“Relocations of both natural and legal persons are taking place, but I estimate that they have not yet had a significant impact on the budget. The bigger problem I see is that they are a reflection of our unfavourable tax legislation and those who have already left will find it difficult to return. Moreover, it is a bad sign for others who might want to come to Slovenia,” Simič, a tax expert, believes. “In particular, I would stress the urgency of the proposed labour relief to create an enabling environment for growth and attract knowledge-based businesses and activities,” economist Burger pointed out.
A few days ago, we learned that Slovenia had experienced the biggest GDP contraction of any European Union Member State up to April this year. At the same time, on Monday, the European Commission also cut its economic growth forecast for this year from 2.5 percent to 2.0 percent, without even taking into account the huge drop in GDP that hit Slovenia in the first quarter of the year.
A few days ago, the chairman of the Commission of the National Assembly for Public Finance Control, Jernej Vrtovec from the New Slovenia party (Nova Slovenija – NSi) and the Minister of Finance, Klemen Boštjančič, commented on the worrying situation in the studio of the biggest commercial television station. The Finance Minister tried to defend the government’s controversial measures and the catastrophic situation in the area of public finances. Namely, he tried to make the news of the huge fall in GDP seem less daunting by talking about favourable credit ratings.
The Minister is also not overly concerned about the alleged mass relocation of Slovenian companies to Croatia. He is also convinced that the country is able to attract the necessary foreign investment (with high added value). At the same time, he does not think that sole entrepreneurs with normalised expenses are overtaxed. We talked about this and more with tax expert Ivan Simič and economist Anže Burger.
Questions and answers by tax expert Ivan Simič:
- Minister Boštjančič dismissed accusations of the country’s poor economic situation, noting that the European credit rating agency Scope had recently upgraded Slovenia’s credit rating from A to A+ with a stable outlook. How do you comment on this?
Everyone is entitled to their own opinion. - While Boštjančič admits that the fall in GDP in the first quarter is a concern for him, he does not attribute it to the allegedly overly harsh fiscal policy of the current government. How do you comment on this?
I think that the Minister of Finance does not have enough information or does not know how tax rules are implemented, that he does not know how tax laws are being broken, and that he does not know that the rulings of the Supreme Court of the Republic of Slovenia are not being respected. - The Minister refers to the claim that companies are moving to Croatia as a recurrent “mantra” for which he has not yet received concrete evidence of its massiveness. How do you comment on this?
Relocations of both natural and legal persons are taking place, but I estimate that they have not yet had a significant impact on the budget. The bigger problem I see is that they are a reflection of our unfavourable tax legislation, and those who have already left will find it difficult to return. Moreover, it is a bad sign for others who might want to come to Slovenia. - Boštjančič is convinced that Slovenia is making a deliberate effort to attract high value-added investments. How do you comment on his claim?
I do not have enough information to comment on this. - Boštjančič is concerned about the decline in investment in the construction sector and the decline in the number of purchases made by the general population. Do you also see these as key problems?
No. The key problem is rather that there is no vision. Besides, I don’t know why he is worried about a reduction in construction investment if thousands of homes are supposedly going to be built. - Do you think people are also buying less because of the excessive tax burden (fuel at the gas stations is an example)?
No, I do not think that is the reason. It can be just an excuse. - The Minister also thinks that sole entrepreneurs with normalised expenses are not overtaxed, how do you comment on this?
I agree with his opinion that sole entrepreneurs with normalised expenses are not overtaxed, as long as they are within the limits of the thresholds provided for, of course. Once they exceed these amounts, however, we can no longer talk about favourable taxation for all activities, especially if they could be able to claim costs (expenditure).
Commentary by economist Anže Burger:
I see three main reasons for the unexpected fall in GDP in the first quarter of this year, namely:
- Employment growth: employment is an important factor in GDP growth, with the number of people in the labour force falling by 10,000, or one per cent of the labour force, between November 2024 and February 2025, and the annualised change between February 2025 and February 2024 being -0.3 percent. The number of work permits issued for the employment of foreigners has been decreasing since 2021, while the number of valid work permits has fallen to 44,369 since 2024, when there were 46,505. Slovenia is therefore no longer compensating for negative demographic trends due to an ageing population with labour immigration.
- Investments: Gross fixed capital investments fell by 5.1 percent, similar to the previous quarter. In particular, construction investment fell, with the construction sector generating 6 percent less value-added than in the first quarter of the previous year. Fixed capital investments fell, probably due to increased international geopolitical instability, while construction investments are due to slow down when it comes to new buildings, due to over-inflated property prices, for which demand has started to decline. In fact, last year, residential property prices grew at an annual rate of 8.5 percent, continuing a decade of uninterrupted price growth. As a result, there was a 21 percent drop in the number of sales and a 15 percent fall in the value of property sales last year compared to the year before.
- Exports: the third major reason for the fall in GDP is weak export demand. While the value of exports of goods and services remained at a similar level to a year ago, imports increased by 1.9 percent. The external trade balance therefore contributed negatively to GDP growth, by -1.4 percentage points. The low export growth is also due to uncertainties in the market due to the protectionist policies of the US President and a stronger euro. Our two important trading partners, Germany and Austria, also had low or negative GDP growth in most quarters last year and this year.
The Slovenian government cannot influence external shocks; our economy is strongly linked to the European market in the international sector. In the short term, economic activity can only be stimulated by a targeted expansionary fiscal policy in the framework of the EU’s renewed fiscal rules. In the longer term, all structural reforms and improvements in the business environment are needed to achieve a productivity boost in the economy and the public sector. A list of recommendations for sustainable and innovation-led growth was just presented yesterday by the Institute of Macroeconomic Analysis and Development (UMAR) in its latest publication, Quality of Life in Slovenia – Development Report 2025.
In particular, I would stress the urgency of the proposed labour relief to create an enabling environment for growth and attract knowledge-based businesses and activities. The tax burden needs to be shifted more developmentally away from taxing labour and value added in the economy and more towards rents (land and real estate) and consumption. Housing policy also needs to move away from the abstract idea of increasing the construction of public, non-profit housing and towards liberalising construction in urban centres. In addition to the pension reform that is currently being considered, we urgently need a healthcare reform, which must reform the system from state healthcare to public healthcare, following the formula of the best healthcare systems from abroad (for example, the Netherlands and Switzerland). In short, we need to introduce competition in the insurance market and strengthen private concessionaires so that healthcare services are accessible within a reasonable time to all, not just the wealthy.
It is also time to start talking seriously about competition policy in Slovenia, because in many markets, abuses of dominance, cartel arrangements, high barriers to entry and hyperregulation allow high profits at the expense of high prices for consumers. The excessive prices of food, real estate, healthcare services, insurance premiums and the like are the result of too little competition in the market – or even the absence of a market. We are moving away from a market economy towards oligarchic, distorted capitalism or state capitalism. Neither of these two systems has ever worked in the long term and I don’t believe this is about to change in the future.
Domen Mezeg
