Tax reform dead on arrival
Finance Minister Igor Matovič promised lower taxes and greater relief for businesses, lower payroll tax for employees, and increased spending on families – a clear message to voters that the greatest tax reform in the history of Slovakia is here. And it is so genius, it can be implemented quickly and without discussion.
However, not only will the reform leave the state 2.3bn euros in fiscal deficit, but a third of the proposed reforms are unacceptable for Freedom and Solidarity (SaS).
Both SaS and For the People agree it’s impossible to impose the reform in the way Matovič proposed - not part by part, based on the country’s most urgent needs, but as a whole and within one year.
“Tax reform cannot be a result of rushed brainstorming detached from the outside world, happening behind closed doors without the presence of experts and not supported by any serious analyses,” said economic expert Tomáš Meravý in an interview for Trend. He left his post at the Ministry of Finance at the end of last year due to disagreements about the reform.
In the latest issue, Ivan Mikloš, the brain behind Slovakia’s most successful economic reforms, talks about how reform is really done and where the current Finance Minister went wrong.
Krajniak’s parenting bonus lacks finances
The Ministry of Labour, Social Affairs, and Family said they are ready to allocate 758m euros to the parenting bonus scheme planned for 2023 – both the sum and the scheme have been disputed.
Parenting bonus offers pensioners extra tens or hundreds of euros every month, based on how many children they raised and how much those children earn. According to Labour Minister Milan Krajniak, it would be financed from savings in the Social Insurance Agency, more efficient insurance collection, and hospital debt clearance among others.
The Council for Budget Responsibility said the sum of money has already been allocated elsewhere in the state budget and that they do not consider the proposed finance options of Krajniak viable. Instead, the real cost of the parenting bonus might reach a billion euros which will have to be financed by debt. In the long run, this strategy may prove to bankrupt the country.
Ageing population: The question of who will finance the pensions of the rapidly ageing population has been on politicians’ and economists’ minds for decades. By the end of this decade, the number of pensioners is set to increase by 100,000. That same number is to be added over the following five years.
Second pension pillar: When conceived, the second pillar was meant to be an option for pension saving independent of the dynamic of the state economy and capable of competing with inflation. Yet savers appear to be losing money by investing in guaranteed bonds pension funds instead of stock, index, or mixed funds.
Rent prices are on a rollercoaster
This autumn, although rent prices in various regions went down, rent prices of two-bedroom houses increased. While they still have not reached the peak from the previous year in the capital, they went up by more than 10% in multiple large cities. The prices of less popular three-bedroom flats are still on the decline.
The simple explanation lies in the extremely cheap mortgages which are combination of the policy of ECB and competition among the financial institutions .
However, compared with rent prices, property prices are skyrocketing. Since 2010, property prices rose by half while rent prices by mere 5%.
This trend is set to continue in 2022, enlarging the gap between supply and demand in the housing market that even an accelerated construction cannot bridge.
New building legislation: On Wednesday, the government approved the proposed building legislation. If the We Are Family proposal passes the Parliament, it would bring an end to illegal construction and a faster approval process for new projects. However, the proposal was widely criticised by the Association of Towns and Cities (ZMOS) and the Union of Slovak Cities (ÚMS). They said the proposal lacks in professionality and quality and it endangers the competency of cities and municipalities as well as the right of residents to influence the quality of life in their city.
Other stories of the week
- The government has approved the defence treaty with the United States. The five major points include permitting US soldiers the use of Slovak air bases, waiving the criminal jurisdiction over US military personnel, having the right to all the infrastructure built from US funds, and strengthening cooperation between the countries.
- The prices of Slovak ski resorts reach the prices in the Alps. An interactive map shows which resorts have increased their prices the most and the least.
- Tatry Mountain Resorts (TMR), a company that owns ski lifts and hotels in the High Tatras and Jasná, said 2021 has been their worst year on record. They missed out on the winter season and the government compensation could not cover the losses.
- The developer Immocap has been given the green light to demolish the legendary Istropolis in Bratislava and replace it with New Istropolis featuring the National Cultural and Congress Centre, residential buildings, office buildings, and a hotel.
- The state IT department is a tragedy, said the founders of Titans Freelancers. They explain how we got here and how to fix it.
