Fico hints at tax changes (The Slovak Spectator)

I napriek rovnakej sadzbe dane, progresívne
zdanenie fyzických osôb máme už teraz. Zavedenie progresívnej sadzby by mohlo
len zvýšiť existujúcu progresivitu. Súčasná progresivita vyplýva zo
skutočnosti, že fyzické osoby platia efektívnu sadzbu v intervale od 0 do 19%,
zamestnanci s mesačnou mzdou nižšou ako 387 eur platia 0% sadzbu, zamestnanci
so mzdou nad 2900 eur platia 19%. Výsledkom potom je, že viac ako 80% daňových
príjmov z tejto dane zaplatia tretina pracujúcich s najvyššími príjmami.
Navýšenie sadzieb daní by teda ešte progresivitu zvýšilo, povedal Radovan
Ďurana z INESS pre The Slovak Spectator dňa 5.4. 2010.

Fico hints at tax changes (The Slovak Spectator)

MARCH is the month of income taxes in Slovakia. This year, a
couple of months ahead of national elections, Prime Minister Robert Fico has seasoned
this traditionally taxing time with some hints that he will return to a
familiar theme: that the rich should pay a greater proportion of their earnings
into the state’s purse than those on lower incomes.

While tax talk always finds audiences across society,
observers and the political opposition say that Fico’s words about heavier
taxing of the rich were intended for his Smer party’s voters. The prime
minister was quick to add that the business community will keep its 19-percent
flat tax if he leads the next government and that it has no reason to worry.

Market watchers’ responses to Fico’s talk were cautious but
they warned that increasing taxes on high-earners does not guarantee higher
receipts for the state. Besides, Slovakia already has progressive taxation for
individuals, they point out.

The prime minister dropped a public hint about his tax plans
after meeting representatives of the American Chamber of Commerce on March 23,
saying he believed in the idea and that he would not rule out reopening the
topic in coming months.

“I want to guarantee to the business environment that the
19-percent tax, if we remain in government, will be preserved,” Fico said, as
quoted by the public-service broadcaster Slovak Radio. “However, I would stress
that it is necessary to consider whether someone who earns €5,000 or €7,000,
should not pay higher taxes than someone who earns €300 or €400 or €500. It is
a question which I will set on the table when negotiating with my coalition

Apart from the nearing elections, the plunging tax revenues
of the state has made the prime minister nervous. Revenue collection at the end
of February 2010 was worse than originally estimated, meeting only 78.74
percent of budgeted receipts, at €1.131 billion, according to the tax
authorities. The collection of non-tax revenues also lags behind the budgeted
level, with €33.990 million being collected by late February, 81.36 percent of
the planned amount.

The collection of revenues from income tax, tax on profit
and capital gains tax fell most significantly behind budget, with the state
collecting only 51.96 percent of what it had expected, or €179.4 million, the
SITA newswire reported. Tax and customs offices should receive €8.871 billion
this year.

In terms of the
impact that fulfilling Fico’s tax promise would have on the state budget,
Radovan Ďurana of the economic think-tank INESS said that it is impossible to
assess when it is not known what rates the prime minister has in mind.

“One has to keep in
mind that not all tax increases are followed by higher incomes for the state
budget,” Ďurana told The Slovak Spectator. “Progressive taxation deters
activity, prompts migration, and encourages legal and illegal gaming of the tax
laws, for example by people switching to self-employment or establishing
limited liability companies.”

Ďurana suggested that
lower activity by people with higher incomes, who for example might choose free
time over work in order to avoid additional high taxes, might in the end lead
to slower productivity growth.

Finance Ministry spokesman Miroslav Šmál told the TA3 news
television channel that it would be too early to quantify the influence of a
progressive tax, since only the next government can decide on eventual changes
to the tax system.

“No one wants to play with taxes,” SITA quoted Fico as
saying. “The tax system will, in my opinion, remain untouched regarding the
income tax of legal persons. There is no intention to impose any new kinds of
tax either.”

Fico’s ruling coalition partners, the Movement for a
Democratic Slovakia (HZDS) and the Slovak National Party (SNS), have been
carefully tiptoeing away from their previously negative positions, lately
becoming more hesitant in their reaction to statements by the coalition leader.
The parties said they would be cautious when thinking about progressive taxes,
the Sme daily reported.

The Slovak Democratic and Christian Union (SDKÚ) has ruled
out any possibility of increasing the tax or payroll tax burden, saying that if
it wins the election it will fix the system of payroll taxes instead.

To monitor Fico’s changing tax moods, Sme printed some
previous tax talk by Fico: “I do not see any room for raising taxes, we would
go against ourselves if we reached for that,” Fico said in January 2006.

Higher tax rates for private individuals who earn
above-average incomes were among the objectives that the Fico government put on
the table in August 2006. Since then the government has introduced the
so-called millionaire tax, by progressively reducing the non-taxable part of
the tax base.

“Despite the flat tax
rate, we already have progressive taxation of individuals,” Ďurana said. “The
installation of a progressive rate would only increase the existing

According to Ďurana,
the current progressivity stems from the fact that private individuals pay the
effective rate between zero and 19 percent; employees with a monthly salary
lower than €387 pay a zero-percent rate, while employees with monthly incomes
higher than €2,900 pay 19 percent.

“The result then is
that more than 80 percent of tax income is paid by the highest-earning third of
employees, so increasing tax rates would further increase the progressivity,”
said Ďurana.

In their evaluation
of its tax and payroll policies, the Fico government is not given high marks by

“On the one hand it
is a failure and has not kept to the programme statement in the area of payroll
taxes,” said Ďurana. “The government has failed to create order in the rates of
social insurance; and it has been unable to establish its own concept for the
future of the first pension pillar [the pay-as-you-go system], which it will
hand over to the next government in an unsustainable form.”

On the other hand,
Ďurana said, inactivity in the area of taxes, cosmetic changes such as selective
cuts in VAT, the millionaire tax, or the so-called employment bonus, have not
fundamentally changed the tax system that Finance Minister Ján Počiatek
inherited from his reforming predecessor, Ivan Mikloš.

In fact, Ďurana
suggested, the solution is a cut in tax rates accompanied by savings on the
spending side.

The Slovak government made several changes to tax laws as
part of its efforts to tackle the economic crisis during 2009: it amended the
income tax law to increase the non-taxable portion of incomes from €3,435 per
annum to €4,026. Parliament also adopted a so-called employee bonus programme
which makes minimum wage earners eligible for negative tax, starting with
earnings in 2009, but paid in 2010.

The government adopted the so-called millionaire tax back in
2007. It stipulates that if an individual’s gross monthly income exceeds
€1,650, then the non-taxable portion of their income decreases.

Beata Balogová

Slovak Spectator, 5.4. 2010

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