A new tax reform: less burden on wages, businesses and the Normans?

Vera Mejak, former head of the Bank of Slovenia and ex-chairwoman of the Financial Supervisory Authority, has expressed concerns over Slovenia’s current economic trajectory, emphasizing the need for professional expertise, fairness, and greater respect among citizens. In an interview with Radio Ognjišče, she highlighted both the progress made since independence and the challenges currently facing the country, particularly in public finances, justice, political culture, and the performance of the public sector. Mejak, who spent part of the year in Spain, noted that while Slovenia has made significant strides in infrastructure and accessibility, it is now experiencing stagnation. She pointed to developments such as the construction of roads, highways, and other transport links that have improved access for more remote areas to larger cities, healthcare services, and hospitals. These advancements, according to Mejak, represent a clear developmental achievement. However, she warned that Slovenia is currently “slightly stuck” and facing multiple challenges. Critiquing public finances, Mejak emphasized that criticism of high public spending during the previous government led by Robert Golob is justified. She referenced European economic indicators monitored during her time in Spain, noting that Slovenia had fallen significantly on competitiveness rankings and climbed higher on debt levels. Only two countries in Europe were behind Slovenia in terms of inflation, Lithuania and Latvia. According to Mejak, these are negative trends, and she did not detect any positive developments. She also raised concerns about productivity, exports, and debt, though she admitted she does not have enough detailed knowledge of current financial data or legislation to evaluate specific decisions made by the current administration. Her main concern lies in whether Slovenia respects international agreements, regularly repays its debts and interest, and maintains solvency and credibility on international financial markets. While she does not believe the situation is yet a crisis requiring special measures, she stressed the importance of having responsible individuals in key positions who can manage the circumstances effectively. If given priority tasks for managing public finances, Mejak would first focus on repaying overdue obligations. “First, you resolve the debt, so you have what remains for your expenses,” she stated. Following this, available funds should be invested primarily in areas where they can be quickly recovered and new value created. This should be followed by a comprehensive balance sheet assessing how much the state has gained, lost, and what it actually needs. She expects the new government to first determine the actual status of each ministry: how many unpaid obligations exist, how many invoices are still coming, and how much money will be needed to settle old debts. Only after this can realistic future spending be planned. Regarding criticisms of high public spending during the COVID-19 pandemic, Mejak cautioned against judging crisis measures solely based on final accounts. She cited the purchase of protective equipment during the epidemic, acknowledging some masks remained unused but arguing this does not necessarily mean waste. Drawing from her own experience on the Canary Islands, she recalled how authorities restricted movement due to a lack of protective gear. Therefore, when evaluating such decisions, it is essential to assess potential damage caused by delayed action and verify whether spending was excessive or misused. In the realm of justice, Mejak has experience as a deputy prosecutor in complex cases of economic crime. Her insights into the judicial system highlight the need for faster legal processes. Meanwhile, discussions around tax reform are gaining momentum. The first of five focus groups convened this week, presenting initial drafts of tax proposals. One suggestion includes lowering the first income tax bracket from the current 16% to 10%, raising the general tax relief from €5,500 to €7,000 or €8,000. For example, those earning the minimum wage would receive approximately €55 more per month, while those with average salaries could see an additional €90 net gain. Those earning twice the average salary might see an extra €100. The highest tax bracket with a 50% rate would be abolished. Additionally, there are plans to lower the tax rate on income from legal entities, which was increased to 22% in 2024 due to flood recovery efforts. For incomes up to €1 million, existing tax rates would remain, but above that threshold, the rate would be reduced by at least half, potentially down to 10%. This proposal aims to attract top athletes back to the country. As for the impact on the national budget, calculations regarding the financial effects of these changes are still being prepared by the Strategic Council for the Economy. They expect to complete these assessments by the end of September and submit them to the government. Attention is also focused on a potential referendum on the intervention law, if the law is rejected, certain tax-related laws cannot be changed for one year. The Strategic Council for the Economy is seeking solutions to make Slovenia's tax system more competitive, predictable, and friendly toward work and entrepreneurship. Among the proposals are changes to the income tax scale, higher general tax relief, different treatment of companies and capital, and simplifications for self-employed individuals and holders of virtual currencies. A key point of discussion is the income tax. The focus group examined changes to the income tax scale and general tax reliefs. Taxation of wages is a crucial element of economic competitiveness. If the difference between the gross cost of labor for employers and the net earnings of employees is too large, the consequences can include reduced motivation for additional work, weaker ability to attract skilled workers, and higher costs for businesses. Therefore, the question arises of how to redistribute the tax burden so that work is better rewarded, while the state maintains sustainable public finances. Businesses require an environment for investments Another important area is the taxation of companies and capital. The economy has long argued that tax policy is not just about the size of individual taxes but also about predictability. A business planning an investment for future years must know what the conditions for operating will be. Frequent changes in rules, additional burdens, and complicated administration can influence the decision of whether an investment will be carried out in Slovenia or elsewhere. One of the goals of the preparatory changes is therefore to create a more stable environment for businesses, investments, and development. Marko Lotrič emphasized during the discussion that Slovenia needs a tax environment that encourages work, entrepreneurship, and investments, allowing the economy to plan for the long term. He added that these changes should not be driven solely by shifts in policies but rather by thoughtful solutions that improve the competitiveness of the economy while considering the implications for public finances. What about self-employed individuals? Self-employed individuals hold a special place in the discussion. This group has undergone several changes in tax treatment in recent years, making stability in regulations especially important for them. The normalized system is designed to simplify the operations of small businesses and self-employed individuals. Any change in rules affects not only their tax obligations but also questions whether this form of operation remains viable. The new tax debate aims to find a solution that simplifies the system while preventing abuses. The key issue is how to maintain simplicity for small businesses without making the system a tool for avoiding tax payments. Virtual currencies also under consideration The tax reform is not limited to traditional forms of income and business. The focus group also considered proposals for a law that would simplify the tax treatment of cryptocurrency conversions. The development of the digital economy has opened up a range of questions that traditional tax legislation often lacks clear answers for. Simplifying the rules could mean less administrative burden for taxpayers.