Many taxes go up in 2011 (The Slovak Spectator)

Ako
pre The Slovak Spectator dňa 28.2. 2011 uviedol Radovan Ďurana z INESS,
INESS neakceptuje vysoké deficity verejných financií ako dôvod k zvyšovaniu
daňového zaťaženia občanov alebo podnikateľov a rozširovanie daňovej bázy
a rušenie výnimiek by malo byť sprevádzané so znižovaním daňovej sadzby.

Many taxes go up in 2011 (The Slovak Spectator)

LAST year the government of Iveta Radičová pushed an
austerity package through parliament designed to save the state €1.7 billion
through a combination of tax increases and expenditure cuts. While preliminary
state budget figures have now been released for January, analysts say it is too
early to determine whether the adopted measures are achieving the desired
results.

Budget deficit in
January

Slovakia’s state budget closed January 2011 with a deficit
of €17.74 million. The Finance Ministry said this was in line with its
expectations even though the state had a budget surplus of €22.81 million in
January 2010.

“This is no shock,” said Finance Ministry spokesperson
Martin Jaroš, as quoted by the TASR newswire. “This can be pragmatically
explained on the side of revenues as well as expenditures.”

In January 2011 the state’s revenue grew by 3.75 percent in
comparison to January 2010, to €830.4 million, while expenditures were more
than 9 percent higher than the previous year and amounted to €848.1 million,
the SITA newswire reported.

“The expenditures were higher because the old-age pension
reform is now fully subsidised from the state budget,” Jaroš said. “Last year
it was financed from privatisation proceeds that had been put aside.”

On the revenue side, collection of value added taxes (VAT) and
excise taxes was lower in January than the previous year. Revenue from VAT
shrank by 6.3 percent to €477.6 million and excise taxes were lower by 7.1
percent, at €168.9 million.

Jaroš ascribed the decline in VAT revenue to a higher level
of refunds to businesses caused by a revival in Slovakia’s economy and a
winding down of the economic crisis.

“Imports are growing and thus also the tax refunds which
business entities are requesting are growing too,” Jaroš stated, as cited by
TASR, adding that the one percent increase in VAT to 20 percent that became
effective on January 1 will be seen in tax revenues only in February.

The Finance Ministry stated that the drop in revenue from
excise taxes was attributable to previous stocking of inventories and that this
was a one-off effect.

“All these are effects which were already taken into
consideration and development so far is completely all right,” said Jaroš.

Analysts said that it is too early to assess whether the
government’s austerity package and the changes in taxes are having the desired
effects.

“Apart from the fact that it is still too brief a period for
assessment of firm trends, the cash-basis balance need not always reflect all
the specifics of this year’s budget, such as the higher level of funds that is
being used to compensate shortfalls in the social security system,” Vladimír
Vaňo, chief analyst with Volksbank, told The Slovak Spectator.

“Therefore, the brief overview that has been presented needs
to be taken with a grain of salt and is most useful as a warning tool for
potential risks that might be gradually breeding within the budget.”

Radovan Ďurana of the
INESS economic think tank also viewed one month as too short a time to assess
the impact of tax changes, stating that three months is the minimum period
needed to collect enough data to discern trends
.

The Iveta Radičová government’s austerity package adopted
last year projects overall savings of €1.7 billion in the state budget, with
citizens and businesses contributing €770 million through higher taxes and
other fees. The government said it will save an additional €985 million through
cuts in expenditure, the Pravda daily wrote last December when parliament
adopted the last legislative initiative in the package of austerity proposals.
The specific tax changes adopted by parliament include modifications to value
added tax, excise taxes and income taxes.

The most significant tax change was the increase in the VAT
rate from 19 percent to 20 percent on January 1, which the government says will
stay in effect until the public finance deficit falls below 3 percent of GDP.
It has been estimated that the higher VAT rate will bring an additional €185.5
million in revenues to the state in 2011.

Additionally, purchases of coal and natural gas by central
heating companies, which are used to generate heat for households, are no
longer exempt from excise taxes and the preferential tax treatment that applied
to natural gas (CNG) used as a motor fuel was eliminated in 2011.

The excise tax on tobacco products is being increased in two
phases, the first effective on February 1, 2011, and the next on March 1, 2013.

A number of changes were made in the calculation of personal
income taxes.

Ďurana told The
Slovak Spectator that INESS in general does not accept the high deficit as an
adequate reason to increase citizens’ and businesses’ tax burden, adding that
his think tank believes that the cancellation of tax exceptions and the
establishment of tax calculation bases on a flat level should have been
accompanied with a reduction in tax rates. He also said INESS believes that the
VAT rate need not have been increased in 2011 if the reduced VAT rates or
exemptions for medicines and books had been cancelled and other measures had
been adopted.

Ďurana also told The
Slovak Spectator that the increased VAT rate should be re-assessed after only
one year rather than when the deficit falls below 3 percent of GDP.

During a recent presentation to the Conservative Institute,
Vaňo compared the government’s 2011 budget to a cup of cappuccino, with both
bitter tax hikes coupled with more palatable steamed milk for voters in the
form of expenditure cuts.

“I labelled the saucer below this cup of cappuccino as
“competitiveness”, something that fiscal consolidation needs to keep in mind
both on the side of raising revenue as well as cutting expenditures,” Vaňo
said. “The reason is that it is not the bitter part of tax revenue increases
that is the major risk for this year’s budget: the major risk stems from
potential hesitation and delays in implementing the planned expenditure cuts.
The 2010 expenditure consolidation is just the beginning of the inevitable
multi-year consolidation plan.”

Vaňo reiterated that the major source of revenue for the
Slovak state budget comes from indirect taxes, VAT and excise taxes, and that
collection of these taxes depends to a large extent on the trajectory of
domestic demand.

Jana Liptáková

The
Slovak Spectator, 28.2. 2011

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