Ivan Miklo

1
GROWTH FOR BETTER SOCIAL STANDARDSBETTER SOCIAL
STANDARDS FOR GROWTH

• Ivan Mikloš
• Deputy Prime Minister and Minister of Finance
• of the Slovak Republic
• Munich
• June 18, 2004

2
THE BEST SOCIAL POLICYBRING PEOPLE BACK TO WORK

• Ensuring that everyone has a well-paid job is the
  best social policy.
• having a job improves individuals economic
  well-being
• having a job improves individuals social and
  mental well-being
• Economic growth is the best way toward more and
  better jobs
• it leads to more job creation
• it ensures steady growth of wages

3
GROWTH PERFORMANCE IN THE EU IS UNSATISFACTORY
Source EC
4
POTENTIAL GROWTH AND PRODUCTIVITY ARE ACTUALLY
DECREASING IN THE EU15
Source EC
5
GDP GROWTH PERFORMANCE IN THE NEW MEMBER
COUNTRIES IS MUCH BETTER

• new member countries have been growing much
  more rapidly then the old member countries
• reasons
• convergent growth
• structural reforms

Forecasts Source EC
6
NEW MEMBER COUNTRIES CAN LEAD THE WAYWITH
STRUCTURAL REFORMS
1989 2004

• CENTRALLY PLANNED ECONOMY

FUNCTIONING MARKET ECONOMY
GOALS OF REFORMS TYPES OF REFORMS

• functioning market economy

• real convergence with the rest of EU
• long-term competitiveness

• privatizations
• price deregulations
• market institutions

• structural reforms

7
THE SLOVAK TAX REFORM GOALS

• BASIC PHILOSOPHY
• LIGHT, NONDISTORTIVE, SIMPLE AND TRANSPARENT
• TAX SYSTEM
• create business and investment friendly
  environment for both individuals and companies
• eliminate existing weaknesses and inefficiencies
  in the tax law
• eliminate distortive roles of tax policy as
  instruments for achieving non-fiscal goals
• improve tax fairness by taxing all types and all
  amounts of income equally

8
THE SLOVAK TAX REFORM SPECIFIC CHANGES

• radical simplification of the tax system
• elimination of virtually all exceptions,
  exemptions, deductions, special rates, and
  special regimes
• elimination of dividend, inheritance, gift taxes,
  and real estate transfer tax
• shift from direct to indirect taxes
• introduction of low nominal rates
• 19 flat individual income tax
• 19 corporate tax
• 19 unified VAT on all goods and services -
  without any exceptions

9
TAX RATES FACED BY INVESTORS
10
TAXATION IS STILL PROGRESSIVE AND LOW-INCOME
PEOPLE PAY LESS TAXES THAN BEFORE
Poverty Line
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THE SLOVAK TAX REFORM RESULTS

• no decrease in tax revenues
• increased revenues from indirect taxes
• less scope for tax evasion and tax avoidance
• more motivation to pay taxes
• better incentives for investment and work
• thanks to lower marginal rates
• thanks to more transparent and equitable taxation

FASTER CATCH-UP LESS REVENUES FROM EU FUNDS!
12
THE SLOVAK SOCIAL SYSTEM REFORM GOALS

• make work pay activity should pay more than
  inactivity and employment should pay the most
• improve skills and prospects of disadvantaged
  individuals
• reduce the scope for abuse of the social system
  by improved targeting
• make the labor market more flexible to foster
  long-term employment growth

13
THE SLOVAK SOCIAL SYSTEM REFORMSPECIFIC CHANGES

• changes in the social assistance (poverty
  assistance)
• benefit no longer equals long-term income
  replacement
• parts of the benefit conditioned upon activity
• increased replacement rate when moving into
  employment
• reducing the poverty trap no longer 100
  effective tax rate
• new system of public employment services
• shift from heavy subsidization to investment in
  human capital and more client-based approach
  towards the unemployed
• labor code reform
• hiring and firing has been made easier
• flexible contract arrangements made possible
• increased overtime limit
• reduction of union powers

14
THE SLOVAK SOCIAL SYSTEM REFORM - RESULTS

• increased activity
• more than 100,000 people activated in small
  community works
• rising employment also in high-rate areas
• more intense assistance to those in need
• raising the level of benefits without harming
  motivation
• new programs
• subsidized meals in basic schools for kids in
  material need
• scholarships for secondary students in material
  need
• merit-based scholarships for pupils in basic
  schools
• new labor code
• important factor in investment decisions of
  foreign firms

15
CONCLUSION ENLARGEMENT CAN PROVIDE THE EU WITH
A NEW REFORM AND GROWTH STIMULUS

• EU needs to expedite progress on structural
  reforms.
• Enlargement should help thanks to
• competitive pressures coming from the new Member
  states
• current EU members will have to reform as well if
  they will want to stay competitive in medium and
  long term
• change of mood within the EU
• at least 10 out of 25 people around the table are
  now from dynamic countries with significant
  reform push and experience

16
GROWTH FOR BETTER SOCIAL STANDARDSBETTER SOCIAL
STANDARDS FOR GROWTH

• Ivan Mikloš
• Deputy Prime Minister and Minister of Finance
• of the Slovak Republic
• Munich
• June 18, 2004