Slovakia: Reform TimeOut

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Slovakia Reform Time-Out

• November 2007
• Eugen Jurzyca, WWW.INEKO.SK

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Presentation structure

• Economic reforms in Slovakia and their roots
• What is to be done and why reforms are
  interrupted
• What the renewal of the process needs focus on
  populism

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Reform RootsFlat Tax, Reform of Pension Scheme,
Liberal Labor Market...
Source Survey among experts, INEKO, 2004
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What is to be done?
Share of the assignation gifts, biggest 80 NGOs
Private sources to health care in OECD 2.4, in
Slovakia 1.2 per cent
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Business environment Slovakia in Reports

• WEF (The Global Comp. Rep.2007-2008)41
• WB (Doing Business 2007) 36
• IMD (Yearbook 2006) 39

We are far behind old EU members not only in
economic performance but also in the business
environment.
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World Bank, Doing Business, 2007
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World Bank, Doing Business, 2007
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Economic reforms in Slovakia and their roots
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Reasons for Interruption

• Reforms have not been extremely right-wing
  oriented (they have not been interrupted because
  of that)
• Share of taxes on GDP
• The share of persons with income below the
  risk-of-poverty threshold decreased in Slovakia
  in the year after reforms (Eurostat)
• Reforming government two terms in power
  (tiredness of voters)
• Exhausted narrow groups of reformers due to
  their heavy involvement in the reforms processes
  (lack of new ideas, plans)
• Populism allowed by the reaction of the society
  not understanding critical part of the reforms
  (Populism acceptation of either wrong, or
  unrealistic, although popular policies).

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Populism is the major barrier to reforms
Understanding some economic reforms is as
difficult as was understanding of introduction of
sewing machines in early 19th century. Workers
from 1811 started to break machines which, they
believed, threatened their jobs (Luddism
movement). Illustration Majority of Slovak
citizens (voters) think that education and health
care should be paid neither through taxes, nor
directly. What choices the politicians face? They
can either join the majority with wrong attitude
or take right decision and loose politically.
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39
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82 per cent of respondents want students to pay
less than half of the total costs. In such a case
employees must pay roughly 4000 Sk per employee
in the form of taxes.
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62 percent of respondents do not want the
employees to pay roughly 4000 Sk (or more) on
taxes to cover at least half of the costs of
education.
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Combating Populism

• Explaining reforms to general public, media and
  politicians
• Organizing experts, attracting them to public
  presentations
• Populism does not have results Feedback to
  promises as fast as possible (180 promises
  monitored, regular reports to media, continuous
  updating)
• Promise We will increase public funds for
  universities with the aim of reaching 1.2 of
  GDP...
• Reality

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Combating populism

• Promise
• The government will ensure an increase in
  financial resources for the health service in
  2007 by means of increasing insurance payments
  for those groups of people whose insurance is
  paid for by the state from 4 of the average
  salary to 5 of the average salary.
• Reality
• In 2008, the state is to pay contributions to
  the amount of 4.5 of the average salary on
  behalf of those whose insurance payments it pays
  for.

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Slovakia Reform Time-Out

• November 2007
• Eugen Jurzyca, WWW.INEKO.SK

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Further Slides are attached for discussion
purposes and will not be presented within the 15
minutes speech.
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Role of the national governments in the EU

• The best and the worst performers (out of 131)

WEF The Global Competitiveness Report 2007-2008
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Role of the national governments in EU

• The best and the worst performers (out of 131)

WEF The Global Competitiveness Report 2007-2008
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Role of the national governments in EU

• The best and the worst performers (out of 131)

WEF The Global Competitiveness Report 2007-2008
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Role of the national governments in EU

• The best and the worst performers (out of 131)

WEF The Global Competitiveness Report 2007-2008
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Role of the national governments in EU

• The best and the worst performers (out of 131)

WEF The Global Competitiveness Report 2007-2008
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Role of the national governments in EU

• The best and the worst performers (out of 131)

WEF The Global Competitiveness Report 2007-2008
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Reforms Roots
Source INEKO, 2004
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Reforms right after elections

• Government created 4Q/2002

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(No Transcript)
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Total Taxes, of GDP
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PENSION REFORM 1. 1.2005
FLAT TAX 1.1.2004
After introduction of flat tax and pension
reform, GDP started to grow most rapidly despite
that the slope of the curve became less steep.
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BTW
Government with WORKERS PARTY
Government with PARTY OF DEMOCRATIC LEFT
Government without leftist party