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ANTICIPATED REFORMS A Proposal for the Concept of Economic and Social ReformsWhy? Owing to the slow pace of change, Slovenia has begun to lose its global competitiveness. Some other transition countries, chiefly those that have implemented more courageous and radical structural reforms, are catching up and even overtaking us in individual areas. In order to respond to the challenges of the future, we need to thoroughly reinvigorate Slovene society today and establish new and better development foundations. Slovenia's motivation in preparing a proposal for reform is a desire to reach a better standard of living for all inhabitants of Slovenia. We are aware, however, that in order to reach a higher standard and quality of living, and preserve a welfare state at the same time, we need to increase economic growth. In order to increase economic growth, we need to implement structural reforms to improve our competitiveness in the global economic environment. How? Slovenia needs to upgrade its previous economic development, gradual reforms and neocorporativist regulation of society to date with a new development model. Slovenia’s new development model is therefore geared towards combining a more liberal market economy with an economically more effective and flexible welfare state. The most important mechanisms for an enhanced development climate are: Measures? 1. With tax reform in the direction of introducing a flat tax rate and simplification of tax regulations, we intend to unburden Slovenia's economy. The abolishment of the payroll tax and introduction of a flat tax rate, while keeping net earnings unchanged, will greatly reduce gross labour costs, especially of the more skilled employees. Companies will be able to allocate the ensuing business surpluses to research and development, investment in new technologies and additional employment. 2. With the reform of social transfers and the labour market regulations we wish to stimulate and enable activity. The fundamental change in this area is the motivation of the unemployed and recipients of social transfers for a more active job search and development of their abilities and also for taking more occasional and temporary jobs. A simpler and more transparent system of social transfers will enable assistance to be received by those who truly need it, while also preventing abuse of the social assistance system, as it is often the case today. The State will help by pursuing a modified employment policy and by creating incentives for investment in education and training. Changes in labour market regulation will then make it easier for companies to decide on new employment and dismissal; this will, linked to the change in the tax area, increase the rate of employment and reduce unemployment. 3. Changes in the pension system will reward those who remain longer in active employment, enable insurance also on the basis of short-term employment, encourage saving in the voluntary system, and introduce a fairer distribution of burdens and entitlements from the pension system. 4. Changes in the health system are directed chiefly towards a more efficient management of existing resources and incentives for a more streamlined behaviour of both suppliers and users of health services. 5. In order to encourage competitiveness of the economy, we propose a package of measures that will improve the business environment and make access to the resources that an entrepreneur needs, easier and less costly. 6. With measures proposed for the university system and research and development, we will create incentives to use knowledge for economic and technological development, and innovation. 7. For efficient and quicker productivity growth, it is necessary to implement the second wave of privatisation. This time, the best Slovenian enterprises will be subject to privatisation, being more suitable for dispersed privatisation and diversified financial investors. The domestic non-transparent consolidation of ownership at low prices must be replaced with a process that will be open to international participation and that will ensure the respect of small shareholders’ rights. We propose a package of measures for a transparent withdrawal of the State from the economy, including KAD – Capital Corporation and, SOD – Slovene Compensation Corporation. 8. For effective financing of future development priorities we suggest a reduction in general government spending by 2 percentage points by 2008 and the restructuring of public expenditure. To narrow the gap between the needs of the State for investment in infrastructure and the available traditional financial sources, we suggest that additional private capital be engaged in the form of a Public Private Partnership. The economic forecast for Slovenia by the Institute of Macroeconomic Analysis and Development The autumn forecast of economic trends to a great extent confirms the expectations of the spring forecast. The real growth of GDP forecast for 2007 is 4.3%; foreign demand will be an important factor of economic growth. With the forecast real growth of 8.3% in goods and services exports, and real growth of 7.7% in imports, the international trade balance will contribute around 2.0 percentage points to economic growth. The share of the EU-25 in the regional structure of exports has been increasing as a result of the one-off effect of Slovenia’s entry into the EU and partially as a result of significantly intensified exports of cars to France and Austria this year. Despite the expected strengthening in the second half of the year, the real growth of domestic consumption will be considerably lower this year (4.3%) than last year (4.7%). The reason for this is primarily the deceleration of gross investment growth (fixed capital formation and inventories). Accelerated investment in housing construction is expected for the second half of the year. The autumn forecast projects a 4.3% real growth of GDP for 2007. With the expected improvement of the economic situation in the international environment, the growth of exports to the majority of trade partners will strengthen, but due to this year’s high base (accelerated exports of cars) the overall growth of exports (8.3%) will be slightly lower than in 2006. Primarily, the slightly strengthened annual growth of fixed capital formation (4.8%) resulting from further high growth in housing construction, will increase domestic consumption growth in 2006. The growth of private consumption in comparison to 2006 will slow down slightly (3.6%). In accordance with the anticipated economic trends, the labour market situation will improve. Employment will continue the upward trend that started in 2004 following a two-year decline. In light of this, unemployment should decline somewhat faster. Estimated real growth of gross wage per employee for 2006 (2.2%) takes into account the data in the first eleven months of 2006 and a more stable wage growth in the remaining month. In accordance with the wage policy guidelines for 2007 and 2008, the real growth in gross wage per employee is forecast at 2.5% and 3.0% respectively. |
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JAPTI - Public Agency of the Republic of Slovenia for Entrepreneurship and Foreign Investments disclamer |