Unions protest against government's reform programme

On 26 November 2005, trade unions jointly organised the largest demonstrations since Slovenia independence, in opposition to the government’s reform programme. The core and most controversial part of the programme is the introduction of a flat tax rate, which the trade unions and many other NGOs totally reject. Unions also argue that talks over a new tripartite social agreement for 2006-9 are pointless if the government persists with the introduction of the flat tax rate.

On 26 November 2005, Slovenia's four strongest trade union confederations - the Union of Free Trade Unions of Slovenia (Zveza svobodnih sindikatov Slovenije, ZSSS), KNSS - Independence, the Confederation of New Trade Unions of Slovenia (KNSS - Neodvisnost, Konfederacija novih sindikatov Slovenije, KNSS), the Confederation of Trade Unions of Slovenia Pergam (Konfederacija sindikatov Pergam Slovenije, Pergam) and the Confederation of Trade Unions ΄90 of Slovenia (Konfederacija sindikatov '90 Slovenije, Konfederacija '90) - together with 15 significant autonomous sectoral trade unions (mainly white-collar unions organising workers in specific sectors and occupations) (SI0210102F) organised major demonstrations against the centre-right government’s reform programme. These were the biggest demonstrations held since Slovenian independence. The unions concerned organise 95% of all trade union members in Slovenia. According to the organisers, around 40,000 people took part in the demonstrations, which were held under the slogan 'For the preservation of the social state in Slovenia'.

The trade unions were joined by many other major non-governmental organisations (NGOs), such as the Students Organisation of Slovenia (Studentska organizacija Slovenije, SOS), organising university students, the Secondary School Students Organisation of Slovenia (Dijaska organizacija Slovenije, DOS) and the Association of Pensioners’ Organisations of Slovenia (Zveza drustev upokojencev Slovenije, ZDUS).

As well as the European Trade Union Confederation (ETUC) and the International Confederation of Free Trade Unions (ICFTU), more than 50 central trade union organisations from practically all European countries expressed solidarity with the demonstrators. Representatives of the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) and of Italian trade union confederations also took part in the demonstrations, at which Joel Decaillon, confederal secretary of ETUC, was one of the speakers.

Controversy over flat tax rate

The core and most controversial part of the government's programme is the introduction of a 'flat tax rate' (FTR). The draft proposal for a radical tax reform was elaborated in 2005 (see Analysis of the possibilities to introduce the FTR in Slovenia[in Slovenian], Joze P Damijan and Saso Polanec, Ljubljana, May 2005) and included:

• the introduction of a flat rate of personal income tax. It was initially proposed that the FTR should be 20%, and that net pay should remain unchanged despite the introduction of the FTR;

• the introduction of a single flat rate of corporate income tax (without special reliefs);

• the introduction of a single flat rate of value added tax (VAT); and

• the abolition of payroll tax ( SI0505302F).

A government document entitled Framework for the economic and social reforms to increase welfare in Slovenia, dated 2 November 2005, includes the introduction of flat rates for personal income tax and VAT, but not corporate income tax - instead the adoption of a new Law on Corporate Income Tax (LCT) is foreseen, with changes including the abolition of 'double economic taxation' and lowering the effective tax rate.

The introduction of the FTR is also included in the government's Programme for achieving the Lisbon strategy goalsPDF (under subchapter III.A.1, 'Policies and measures in the macroeconomic area') which says that 'the Republic of Slovenia will examine the possibilities of a more radical tax reform in 2006, which could possibly include the introduction of the FTR'. This 'softened' formulation is thought by commentators to be the result of the opposition to the introduction of the FTR.

The government argues that the main reason to introduce a flat rate of income tax is to lower the high tax burden on the pay of highly qualified employees, who as a rule contribute higher added value, and to make it possible for companies to employ more of these workers.

The main reason cited for introducing a flat rate of VAT is to transfer the financing of public expenditure from direct taxes (given the introduction of a flat rate of personal income tax and the abolition of payroll tax) to indirect taxation. This means that the revenues from taxes lost by the introduction of flat-rate personal income tax and by the abolition of payroll tax would be covered by the flat-rate VAT.

The government's planned radical tax reform should go hand in hand with a reform of social transfers.

At a press conference held on 10 January 2006, Janez Sustersic, the director of the Institute of Macroeconomic Analysis and Development (Urad RS za makroekonomske analize in razvoj, UMAR), said that it will not be possible to carry out the proposed radical tax reform in 2006.

Criticism of the reform programme

The trade unions and other opposing NGOs argue that the Proposal for economic and social reforms, prepared by the previous governments’ 'board for reforms' (now abolished), whose driving force was seen as a small group of radical neo-liberal economists, would mean a great encroachment upon the social and economic rights of workers and the abolition of the welfare state. The reforms would affect most negatively the poorest strata of the population, they claim. The most controversial part of the proposal is, as mentioned above, the introduction of the FTR, which the unions and many other NGOs totally reject. They are of the opinion that the FTR would cause a sharp rise in the price of the 'basket of essential goods' (food, textiles etc), and for workers these costs of living represent the greatest proportion of their total expenditure or pay. The unions, NGOs and some experts have not been convinced by the reform proponents who have stated that the planned corrective measures (eg unchanged net pay and social transfers) accompanying the introduction of the FTR would ensure that people would not be worse off as a result of the latter.

Opponents argue that, for the state to raise the same amount of money under an FTR scheme, the rich will pay less and the poor pay more than they would under a progressive tax system. This means that the majority of Slovenians would be worse off and the 'super-rich' even richer, it is claimed. Furthermore, income disparities would rise.

Those NGOs that supported the demonstrations in November are also concerned about other aspects of the government's reform programme, such as proposed reform of the pension system, the introduction of the market principles into university education, and proposed privatisation of the healthcare system. SOS called all students to take part in demonstrations because the government did not take into account its proposals concerning the amendments to the Law on Personal Income Tax (LPIT) and because of the proposed reforms in the field of university education. ZDUS is above all against the proposed reform of the pension system and the privatisation of healthcare.

Critics of the programme say that Slovenia is not in crisis and that such drastic reforms are necessary only in an extreme and critical situation. At the abovementioned press conference on 10 January 2006, Mr Sustersic of UMAR also said (see Slovenian Economic Mirror December 2005 issue) that at the end of 2005 inflation in Slovenia dropped to 2.5% and that in November 2005 the country fulfilled the Maastricht inflation convergence criterion. The real pay growth rate was 2.3% (lower than expected) which is in accordance with pay policy goals. Productivity grew by 3.3% in 2005 and real pay growth lagged behind productivity growth by one percentage point (this gap should continue up to the adoption of the euro single currency at least), in line with the current pay policy agreement between the government and the social partners (SI0405103F). GDP growth was around 4% and the employment growth 0.7%, which resulted in 3.3% productivity growth.

Doubts over new social agreement

At the end of the 2005, the tripartite 'social agreement' for the period 2003-5 (SI0307101F) expired. Trade unions have repeatedly argued that negotiations over a new social agreement to cover 2006-9 are senseless if the government persists with the introduction of the FTR. However, on 9 January 2006 the government, the employers and the trade unions began negotiations.

Commentary

From the trade union perspective, one of the main goals they achieved through the demonstrations they organised in November 2005 was unity of the union movement in opposition to the introduction of the FTR. (Stefan Skledar, Institute of Macroeconomic Analysis and Development)