2022 should be the year when the idea of a tax reform visualised by Minister of Finance Igor Matovič should be legislated and then implemented in practice. The business sector has been calling for this change for years. Now, they are not sure whether the reshuffling of the tax system will be a success or complete chaos.
Matovič insists that the tax reform either passes as a whole or does not pass at all – he refuses to allow any cherry picking of specific measures. That may be the reason why the Minister of Finance does not want to reduce value-added tax (VAT) under the pressure of inflation, even though all our neighbours have been doing it. He may want to keep it as a lever to pass his tax reform.
“For the state, the reduction of VAT constitutes the same problem as a reduction of salary for an employee,” says Vladimír Baláž, an economist from the Institute for Forecasting of the Slovak Academy of Sciences. A decrease of only one percentage point would cost the state millions of euros every year. In an interview for TREND, he talks about inflation and the unsuccessful effort to combat it.
Inflation is breaking records
The average inflation rate for 2022 is expected to be around 6%, and the same goes for the increase in food prices. The year-on-year growth rate of food prices is likely to hit 10% in the upcoming months but should stabilise afterwards. In contrast, the GDP growth rate is predicted to be lower than previously thought – it went down from 4.2% to just 3.5%.
Inflation is causing the most dramatic price hikes Slovakia has seen in 17 years. Car users have noticed it the most – the price of petrol and diesel has gone up by almost a quarter compared to last year. Food and energy prices do not lag far behind.
Increased expenses have impacted seniors too. Their current pension does not even cover the basic cost of housing and food. The Slovak Pensioners’ Union demands a nationwide increase of all old-age and disability pensions by 3%. Despite the skyrocketing costs, they have seen their pensions rise only by 1.3% since January.
Government fights energy costs for households and hospitals, leaving hotels behind
The electricity prices for households will remain the same for the next three years. Some schools, care homes, and hospitals should receive cheaper electricity until 2024 as well. At the same time, the government will withdraw the draft bill on taxing the excessive profits of nuclear energy plants.
Minister of Health Vladimír Lengvarský said that the Ministry is dealing with the increasing energy prices impacting hospitals. While some medical facilities have experienced an increase of only 2%, some have recorded an increase of more than 300%. This jeopardises the continuity of healthcare provision, warns the Association of State Hospitals.
Hotels and restaurants do not get the same level of attention from the government. Their only options in the face of the 400% increase in energy costs are to close down or charge their customers more. The costs come after two long years of chaotic pandemic restrictions that forced hotels to shut down or operate at lower capacity.
Truckers are on strike
Truckers have gone on strike by blocking traffic in Bratislava and at border crossings. They demand reduction of fuel prices, road tax, and tolls.
The high price of fuel has impacted them and brought some of them to the edge of bankruptcy. They cannot compete with drivers from other countries, where the government has lowered the VAT on fuel.
Other stories of the week
- Slovakia is experiencing a worker exodus – we are losing potential employees at a much faster pace than the Czech Republic as we are no competition for Prague.
- The research of the Economic Intelligence Unit shows that the state of democracy worldwide fell to a record low last year. Slovakia is in 45th place.
- The number of year-on-year personal bankruptcies more than doubled this January, when the courts allowed 734 bankruptcies and debt reliefs by repayment calendars.
- Penalties for marihuana possession for personal use could be reduced to one or two years.
- The Slovak start-up Powerful Medical has designed an artificial intelligence software that can help doctors with the diagnosis of cardiovascular problems.
Thank you for reading.
See you next week.
