Business News

VAT Rise Increasingly Probable, Panel Agrees

Ljubljana, 11 April (STA) - A rise in the value added tax (VAT) seems increasingly probable, agreed participants of a round table debate hosted by the Chamber of Commerce (TZS) in Ljubljana on Thursday. But they believe the potential government measure lacks a positive incentive for the people.

"People's expectations are extremely important," economist Igor Masten pointed out.

He noted that a one percentage point rise in the VAT would lower the gross domestic product (GDP) by about a tenth of percentage point in the first year.

The biggest impact would be felt after ten years, when GDP would drop by 0.3 percentage points a year, he said in presenting his study on the impact of the increase.

Private consumption would be lowered by a third, exports by 0.1% and imports by 0.15%. Employment rate would start falling and would be 0.3% lower after eight years.

Masten also stressed that a one percentage point VAT rise would not bring EUR 120-150m into the state budget as expected but less than EUR 90m due to the negative effect on GDP.

"This means EUR 800m less added value for the economy in ten years," he said.

Director of the Institute for Macroeconomic Analysis and Development (IMAD) Boštjan Vasle said that a rise in VAT was expected due to the harshening of the economic situation in recent months.

But he said that the money from the rise had in fact already been spent.

Retailer Spar CEO Igor Mervič warned that consumption had been constantly falling and that buyers' habits were changing.

"These are permanent changes of habits, where people wait for discounts and are extremely cautious. Consumption will decrease, which means less tax will be collected," he said.

Mervič hopes that the rise will not apply for food products, as he believes 80% of the people have already been hit by the crisis hard. He sees the rise in VAT as an extreme measure, indicating that a country has hit rock bottom.

According to Masten, the government has two options: either to launch investment projects with the money collected or continue financial consolidation.

"Raising taxes on labour would have even worse affects than the VAT rise," he said. But the worst thing the government can do in this situation is to not do anything, he believes.

CEO of hardware retailer Bauhaus Slovenija Samo Kupljen said that a VAT rise in other countries, including Germany, Croatia and Hungary, had had many negative effects on consumption and the economy. "In all three countries the scope of the grey economy increased," he added.

TZS head Mariča Lah pointed out that the VAT rise would foremost affect retail. In the EU, revenues in retail are starting to increase, while in Slovenia the negative trend still persists.

In the 2008-2011 period, as many as 12 EU countries recorded an increase in purchasing power, while Slovenia recorded one of the biggest drops.

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