment planning, and the lack of transparency and long duration of the procedures for obtaining building and land-use permits hold back public investments.

In this respect, the EC recommends boosting investment in infrastructure, as well as streamlining the administrative procedures for obtaining land-use and construction permits.

The Transport Ministry responded that very intensive construction of highways is currently underway, with the plan to start construction of nearly 200 kilometres by the end of the current government's tenure. It plans to invest nearly €2.1 million into construction this year, which is the most in Slovak history, said spokesman Martin Kóňa.

“The main problem is lack of resources,” Kóňa told The Slovak Spectator, adding that the country has received the money from EU funds allocated for both the previous and current programme period.

The construction of road infrastructure should also be accelerated by new construction and expropriation act, he said.

Excessive use of EU funds

The EC also criticised the fact that EU funds comprise a high portion of the total public investments in Slovakia compared to other countries in the region. In addition, the absorption of EU funds is hindered by weak governance of planning procedures, poor project design and selection, and failure to comply with the requirements relating to the environmental impact assessment.

Ďurana agrees that regarding the investments, the state budget relies disproportionately on EU funds, which is not only unsustainable but is also channels the funds to areas where it is not necessary.

“This will not change in the near future as the government is unwilling to change its spending policy, move the sources from transfers of people, for example from subsidising the free rail transport, to investments,” he added.

Except for the business environment, the EC also claimed that the public procurements in Slovakia suffer from engrained deficiencies, which affect the allocation of public resources. Moreover, tailor-made specifications in competitions limit them and result in high prices, according to the EC. To tackle this problem, the EC recommends improving supervisory mechanisms in public procurement.

The Economy Ministry welcomed the recommendations, saying that the competitions like overpriced purchase of the CT device by the Piešťany hospital or bulletin board tender should not be repeated.

“It is necessary to deal with this issue and to continue improving the mechanisms to check the tenders,” ministry spokeswoman Miriam Žiaková told The Slovak Spectator.

Long-term joblessness still high

Despite some signs of labour market recovery in 2014, the high number of people unemployed for more than one year remains a problem, including Roma and low-skilled workers, according to the EC.

“Although some initial steps have been taken to improve public employment services, they have limited capacity to provide personalised services, in particular to those furthest from the labour market,” the EC said.

To solve the problem, the EC calls for introduction of the activation measures, second chance education and high-quality training tailored to individual needs.

The Labour Ministry says it supports long-term unemployed through several measures. In the beginning of the year it, for example, introduced the concurrence of the salary and material need benefits and it also offered tax relief to employers who offered jobs to this group, spokeswoman Daniela Rodinová said.

Further projects include the Youth Guarantee, focused on young people, and Re-pas project via which they offer requalification of job seekers based on employers’ needs. There are also various strategies aimed on boosting the employment of long-term jobless and Roma.

The situation of the long-term unemployed may however improve by not increasing the minimum wage (which amounts to €380 a month in 2015) and removing the needless regulations when creating new jobs, Ďurana said.

“In order to create jobs also in less developed regions, it is necessary to significantly improve the business environment, meaning through the reduction of the corporate income tax,” he added.

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