OECD Proposes Tax Reform for Slovenia’s Ageing Society

By , 13 Jun 2018, 13:59 PM Lifestyle
OECD Proposes Tax Reform for Slovenia’s Ageing Society Flickr - Pedro Ribeiro Simões CC by 2.0

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STA, 13 June 2018 - The OECD has proposed that Slovenia undertake a comprehensive tax reform in order to strengthen its resilience in the face of mounting demographic challenges. The centrepiece of the proposal is a reduction of the tax wedge offset with higher income tax and an expansion of the tax base. 

"It is truly necessary to take measures if Slovenia is to prepare for population ageing," Bert Brys, senior economist at the OECD's Centre for Tax Policy and Administration, told the press on Wednesday as he presented a study commissioned from the OECD by the Slovenian government.

In the 150-page report dubbed Reshaping the Personal Income Tax in Slovenia, the OECD proposes lower employee social security contributions (which are currently at 22% of gross pay, compared to 16% for employers).

The tax revenue shortfall could be offset with income tax changes, a real estate tax, and an expansion of the base for value added tax.

The OECD proposed the abolition of the top, 50% income tax rate as a means of reducing the taxation of the highest wages.

The other income tax rates with the exception of the lowest rate would be increased.

Another change that would generate more revenue would be to increase the current contributions paid by the self-employed.

Brys also suggested child benefits and tax credits for children were "very generous."

Overall, Brys said Slovenia's tax wedge was very high and recommended it be reduced "to make work more attractive" so that people postpone retirement and remain in the labour market longer.

He indicated the current system was unsustainable, noting that pension, healthcare and long-term costs already accounted for 18% of GDP and would grow by an additional six percentage points by 2040.

This is why Slovenia needs not only a tax reform but also broader reforms of the healthcare and pension systems, he said.

Mateja Vraničar Erman, the outgoing finance minister, said these were merely proposals. "We'll continue talks with the expert public and social partners, but any final decisions will be left to the new government."

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