7th Aug 2020

Slovakia signals U-turn on tax

Slovakia has for the first time signalled it could be willing to enter into discussion over Brussels' wish to move into the sensitive area of tax, a move that has led to a political clash between the Slovak government and its opposition.

"I understand the advantages of [our] national tax system, but on the other hand I also understand that EU heavyweights will hardly respect tax allowances started by new member states," Slovak prime minister Robert Fico said in an interview with EUobserver.

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According to Mr Fico, Slovakia "will not avoid a tax debate...and will not be screaming no," when a common solution is being sought.

So far, Slovakia has been one of the strongest opponents of any EU move into the tax area, including being against plans by the European Commission to harmonise the taxable base on company profits across the EU.

The country runs a low-tax regime on the basis of a flat tax, which has helped to secure record levels of foreign investment.

This policy has caused irritation in larger member states. Former German chancellor Gerhard Schroeder and French presidential hopeful Nicolas Sarkozy have both accused Bratislava of engaging in tax dumping and called for cuts in its European funding.

Robert Fico, himself a social-democrat, came to power last June, ending an eight-year-long era of the centre-right government of Mikulas Dzurinda which had carried out sweeping free-market reforms and turned Slovakia into one of Europe's fastest-growing economies.

Even though Mr Fico stressed that he did not see tax issues resolved within the coming few years, his softened stance has been strongly criticized by the centre-right opposition.

Later this week, all three opposition parties are set to press ahead with a parliamentary declaration on tax sovereignty, a document aimed at binding the government to opposing any tax changes at the European level.

More generally, the 43-year old Fico pledged to turn the wheel from right to left, to increase social welfare spending, to improve the rights of employees and union members, but also to keep Slovakia on track for adoption of euro in 2009.

Slovakia's biggest challenge remains to meet inflation goals as part of the so-called Maastricht criteria for new entrants to the eurozone, with Mr Fico saying these criteria are "unjust" to new EU states.

"They [Maastricht criteria] do not reflect different economic conditions in new member states", he said, as central European states struggle to curb inflation while their economies are booming.

"There are only fourteen months left until the decision on Slovakia's euro entry is taken ... so we have to achieve the impossible - to combine high economy growth and low inflation".

So far, the country's economy has been on a sound footing, with GDP growth hitting a record of 8.3 percent last year and the inflation outlook also improving. The central bank forecasts annual inflation at 1.5 percent, compared with January's 2.2 percent.

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