In the seventh Economic Mirror, the Institute of Macroeconomic Analysis and Development of the Republic of Slovenia presented figures showing that dark clouds are gathering over Slovenia. How is the Golob government preparing for that?
The Institute of Macroeconomic Analysis and Development warns of a worsening economic outlook and pronounced uncertainty in the international environment, with household consumption under increasing influence from price pressures.
The outlook for economic growth in the euro area is worsening amid strong inflationary pressures, the energy crisis and tighter monetary policy. September’s indicators of confidence point to contracting economic activity in the euro area, with consumer confidence at its lowest measured level, the Institute reports.
Slovenia’s economic sentiment indicator fell markedly in September, below its long-term average. Household consumption was similar in the summer months to the second quarter when it had already fallen slightly, but it is increasingly being held back by price pressures, falling purchasing power and greater consumer caution.
The Institute will, of course, not disclose this, but a government hostile to the economy has certainly contributed to the worsening of the economic climate. If, in the midst of the worst crisis, a government announces an increase in corporate taxes and predicts the destruction of the sole entrepreneurs with normalised expenses, this will, of course, have an impact on the economic climate. The coalition also intends to repeal the provisions of this year’s amendment to the Income Tax Act as early as the 1st of January 2023. Only the general income tax allowance of 4,500 euros will remain.
Everything else will be repealed, which means that wages will effectively be lower, but if an entrepreneur wants to compete for employment with foreign employers, he or she will have to pay higher labour taxes. They have also announced an increase in taxes on rents, which will further reduce economic activity. The new coalition has announced progressive taxation of all citizens’ wealth. Economists describe such intentions as a rather dangerous and unique solution in the world. On the other hand, the government has subsidised a bunch of selected activities, thus creating a whole bunch of market imbalances.
According to the report of the Institute of Macroeconomic Analysis and Development, inflation reached 10 percent in September, with the slowdown from August (11 percent) being mainly due to the government measures to mitigate the impact of the energy price hike, which the Institute estimates to have eased inflation by 2.3 percentage points on an annual basis.
These were the “government measures to mitigate the effects of the energy price hike”: the government capped the maximum price of electricity (but the cap was at almost double the August price), and it also started to temporarily fix the price of fossil fuels at the petrol pumps again. But for all these measures, the companies are already making arrangements with the government to compensate for their losses. With the help of the state fiscus, of course. Ultimately, this means that we, the taxpayers, will be “sponsoring” the lowering of inflation ourselves, which, ironically, will actually make indirect inflation even higher.
On the other hand, the Golob government is cutting private sector wages, which were guaranteed under Janša’s amendment to the Income Tax Act, while at the same time increasing the wages of a privileged caste of public servants, which will bring imbalances back into the market and further increase the wage gap between the private and public sectors.
How prepared is Slovenia for the harsh winter that is approaching the whole of Europe? The situation will be difficult across the Union, but some countries will cope better than others. All the indications are that, as in the financial crisis of 2009-2011, Slovenia will emerge as the loser, with a significantly lower standard of living than before the crisis.
Andrej Žitnik
