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Slovenia Business Week no. 05/2005: TV Panel: Greater Competitiveness Will Boost Development

To boost its development, Slovenia needs greater competitiveness, more foreign investment, a more adequate tax legislation and a different education system

To boost its development, Slovenia needs greater competitiveness, more foreign investment, a more adequate tax legislation and a different education system. This is what a panel of business people and economists said in a TV debate on Tuesday, 25 January. They believe that the state must withdraw from companies and amend the tax legislation so that it would benefit the Slovenian economy in the long term.

"We'll have to conclude that we can no longer afford such a social security system in the long run. The experience of other countries show that tax revenues start to decrease at a certain tax level and we have crossed that limit," said Joze P. Damijan of the Ljubljana Faculty of Economics.

The government will advocate its withdrawal from companies, according to Finance Minister Andrej Bajuk. However, he said the process would be slow and, most importantly, transparent.

As for foreign investment, Damijan said that the race had been lost in 1992, when privatisation should have been sped up. "Slovenia already lags behind other countries in transition and is even witnessing a downward trend," he said, adding that Slovenia may no longer be able to attract foreigners.

He believes that Slovenia must do something to change that. "If we don't do something now, if we don't create a more stimulating environment, we'll continue to lag behind and our standard of living will be lower than, say, that of Hungary, in ten years," said Damijan, a member of the government Strategic Council for Economic Development.

Damijan said that the outflow of Slovenian capital, an estimated EUR 1.8bn, was an important signal for the government. "Slovenia will have to introduce changes on the capital market, provide a transparent stock market. It will moreover have to make changes to the labour market in order to make it more flexible... The tax wedge must be lessened and the tax system made more transparent," he said in the TV Slovenija debate.

Darko Horvat, the manager of the Aktiva Group holding company, said tax legislation was not the reason why he decided to move his assets abroad. "The capital market was not good enough, we were not competitive," he stressed. He said the most important role of the government was to make the Slovenian economy competitive, which it can do with tax reform.

Damijan pointed out that the recently implemented tax reform was restricted by the criteria for the adoption of the euro. "We cannot play with too comprehensive tax reforms that would result in a too low inflow of funds into the budget," he said.

The panelists agreed that capital was not heavily taxed in Slovenia. Finance Minister Bajuk stressed that Slovenian companies could take a higher tax on profit than they had paid so far. On the other hand, he said, labour taxes were too high and could be lowered.

Matjaz Gantar, the director of the financial firm KD Group, agreed that taxes on profit were not high. However, the main problem in Slovenia is that the business environment in general is not stimulating, Gantar stressed.

Agreeing that high labour costs and a poor labour market flexibility hinder competitiveness, the director of the Slovenian Trade and Investment Promotion Agency said red tape and poor qualification levels of workers were also problems.

According to Matej Kovac, insufficient technological development and the lack of cooperation between university and economy are also obstacles to rising the country's competitive ability.

Source: Slovene Press Agency STA

Author: STA