Row Erupts In Slovak Cabinet Over Tax Reductions

by Ulrika Lomas, Tax-News.com, Brussels

22 August 2001

Tax reductions rammed through a meeting of Slovakia's coalition government by the dominant right-wing majority party have caused a public row between right-wing Deputy Prime Minister for the Economy Ivan Miklos and Finance Minister Brigita Schmoegnerova, who is from the Party of the Democratic Left [SDL].

Announcing the reductions, Mr Miklos said that substantial changes had been made to the initial proposal submitted by the Finance Ministry. The ministry's initial proposal left the rate of corporation tax unchanged at 29%, but the version agreed by the Government sees the rate being cut to 26%, then 2% reductions each year until the rate finally reaches 18 per cent in 2006.

The top rate of personal income tax, set to be reduced from 42% to 40% in the Finance Ministry proposal, comes down to 38% under the Government's revised plan, and there were also important changes to the laws on inheritance tax, gift tax and tax on immovable assets.

The Deputy Prime Minister said after the government meeting that he would not try to hide the fact that there was not total agreement between individual ministers on these changes in tax laws, but that he did not expect the changes to have any marked impact on the 2002 budget.

Finance Minister Brigita on the other hand said that she and the leftist party of which she is a member fundamentally disagree with the tax cuts agreed by the cabinet. She warned that the measure would most affect low wage-earners, adding that it will fundamentally damage Slovakia's economic outlook and its EU bid.

Ms Schmoegnerova says that if the changes are approved by the National Council [parliament], the Slovak Republic will not be able to adhere to the agreed schedule of budget deficit reductions, which is part of the medium-term financial outlook, of the joint assessment and also of the pre-accession economic programme due to be submitted by the Slovak Republic to the European Commission by 1 October this year.

It could seriously jeopardize the process of Slovakia's integration into the European Union, she claimed, adding that any slippage in reducing the budget deficit would undermine the country's chances of obtaining an investment grade rating on the international bond markets.

The Finance Minister said that her ministry's proposals had provided for the lowering of the tax burden of both individuals and legal entities in a just way, while Ivan Miklos's proposals gave unilateral support to the highest income groups and big businessmen. She said that the SDL national board would comment on the new tense situation in the governing coalition and in the government on Sunday [26 August], and declined to comment on the SDL's possible departure from the governing coalition or on her own possible resignation.

After the Finance Minister's remarks were published, Deputy Prime Minister Ivan Miklos reiterated his belief that the Government's proposals were consistent with agreed targets for management of the budget.

Recommended