Slovenia

   

Economic Policies

#26
Key Findings
Slowing slightly after several buoyant years, Slovenia falls into the lower-middle ranks (rank 26) with regard to economic policies. Its score on this measure has improved by 1.3 points relative to 2014.

The robust economic growth of recent years has declined somewhat, to about 2.5%. The slowdown came in large part due to the export sector’s strong dependence on development in the larger European economies. The government has continued to pursue controversial infrastructure projects, but has been more successful than its predecessor in the privatization of state banks.

The overall unemployment rate has continued to fall, reaching 4.4%. However, long-term unemployment has increased, and employment rates among older and low-skilled workers remain below the EU average. A modest tax reform is ongoing. The tax rate for enterprises is below the EU average, but high by regional standards.

The budget continued to show a small surplus despite the economic slowdown. Public debt fell to 66.7% of GDP. Public R&D spending has increased but remains below 1% of GDP.

Economy

#29

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. However, real GDP growth declined from more than 4% in 2017 and 2018 to about 2.5% in 2019, largely because of the high export propensity of the Slovenian economy and its strong dependence on development in larger European economies.

The Šarec government has stuck to the controversial infrastructure projects initiated by its predecessor, which include the construction of a second Karavanke highway tunnel toward Austria and the construction of a second railway line between Divača and the port of Koper. Both projects have continued to suffer from mismanagement, corruption and delays in implementation. Compared to its predecessor, the Šarec government has been more successful with the privatization of state banks, which has been on the agenda for some time. It sold 75% minus one share in the largest Slovenian bank (NLB) to institutional investors and the third largest bank (ABanka) to the U.S. fund Apollo, which owns Slovenia’s second largest bank, Nova KBM d.d.

Labor Markets

#22

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
While the unemployment rate increased from 2009 to 2013, since 2014, the labor market has significantly improved. In 2016, the number of registered unemployed persons fell below 100,000 for the first time since 2010 and continued to decline each year, reaching a ten-year nadir in September 2019 of 69,834. In recent years, the unemployment has fallen steadily from 9.1% in 2015 to 4.4% in 2019. However, the improvement in labor market performance has been driven largely by the economic recovery. Despite improvements in recent years, major structural challenges have remained. Still high, long-term unemployment has been increasing slightly, the employment rates of older and low-skilled workers remain below the EU average, and their participation in active labor market policies remains low. A December 2019 amendment to the Labor Market Regulation Act is designed to address some of these problems.

Citations:
Stropnik, N. (2020): Slovenia revises its unemployment benefit regulation to foster employment. ESPN, Flash Report 2020/14, Brussels.

I

Taxes

#18

How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?

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
6
Slovenia’s tax system was overhauled in the 2004 – 2008 term and has changed only gradually since then. 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 a handful of different rates 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 added to an already relatively high tax burden on enterprises. The Cerar government’s second minister of finance, 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. Consequently, the changes implemented were very minor and more technical in nature.

Under the Šarec government, tax changes have continued to be modest. In February 2019, the prime minister announced that the government would draft a package of measures before the end of the year, and in June 2019, a reform tax package was put up for public debate. The changes proposed are minor and include, for example, cutting income tax rates in the second and third brackets by one to two percent, a slight increase in tax deductions, higher capital gains taxes on items owned less than 20 years, a higher rate of personal income tax on rental property. In October 2019, the prime minister announced that there will be no property tax implemented until at least 2022, as there is no coalition consensus on the issue.

At almost 38%, the tax-to-GDP ratio is below the EU average, but relatively high from a regional perspective. The recent surpluses in the fiscal balance suggest that revenues are sufficient to finance the budget.

The progressive income tax has provided for vertical equity. Recent reforms have aimed at limiting the tax burden of the middle class.

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.

Slovenia’s revenue from environmentally relevant taxes remains above the EU average. Environmental taxes made up to 3.73% of GDP in 2017 (EU-28 average: 2.4%), and energy taxes made up to 3.16% of GDP (EU-28 average: 1.84%). In the same year, the environmental tax amounted to 10.13% of total revenues from taxes and social security contributions (EU-28 average: 5.97%).

Citations:
European Commission (2019): Environmental Implementation Review 2019. Country Report Slovenia. SWD(2019) 131 final. Brussels (https://ec.europa.eu/environment/eir/pdf/report_si_en.pdf).

Budgets

#18

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
7
The Cerar government succeeded in bringing the fiscal deficit down from 3.4% of GDP in 2014 to 0.0% in 2017, thus exiting the European Commission’s excessive deficit procedure in June 2016. Despite the unexpected economic slowdown and the resulting need for a budget revision, the Šarec government managed to achieve a small fiscal surplus in 2019. Buoyed by the surplus, active public debt management, low interest rates and substantial privatization proceeds, public debt fell from 70.4 % of GDP in 2018 to 66.7% in 2019. Projections suggest that it will decline further, reaching less than 60% in 2021.

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. In December 2018, the Fiscal Council warned of a deterioration of the fiscal stance. As a matter of fact, the revised 2019 budget did not fully meet the targets of the medium-term budgetary framework.

Citations:
European Commission (2020): Country Report Slovenia 2020. SWD(2020) 523 final. Brussels (https://ec.europa.eu/info/sites/info/files/2020-european-semester-country-report-slovenia-en.pdf), 17-18.

Research, Innovation and Infrastructure

#31

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. While public R& I spending increased in 2018 and 2019, it still does not comprise 1% of GDP. In some areas of research, the extent of EU funding has declined, as Slovenia has experienced serious administrative difficulties in absorbing funds for R&I. The Šarec government has failed to address this issue. In the period under review, two ministers resigned because they did not manage to increase absorption rates.

Global Financial System

#20

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 System
6
Slovenia was the first post-socialist EU member state to introduce the euro. Because of its troubled financial sector, the country became a strong supporter of a European solution when the euro crisis began. In 2013/14, it was the first EU country to apply the rules of the new European banking union. While the resulting restructuring of the domestic financial sector has prompted substantial domestic conflicts, the Šarec government stuck to the controversial sale of major banks to foreign investors. The Bank of Slovenia has played an active role in the regulation and supervision of financial markets.
Back to Top