Slovenia

   

Economic Policies

#30
Key Findings
Despite robust growth, Slovenia receives a relatively low overall ranking (rank 30) with regard to economic policies. Its score on this measure has improved by 1.2 points relative to 2014.

Economic growth accelerated in 2017, driven by exports and private consumption boosted by an improving labor market, rising consumer confidence and low energy prices. EU-funded infrastructure investment has helped pave the way for the return of private investment. The privatization program outlined in 2015 has progressed slowly.

Unemployment rates are falling steadily, but remain moderately high. Long-term unemployment still represents more than 50% of total unemployment, and employment rates among older and low-skilled workers remain below the EU average. A modest recent tax reform included lower personal-income taxes and increased corporate-income tax rates.

Deficits have fallen below 1% of GDP, with small surpluses envisaged for coming years. However, fiscal adjustment has relied on one-off measures, as well as ongoing growth. The public debt remains at worrisome levels, and the country faces a serious long-term sustainability gap. The R&I sector is underdeveloped, but spending is increasing.

Economy

#32

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
6
The Slovenian economy has been growing robustly since 2014, registering an annual GDP growth rate of about 2.8% for the years from 2014 to 2016 and an expected growth rate of more than 4% in 2017. While Slovenia’s export performance has remained strong, as evidenced by a current account surplus of about 5% of GDP, the economic recovery has become broader-based as private consumption growth has accelerated thanks to an improving labor market, rising consumer confidence and low energy prices. In addition, public investment in infrastructure projects co-funded by the EU, mostly on the municipal level, have helped to boost growth, and private investment has shown signs of recovery. In 2017, the government paved the ground for two major investment projects, the construction of a huge paint shop near Maribor by the Austro-Canadian automotive giant Magna and the construction of a second railway track between Divača and the port of Koper. However, both projects were controversial. While Magna received large subsidies and almost unconditional support from the government for its investment, it failed to exercise transparency in managing the project and to honor initial job promises. The railway project was likewise criticized for being miscalculated and prone to corruption. In late September 2017, however, a majority of voters backed the project in a referendum, allowing the government to continue with the project. Concerns about the reliability of economic policy have been raised by the limited implementation of the privatization program presented in 2015. The planned sale of 20 companies has progressed slowly. The privatization of the country’s biggest bank Nova Ljubljanska Bank (NLB) was once more postpoined in May 2017, prompting Minister of Finance Mateja Vraničar Erman to offer her resignation.

Citations:
European Commission (2018): Country Report Slovenia 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances. SWD(2018) 222 final, Brussels (https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-slovenia-en.pdf).

OECD (2017): Economic Survey Slovenia. Paris (www.oecd.org/eco/surveys/economic-survey-slovenia.htm).

Labor Markets

#26

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
6
As a result of the economic recession, unemployment rates in Slovenia rose between 2009 to 2013. In 2013, the employment rate among those aged 20 to 64 fell below the EU average for the first time. Since 2014, the labor market situation has significantly improved. The unemployment rate dropped from 12.3% in September 2015 to 10.4% in September 2016 and to 9.1% (July 2017). In August 2016 the number of registered unemployed persons fell under 100,000 for the first time since 2010. In August 2017, it was further down to 83,843 persons, the lowest value in the past seven years. The improvement in labor market performance has been driven largely by the economic recovery. Despite improvements in recent years, major structural challenges have remained. Long-term unemployment still stands at more than 50% of total unemployment, the employment rates of older and low-skilled workers remain below the EU average and their participation in active labor market policies remains low. While Slovenia has a tradition of labor market policy that dates back to Yugoslav times and participates in a number of EU-funded programs (i.e., EURES), existing programs have suffered from budget cuts introduced in 2009 and continuing through 2014, and are only slowly regaining their effectiveness.

Citations:
European Commission (2018): Country Report Slovenia 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances. SWD(2018) 222 final, Brussels, 31-35 (https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-slovenia-en.pdf).

IMF (2017): Republic of Slovenia: Selected Issues. IMF Country Report No. 17/126, Washington, D.C., 33-53 (http://www.imf.org/en/Publications/CR/Issues/2017/05/15/Republic-of-Slovenia-Selected-Issues-44922).

OECD (2016): Connecting people with jobs. The labor market, activation policies and disadvantaged workers in Slovenia. Paris.

OECD (2017): Economic Survey Slovenia. Paris (www.oecd.org/eco/surveys/economic-survey-slovenia.htm).

