Former Minister Dr Andrej Umek recently pointed out the following: “Not only the government, but the citizens, above all, must be aware of the fact that the government is solely responsible for the decline in the Index of Economic Freedom. The nation has not changed since 2022; the government has.”
Recently, even in the so-called pro-government or regime media, articles have been appearing that speak of the decline of the Slovenian economy. The ruling coalition – the Freedom Movement party (Gibanje Svoboda), the Social Democrats (Socialni demokrati – SD) and the Left (Levica) – do not talk about this, much less explain the reasons for the downturn. Instead, this is then done by the pro-government or government-subordinate media, which always finds an excuse or an explanation for their every action. They use the kind word “moderation”, and the Slovenian public is misinformed because it has no insight into the real situation. But in reality, the situation is getting worse, economic growth is declining, and Slovenia is right at the ‘tail end’ of the Member States of the European Union on several indicators.
Slovenia is dangerously regressing
In Slovenia, the Index of Economic Freedom report, one of the most objective indicators of the performance of any government, is largely ignored by those in charge. The recently published data on the Index of Economic Freedom by the American agency Heritage Foundation confirms that Slovenia is dangerously regressing in terms of prosperity and quality of life.
Dr Andrej Umek, a member of the Assembly of the Republic (Zbor za republiko), has also pointed this out. He wrote that the basic fact is that the Index of Economic Freedom for Slovenia has crashed catastrophically under the government of Robert Golob. In 2022, i.e. during the government of Janez Janša, this index was 70.5, which placed us among the countries with a free economy. In the year and a half of Robert Golob’s government, the index has crashed first to 68.5, and this year to 65.9. This means that our decline is rapidly progressing.
In this respect, we are even behind several post-communist countries, whose indices are as follows: Estonia – 77.8, Lithuania – 72.9, Latvia – 71.5, the Czech Republic – 70.7, Bulgaria – 68.5, Slovakia – 68.3, Croatia – 67.7, Poland – 66.0.
The fatality of the downward trend in the Index of Economic Freedom becomes apparent if we focus on its close link with the basic indicators of a prosperous modern and democratic society. The Index of Economic Freedom is closely correlated with democracy and, furthermore, with the standard of living of the population. An economic freedom index of 60 is followed by an expected per capita gross domestic product of 14,000 euros, and a value of 75 by 60,000 euros. “This difference may be surprising to many, but independent expert studies confirm it. In addition, a higher Index of Economic Freedom means a smaller ecological footprint and a more innovative society. Therefore, there is a close link between the Index of Economic Freedom and the basic indicators of well-being and performance of modern societies,” Dr Andrej Umek recently pointed out.
In an online article in the media outlet “Slovenec” (Slovenian), Dr Umek also pointed out, in a very illustrative way, that there is an extremely tight correlation between economic freedom and the purchasing power of the population. The greater the economic freedom, the greater the purchasing power of the population.
The Golob government is taking Slovenia in the wrong direction
The assessment of economic freedom for Slovenia, as for all other countries, is based on twelve criteria. Slovenia scored worst on the criterion related to tax burdens and on the criterion related to government spending. “This is noteworthy because it is clear that the implementation of the decisions of the Robert Golob government’s coalition agreement is taking Slovenia back from the group of countries with a predominantly free economy to the group of countries with a moderately free economy, or perhaps even further down. According to the correlation graph between economic freedom and the standard of living of the population, this decline in economic freedom will be followed by a significant decline in the standard of living of the population,” added Dr Umek.
Interestingly, in May 2022, after the last elections, Dr Umek already correctly predicted what was coming – in the online newspaper Slovenec: “The incoming government, if we believe the coalition agreement, will significantly lower the Index of Economic Freedom and this will inevitably be followed by a decline in the standard of living of the population. This is what the mainstream media is trying to hide.”
Earlier, he wrote: “The fact is that there are certain laws, and each of us has a choice only on whether or not to respect them. One of these is the very narrow correlation between economic freedom and the standard of living of the population. The previous Slovenian government of Janez Janša took this fact into account. It increased the Index of Economic Freedom, and the standard of living of the population rose accordingly, as evidenced by the Agency of the Republic of Slovenia for Public Legal Records and Related Services (AJPES) report for last year. The Janša government intended to further increase the Index of Economic Freedom with the tax reform already enacted, and the rise in the standard of living of the population would follow.” But then, the Golob government arrived, and Andrej Umek’s predictions have unfortunately come true.
Monika Kirbiš Rojs: “Slovenia is worse than Croatia”
We asked Monika Kirbiš Rojs, an expert in the field of economic freedom, to comment on the reasons for the decline of the Slovenian economy and the drop in the Index of Economic Freedom (and whether this might be a consequence of the harmful decisions of the current government, and if so, what are they). Kirbiš Rojs is currently the Secretary of the National Council of the Republic of Slovenia. We also wanted to know when we can reach the 100,000 euros per capita value added promised by the current Prime Minister.
