Just before the Christmas and New Year holidays, the Golob government announced something it does really well: it announced a new tax. This time, on residential property. The starting points for a tax on residential property have been prepared and will be open to public discussion by the end of January. While the government is explaining this decision by stating that it wants to make rental housing more affordable, on the other hand, there are estimates that the objectives will not be achieved and criticism that it is not the value of the property that constitutes the basis for the tax, but the number of properties.
The new tax on residential property will affect all those who own two or more properties or plots of building land. The tax will amount to 1.45 percent of the generalised value of the property, as assessed by the Surveying and Mapping Authority of the Republic of Slovenia (GURS). The tax will apply to real estate on the territory of Slovenia, for both natural and legal persons. Thus, foreigners will also be taxed, the Slovenian Press Agency (STA) reports.
According to the Minister of Finance, Klemen Boštjančič, the starting points for property taxation were drawn up because in the area of housing policy, “we have been facing significant challenges for a long time, such as the grey rental market, the shortage of rental housing, the accumulation of investment properties and the short-term renting of housing.” According to Prime Minister Robert Golob, the tax will be introduced in order to stimulate the use of real estate as housing. “Empty flats will return to the rental market, and the wild prices will settle down again,” said Labour Minister Luka Mesec in defence of the tax, according to the media outlet 24ur.
In the case of rental properties, the property tax will be reduced by 25 percent of the amount of the declared rental prices. However, this benefit will not apply in the case of short-term tourist rentals. According to Golob’s estimates, this will raise up to 600 million euros in tax revenue, which will go towards wage relief.
We asked economist Dr Štefan Šumah for his comments on the property tax, which you can read below:
“The new property tax is, economically speaking, completely misguided, because it taxes the property or the number of properties, not the value or the total value of the property. Thus, someone with two apartments worth one million euros (say, a huge apartment in the centre of Ljubljana, where the owner has a permanent residence) and one in Domžale (a smaller one worth about 200,000 euros, which the owner rents out) will pay the same as someone who has two apartments worth 200,000 euros somewhere in Slovenia. But these are very different levels of “rich”.
Secondly, this will be a tax on values, because for most Slovenians, it is a value to own a house or an apartment and maybe a small weekend house. Many have worked hard for this! And now they will be taxed for it! Will they tax the memories of those who spent and enjoyed their money?
And thirdly, the question is whether such a tax is even constitutional, because the property will be taxed twice, first with the land-use allowance and then with this tax.
And there is so much wrong with the logic of this tax. It has a whole bunch of exemptions, so many people will be able to reduce their tax base to zero, they will just have to charge a high enough rent. The ‘brilliant’ minds that created this law did not even think that the tax would be included in the price of the rent. People will find themselves circumventing this law one way or another, there will be fictitious transfers to family members, there will even be fictitious divorces. As soon as the tax allows the slightest possibility of avoidance, it is exploited. And the proceeds of this tax, they are talking about 600 million euros, but if they get only half of that, it will be a success. And 300 million euros is nowhere near enough to relieve the burden on wages, which is what they keep emphasising as the purpose of this tax.
The tax will not have any tangible result in concrete terms
This tax will not have a tangible result, but will cause a lot of dissatisfaction, and I would not be surprised if, six months after the introduction of this tax, the Prime Minister (if he is still in office by that time) would appear on television bellowing about how unfair this tax is and how it must be abolished immediately (just like he is now making a fool of himself by calling for a return to the old network charge system and threatening the Energy Agency). I just wonder – which culprit will he find then?”
The proposed taxation is neither fair nor stimulating
The Slovenian Business Club (SBC) pointed out that the proposed property tax is neither fair nor stimulating. “On the one hand, Slovenia is already facing a housing shortage, while at the same time, our real estate is among the most heavily taxed in the European Union. The aim of the tax is supposed to be to solve the housing problem and to relieve the burden on labour – the question is whether the proposed measure is really stimulating and fair and whether it will achieve the predicted effects. We estimate that it will not,” they stressed in the press release.
In their opinion, this is an impermissible accumulation of taxes. This tax, they pointed out, would be the third property tax we have in Slovenia. Owners already have to pay compensation for the use of building land and tax on properties larger than 160 square metres. “In addition to these two taxes, the state will now also collect property tax, and property owners have to pay a number of other taxes as well. The introduction of an additional tax brings a sense of unfairness and an unnecessary additional burden on citizens,” they pointed out, noting, among other things, that the tax also contradicts all modern tax theories. While they warned that the tax will be difficult to collect, they also pointed out that it will require additional bureaucracy. “If the state were serious about introducing an effective tax policy, it would consider a single tax rate.”
Buying and renting homes will get even more expensive
The Slovenian Business Club also said that if it were in the government’s interest to encourage the letting of empty homes, the measure could be targeted at empty flats rather than including houses and undeveloped building land. “The announced tax will not encourage property letting because it is disproportionate to the level of rents. The tax will be levied as a percentage of the last Surveying and Mapping Authority valuation of real estate, where citizens were misled,” they warned, adding that the new valuation exceeded the real market value of real estate in most cases. As a result, they say, rents will rise, affecting young people the hardest. “Even if individual owners decided to sell their homes, young people would still not be able to afford them,” they were clear.
The property tax will reduce demand, they argue, which will in turn lead to a reduction in the number of homes. “Because of this, the construction industry and many craftsmen who generate their income by investing in smaller buildings today, will also be threatened.” “Owners will prefer to invest their savings abroad, where taxes are lower. Such a trend would impoverish the Slovenian economy and limit domestic investment.”
Economist Dr Matej Lahovnik was also clear in his criticism of the proposed tax, pointing out on the social network X that the most perverse thing is that the property tax has been calculated in such a way that those with the most expensive property will not pay it at all, and that they still dare to talk about fairness. “They do not want to tax all properties, the most expensive ones will not be taxed, but instead, they will tax, for example, the second property of two pensioners who have worked hard to build a weekend house in the countryside, in addition to owning their flat, and that will be taxed, not the luxury flats in Schellenburg in which the ‘elite’ will declare their residence.”
Lahovnik also told the media outlet Slovenske novice (Slovenian News) that “any taxation of real estate should be based solely on the value of the real estate, and up to a certain value, they should be exempt from this tax.” He illustrated why this is the case with a concrete example. “For example, someone in the centre of Ljubljana who lives alone in a luxury 150 square metre apartment will not pay any additional tax, even though the value of the property is around 700,000 euros. Meanwhile, someone else who has an apartment in, say, Novo mesto and a weekend house in Dolenjska worth, say, 70,000 euros, will have to pay tax on this other property.”
“When the government intends to tax citizens because properties are supposedly empty, forgetting that it itself has 143,000 square metres of unused and empty space. The authorities simply don’t care! All that matters is that it will now tax your 50 square metres. Freedom? No, this is Slovenia,” Matej Rigelnik, a manager and podcast host, was critical of the new tax on the social network X.
The Association of Landlords is also critical of the property tax starting point, reports the Slovenian Press Agency. They believe that “if landlords of short-term rentals are not exempted from paying the property tax for the time when they cannot operate due to administrative prohibitions, such a measure will be the final nail in the coffin of one of the pillars of Slovenian tourism, because the government is putting it on the brink of sustainability with unreasonable administrative restrictions on the activity, and now the hosts will be forced to pay a tax that they will not be able to earn on the market at all due to the restrictions.”
They also wonder whether the government has “calculations on how many additional homes this tax would provide to address the housing crisis and calculations on the impact of the new tax on rental levels.” They themselves have had only bad experiences with the government.
Ž. N.
