Lower taxes, simpler laws (The Slovak Spectator)

Okrem problémov
podnikateľského prostredia, ktoré vo svojej správe identifikovalo Ministerstvo
hospodárstva (často sa meniaca legislatíva, vysoké odvodové zaťaženie,
komplikovaná administratíva a slabá vymožiteľnosť práva), sú ďalšími problémami
aj prehnaná regulácia trhových vzťahov, ktorej príkladom je posledná novela
zákonníka práce, či investičné stimuly a vysoké verejné výdavky deformujúce
prirodzené trhové vzťahy. povedal pre The Slovak Spectator Richard Ďurana z
INESS dňa 4.2.2008.

Ministry
sets out ways to improve business environment

HEAVY
payroll taxes, complicated laws, bureaucratic burdens and challenges for
launching new businesses: this is how the Economy Ministry has diagnosed the
ills of the Slovak business environment.

The
ministry’s report, approved by cabinet on January 24, prescribes simplifying
employment-related regulations, cutting the costs of labour, and introducing
state aid for starting businesses.

The
business community and observers agree with the ministry’s diagnosis, but they
are more skeptical of the state’s determination to follow through with the
proposed reforms. They also say that less state regulation of the market might
do more to help the business environment.

The Economy
Ministry said that the business environment has been steadily improving.
Significant changes to the tax system, labour policies and bankruptcy
legislation have been followed by important milestones, like the new public
procurement law and higher tax deductions for the self-employed, the ministry’s
official document reads.

The report
lists the recent revision to the Labour Code as the most significant piece of
legislation in 2007. According to the document, the code’s changes bring more
security to employees.

"However,
negatives still persist," reads the report. "A heavy payroll tax
burden has been seen as one of the most serious obstacles to doing business in Slovakia. The
negative perception of payroll tax rates has far exceeded other perceived
problems, such as the low enforceability of the law, the administrative burden
of running businesses, frequent changes to the laws and complicated
legislation."

The ministry
proposes gradually easing payroll taxes by reducing the insurance premiums that
employees transfer to funds. However, the report is quick to add that the move
could only be possible after any negative impacts on the stability of the
social insurance system are eliminated. The Economy Ministry also proposes
loans for start-up businesses, which would be delivered by boosting the
programmes of the state-run National Agency for the Development of Small and
Medium-sized Businesses. Start-up businesses should also receive some help in
getting space in industrial parks and business incubators, said the ministry.

Business
leaders agreed with the problem areas that the ministry listed. Robert Kičina,
president of the Slovak Business Alliance (PAS), said the barriers defined by
the ministry have been topping the surveys that PAS conducts among the business
community.

"However,
I would really add to that the education system, which has been continuously
falling behind," Kičina told The Slovak Spectator. "There is a huge
disparity between education and the labour market, with schools producing
graduates that are poorly prepared for the workplace."

Richard Ďurana, director of the Institute of
Economic and Social Studies, said other serious problems are the extensive
efforts to regulate trade relations and investment stimuli, and high public
expenses that distort natural trade relations.

Ďurana also commends the ministry’s effort.

"However, the solutions they offer could
hardly cure the problems," he told The Slovak Spectator.

In
particular, he and Kičina doubt that the proposed changes would help more than
a selected group of businesses.

"Support
provided to a particular circle of businessmen will hardly improve the business
environment," Kičina said. "On the contrary, it causes its decline,
because such steps discriminate against other participants in the market who
are not eligible for the support, although they still contribute to this
support through their taxes."

The report also says that new businesses should
get access to special consulting services provided by the state. But it would
be much cheaper to simplify the legislation and remove the superfluous
regulations, Ďurana said.

"If
the state wants to support businesses, it should simplify the administrative
requirements for everyone," Kičina told The Slovak Spectator. "It
would make it possible for all businesses to compete in an environment free of
distortions where those who are the most effective at producing goods and
services will be successful, as opposed to those who continuously compensate
for their ineffectiveness by using state support."

If the
government wants to support something, he added, it should be electronic
government services, fighting against corruption, improving the enforceability
of the law, and simplifying the registration of patents.

Ďurana said that lower payroll taxes would be a
good alternative to the ministry’s proposals, because they inflate the cost of
labour and remove the administrative barriers to doing business. It would also
improve employment in the poorer regions of Slovakia, he added.

The
business sector would also appreciate a more flexible Labour Code. The World
Bank called the new legislation, which came into effect September 1, 2007, a
step back that weakened the flexibility of the labour market and increased
costs.

In its
report, the Economy Ministry said the law-making process needs to improve so
that it can create simpler, more readable and clearer laws. The option of
passing laws in a shortened legislative proceeding should only be used for
special or emergency cases, the report said.

"I am
pretty sure that if the legislative procedural rules in place today were
followed, and if serious feasibility studies are conducted when the laws are
drafted, legislation would more stable and of higher quality," Kičina
said.

But it’s
hard to tell if the ministries have enough well-qualified people who are able
to prepare feasibility studies, he added.

Beata
Balogová

The Slovak Spectator, 4.2.2008

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