Monika Kirbiš Rojs explained, “The Index of Economic Freedom shows a further decline in the economic climate in Slovenia in 2024. The Slovenian economy is considered ‘Moderately Free’ according to the 2024 Index. Slovenia’s economic freedom score: 65.9 = 44th in the world (we were 37th last year). Slovenia is worse than Croatia. Among the European Union countries, Ireland, Luxembourg, Estonia and the Scandinavian countries rank highest, near the top of the ranking. In countries closer to a score of 100, governments are more likely to encourage entrepreneurship (favourable taxes) and innovation and to avoid socialist measures. Slovenia only reached the ‘Mostly Free’ status in 2022, when the Index of Economic Freedom was at its highest – 70.5.
The key reasons for the deterioration in the economic climate are as follows:
– High tax burden, especially on labour. The high wage burden, especially for highly skilled workers, reduces Slovenia’s competitiveness and discourages both domestic and foreign talent. In addition, our labour market is rigid, with significant restrictions on hiring and firing. The tax system is unstable and unpredictable. Companies therefore often choose to relocate to countries with lower labour costs and more flexible labour markets. – Regulatory barriers. Slovenia literally suffers from complex bureaucratic procedures that make it difficult for small and medium-sized enterprises, in particular, to do business. Unclear legislation and lengthy licensing procedures hamper entrepreneurial activity. – Corruption and lack of transparency in public institutions and government processes. This creates uncertainty and reduces trust in the rule of law, which has a negative impact on the business environment. – Rising public spending (in particular, wages and social transfers) and the continued strong presence of state ownership of enterprises.
In my view, there are three major problems with the current government, in addition to its failure to address the challenges listed above, namely:
1. It is not pro-economy. Instead, it imposes new burdens on it (raising the minimum wage and thus social security contributions, which are already among the highest in the OECD; treating social contributions of workers posted abroad differently because of the new legislation on cross-border provision of services; supplementary health insurance, which has become a tax by making it compulsory; long-term care contribution, etc.). 2. To date, it has not been able to implement a single serious reform. This would also be a condition for drawing on European funds, in line with the Recovery and Resilience Plan. 3. It is extremely late in tendering for EU funding, especially for businesses and municipalities.
The 100,000 euros per capita value added is common in small, rich countries such as Luxembourg, Switzerland and Norway, which have a high level of social protection and a strong emphasis on the market economy. It is a pity that Slovenian politics has missed many opportunities that would make us good enough to be able to compare ourselves with them today or in the near future. I believe that, for a start, we would need at least two terms of a development-oriented and pro-business government to get things at least roughly in order in the country.”
Petra Juvančič: “There is no shortage of proposed solutions, but we would like to see more proactivity in tackling the challenges, which are solvable with the right communication in society.”
Petra Juvančič, Executive Director of the Managers’ Association of Slovenia (Združenje Manager), said: “The Slovenian economy is very open. It is highly integrated into international flows and therefore highly influenced by the situation on European and international markets. There are major changes coming, the situation is often uncertain, and competitiveness is under even more pressure for Slovenian and European companies in many sectors. This makes it all the more important that we do everything we can ourselves. We do not need to invent recipes for this – the solutions proposed, for example, by the OECD in its latest Economic Survey for Slovenia or by the IMD in its latest competitiveness assessment, where we have lost four places in the rankings, would already help to improve the conditions for achieving higher added value, and thus also to better ensure and further grow the well-being of our people. The Managers’ Association has proposed a number of measures in this direction in its Action Plan for a more prosperous Slovenia. There is no shortage of proposed solutions, but we would like to see more proactivity in tackling the challenges that are solvable with the right communication in society. This is the only way to create a business environment that will help the Slovenian economy generate 100,000 euros and more instead of 61,003 euros in added value per employee (2023). We will also discuss the conditions for a development breakthrough at the Management Congress in Portorož at the end of September.”
Bojan Ivanc: “Slovenia peaked in 2022, but has been on the decline in the last two years”
Bojan Ivanc, Chief Economist of the Slovenian Chamber of Commerce and Industry (GZS), pointed out that “The Index of Economic Freedom is prepared by the Heritage Institute, which is slightly closer to the Republicans and advocates for liberalisation of the economy, because it believes that this is the way to reach its highest potential. Besides the IMD competitiveness ranking, it is one of the few international surveys on the business environment that still exists for Slovenia. In fact, Doing Business (World Bank) and the World Competitiveness Report (World Economic Forum) are no longer published.
Slovenia is ranked 44th out of 184 countries, which is not such a bad ranking. It is ranked 22nd among the 44 European countries. The index has deteriorated by 2.6 points in one year – to 65.9 points.
Slovenia’s fall in this ranking is due to weaker business dynamics, which are also constrained by weak institutions, which limit long-term development. The Heritage Institute is not quite specific here about which institutions it is talking about. They are much more specific when it comes to the judicial system (the part that reflects the importance for the economy), which is said to be inefficient (lengthy procedures). Corruption is high according to those who responded to their survey. This is also thought to be a reason for Slovenia’s lower ranking. Among the 12 pillars, Slovenia’s main challenge is the high government consumption, which is rather ‘fixed by law (spending rights are fixed by law)’; the fiscal picture is said to be weak, and financial resources are less accessible to businesses here than abroad. High taxation of labour is also highlighted. Slovenia reached the highest ranking in 2022 but has been declining in the last two years. According to this methodology, the introduction of a long-term care contribution will also lower Slovenia’s ranking.”
Vida Kocjan
