Slowacja przegonila Chiny (Najwyższy Czas!)

Poľský magazín Najwyższy Czas! prináša vo vydaní zo dňa 17.5.2008
rozhovor s Richardom Ďuranom z INESS na tému príčin úspešných hospodárskych
výsledkov Slovenska a možných hrozieb, ktoré by ich mohli v budúcnosti ohroziť.

Slowacja przegonila Chiny (Najwyższy Czas!)

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Nižšie prinášame rozhovor v anglickom jazyku:


it was possible that Slovakia
has reached a record 14,1% of economic growth in 2007?

RD: This growth is due
to initiation of higher production of KIA car manufacturer combined with increased
cigarette supplies (due to increased consumption tax on cigarettes since
January 1 2009) and customer consumption so typical for 4Q of the year. But
from overall point of view, this achievement can be ascribed to reforms of
previous Dzurinda’s government, which passed important reforms on taxation
(introduction of 19% flat tax rate and cancellation of dividend tax), labor
code and other necessary reforms which attracted foreign investors.


the state of Slovakian economy in a really so good condition now?

RD: Reforms passed by
previous government constituted solid pillars for good economic performance and
even though present Fico’s leftist government is slowly undermining successful
reforms, there is still a reason for optimism as far as mid-term period is


it have any influence on the live of common people? Are the wages in Slovakia going

RD: GDP per capita
almost doubled between 1996 and 2006 (9109 USD/cap. PPP vs. 17576 USD/cap. PPP).
Real wages are also growing (2004 – 2.5%, 2005 – 6.3%, 2006 – 3.3%, 2007 – 4.2%
[estimated], 2008 – 4.3% [prediction]). Another positive effect can be seen in
unemployment ratio – between 2004 and 2007 it fell down almost for 8%, from 18.1%
to 10.3 % and predictions for 2008 foresee another decrease.


few years ago the unemployment in Slovakia was nearly 20%. Now it is
9,8%. What was the main factor of quite substantial decrease of unemployment in

RD: foreign direct investments,
their foreign and local suppliers – all of them attracted by lowered 19% flat
tax rate and cancelled dividend tax, flexible labor code, low trade unions
influence, changes in social system payments which do not support inactivity


is your opinion about joining the euro zone on 1st January 2009? Will it be
good for Slovakian economy?

RD: Obviously, it will
help to decrease transaction costs for companies trading with foreign firms and
for travelers. However, Euro adoption will have negative impact on common
citizen’s savings. Introduction of Euro will lead to inflation pressures, since
prices will not be able to converge to European prices via strengthening of
Slovak Crown, but solely via their absolute increase. Faster inflation combined
with lower interest rates will diminish the purchasing power of savings in
Slovak Crowns. Another problem is that wage growth will follow with a delay. Higher
income people can partially avoid this negative effect through buying stock,
real estates etc, Euro adoption will hit mainly lower income Slovak savers.


you expect an increase of prices as it was in the other countries (Italy, Germany) after joining euro zone?

RD: Yes, because of
the reasons mentioned above.


November 2005 Slovakia
joined ERM2. What are the costs regarding ERM2?

RD: As for the ERM II,
entered it with central parity of 38.4550
EUR/SKK. Because of appreciating SKK, this had to be moved to 35.4424 EUR/SKK in March 2007 what happened
for the first time in the history of ERM II. Recently, Prime Minister Fico
announced to exert pressure on European authorities to move it even lower to
actual market values (Exchange rate on April 28 is 32,267 EUR/SKK).


2007 Polish companies have invested over 2,6 bln zł abroad, mainly in Czech, Slovakia,
Germany and UK.
The advantage of Slovakia is
less bureaucracy and more simply tax system than in Poland. Do you think that something
more can be done in Slovakia
in this area (bureaucracy and taxes)?

RD: Obviously, taxes
are always to be a subject for further reduction, especially in times of record
economy growth. However, tax reduction must be accompanied by cuts in public
finances expenditures, and this could be hardly expected from our leftist
government. Thanks God it did not disturb the tax system significantly. Since
our neighbors are not sleeping and reforming their taxes, Slovakia is
slowly losing its comparative advantages. In bureaucracy issues there are still
many lags, entrepreneurs still spend too much time over the papers and at
bureaux. The big issue that hampers the labor market is still very high wage taxation.


is your opinion about attracting foreign investment by tax relieves and other
subventions by local or central government (as it was for example with the
factory of KIA in Żylina)?

RD: I suppose that
further general tax and contribution reduction is better way how to attract
foreign investors than selective subventions or tax relieves. It helps not only
to arbitrarily selected foreign investors, but also to local investors, present
investors and future investors, and to all of them by same means.

In Slovakia, we
have subventions which can not be justified. Let’s take KIA Motors. The rate of
local unemployment was far below the country average. Moreover, the main problems
of Slovak social system are nonqualified unemployed.


you indicate the results of implementing equal 19% flat taxes (VAT, CIT and
PIT) starting in 2004?

RD: The consequence of
this so called “radical tax reform” was not a decrease of tax revenues as opponents
suggested, but substantial increase in overall tax revenues. It indicates a
flat tax rate could have been set much lower. Tax system was simplified and
there are fewer incentives to avoid paying taxes. This setting of tax system
favors capital intensive production and had attracted investors with positive
influence on Slovak growth and labor market.

Concrete numbers:

millions SKK







Tax revenues total


206 844


243 187

268 816



35 125

37 404

39 290

36 442

39 211

42 100


27 093

29 339

33 688

35 306

40 505

45 839


74 739

83 188

91 323

105 650

116 880

123 538



2003 Slovakian government started to privatize some strategic public industries
as energetic, gas, rail, post, forests and water distribution company. Are
those processes ended? What are the effects of those privatizations?

RD: The consequence is
more effective managing of these so called strategic companies, growing investments
into new technologies and processes and less opportunities for fraud and rent
seeking. In general, an entrance of private capital generated pressure on more
effective performance of these companies. Competition was introduced into the
fields ruled by monopolies for decades, and it brings its fruits. Present
government favors state governance and stopped all open privatization projects.
So there are companies left for privatization like Bratislava Airport
or local heat producers.


there still many public companies in Slovakia which should be

RD: Yes, obviously,
some of them were even considered to be sold to private investors by previous
Dzurinda’s government, but the approaching elections did not make these plans
possible. Let’s mention just Bratislava
airport, Slovak Rails, state hospitals and many others…

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priority areas include taxation and contributions to the state budget, the
public healthcare system, monetary policy, EU membership issues, government
regulation and property rights.

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