Taxes

#27

To what extent does taxation policy realize goals of equity, competitiveness and the generation of sufficient public revenues?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
5
Slovenia’s tax system was overhauled in the 2004-2008 term and has changed only gradually since then. Tax revenues have been relatively high in relation to GDP but have not been enough to prevent high budget deficits from emerging. Tax revenues stem from a broad range of taxes, with a high percentage of about 40% of all tax revenues stemming from social insurance contributions. A progressive income tax with rates of 16%, 27%, 34%, 39% and, since 2013, 50% provides for some vertical equity. As the thresholds are set rather low, however, the majority of middle class citizens fall into the second- or third-highest category. The tax burden for enterprises is below the EU average, but higher than in most other East-Central European countries. Moreover, tax procedures for both individuals and companies are complex.

The Cerar government had announced comprehensive tax reform for 2016. However, the coalition partners eventually reached common ground on relatively modest changes only, focusing on tax relief for the middle class. Beginning in 2017, the tax burden on personal income, including performance and Christmas bonuses, was reduced, in part by introducing a new tax bracket and by replacing the previous 41% tax rate with two rates of 34% and 39%. Contrary to the original proposition of the Ministry of Finance, the top income tax rate of 50% was retained. In order to compensate for the decline in personal income tax revenue, the corporate income tax rate increased from 17% to 19% in 2017. Business associations have complained that this increase will add to an already relatively high tax burden on enterprises. The quarrels over tax reform contributed to the resignation of Finance Minister Dušan Mramor in July 2016. His successor, Mateja Vraničar Erman, proposed a minor tax reform in 2017, targeting above all taxes paid by small companies, but couldn’t find enough support in the government.

Budgets

#33

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
5
The Cerar government succeeded in bringing the fiscal deficit down from 3.4% of GDP in 2014 to below 2% in 2016, thus exiting the European Commission’s excessive deficit procedure in June 2016. In 2017, the fiscal deficit fell below 1%, and the budgets for 2018 and 2019 envisage small surpluses. However, the improvement in the fiscal stance has largely stemmed from the recovery of the Slovenian economy and a number of one-off measures such as wage and promotion freezes in the public sector. Given the solid economic growth, trade unions were less cooperative in 2016 and 2017 and refused the extension of wage restraint in the public sector, threatening with the wide public-sector strikes and forcing the government into several financial concessions. Slovenia’s structural deficit has remained relatively high, the debt-to-GDP ratio, while declining since 2016, still stands at almost 80%, and the fiscal pressure associated with the aging of the population is relatively high. In order to stress its commitment to a sustainable budgetary policy, the National Assembly, in line with the EU’s Fiscal Compact, enshrined a “debt brake” in the constitution in May 2013. However, the corresponding legislation was not adopted until July 2015, and the government and opposition proved unable to reach a consensus on selecting the three members of the Fiscal Council (which is tasked with supervising fiscal developments) until late March 2017.

Citations:
European Commission (2018): Country Report Slovenia 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances. SWD(2018) 222 final, Brussels, 19-20 (https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-slovenia-en.pdf).

OECD (2017): Economic Survey Slovenia. Paris, 25-27 (www.oecd.org/eco/surveys/economic-survey-slovenia.htm).

Slovenia Times (2016): Slovenia yet to appoint Fiscal Council. December 28, 2016 (http://www.sloveniatimes.com/slove nia-yet-to-appoint-fiscal-council).

Research and Innovation

#30

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
4
Slovenia’s R&I activities have long been of both low quality and quantity. In the period under review, EU funds have declined in some areas of research, as Slovenia has experienced serious administrative difficulties in absorbing funds for R&I. After years of neglect, however, the Cerar government announced substantial increases in R&I spending when introducing the budgets for 2018 and 2019 to parliament in September 2017. The science budget, for instance, is set to grow by almost 20%.

Citations:
Bučar, M., A. Jaklič, E. G. Verdesoto (2018): RIO Country Report Slovenia 2017. Luxembourg: European Union (https://rio.jrc.ec.europa.eu/en/country-analysis/Slovenia/country-report).

Global Financial System

#34

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial Markets
4
Compared to most other East-Central European countries, the degree of foreign ownership within the Slovenian financial sector has remained low. Like its predecessors, the Cerar government has not contributed actively to improving the regulation and supervision of international financial markets. Instead, it has focused on addressing financial problems within the Slovenian banking sector by implementing the bad-bank scheme devised by the Janša government. Established in March 2013, the Bank Assets Management Company (BAMC) has taken over non-performing loans in exchange for bonds backed by state guarantees.
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