slovakia Faces Tough Choices: Higher Taxes on Vice, property, and Potential VAT Hikes Loom
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Bratislava, Slovakia - The Slovak government, led by Prime Minister Robert fico, is grappling wiht a significant budget shortfall and is increasingly leaning towards higher taxes on vices like gambling and sweetened foods, and also increased property taxes, too bridge the gap. Originally aiming to reduce the public finance deficit to below three percent of GDP by the end of its term, the government has now pushed that target back to 2028, citing growing geopolitical pressures.
Finance Minister Ladislav Kamenický is under pressure to identify an additional two billion euros in revenue for the 2024 budget, and is scheduled to present a draft to the government on August 20th. This urgency is driven by the upcoming expiration of a two-year exception to the constitutional debt brake, which requires a balanced budget if public debt becomes too high. Failure to approve the budget by November 21st could trigger a vote of confidence in the government and necessitate a balanced budget nonetheless.However, consensus within the ruling coalition remains elusive. Following a recent meeting, Prime Minister Fico stated that the coalition will only publicly announce consolidation measures once a full agreement is reached, with further negotiations scheduled for Wednesday evening.
What tax Increases Are Being Considered?
Here’s a breakdown of the potential tax increases currently under discussion:
VAT Adjustments: The government previously increased the standard VAT rate to 23%. Further increases are being considered for reduced rates applied to food, beverages, and othre essential goods. Specifically,higher VAT could be applied to sweetened foods,salty snacks,and other items deemed less essential.
Second Pillar pension Reform: Labor Minister Erik Tomáš is proposing allowing individuals to transfer funds from the second pillar of the pension system back to the state-run first pillar. This move, while potentially reducing the long-term burden on the pension system, would provide a short-term boost to state revenue. Real Estate Tax Hikes: A key component of the consolidation plan involves increasing taxes on real estate, particularly non-residential properties and investment apartments. Municipalities are expected to play a role in implementing these increases, potentially doubling or tripling taxes on owners of multiple properties.
“Sin” Taxes: The government is also looking at increasing taxes on gambling and tobacco, targeting what are considered “negative externalities.” A one percentage point increase in the gambling levy to 28% is under consideration.
Potential Retail Levy: Discussions are underway regarding a special levy on large retail chains, similar to those already in place for regulated sectors.
Increased Progressivity of Income Tax: While mentioned in the coalition agreement, details on increasing the progressivity of income tax – meaning higher earners pay a larger percentage – remain scarce.
Impact and Concerns
These proposed measures are likely to face opposition. Critics argue that increasing VAT could disproportionately impact lower-income households, while higher property taxes could stifle investment.The proposed changes to the second pillar pension system have also raised concerns about the long-term security of retirement savings.
The coming weeks will be crucial as the Slovak government attempts to navigate these tough financial challenges and forge a consensus on a budget that can address the deficit while minimizing the impact on its citizens.
Keywords: Slovakia, Budget, Taxes, VAT, Property Tax, Gambling Tax, Robert Fico, Ladislav Kamenický, Deficit, Debt Brake, Consolidation, Pension Reform, Second Pillar, Economy, Finance.
