Inflation in Slovenia is not slowing down, and we are also among the countries with the highest labour costs growth. Golob’s income tax “reform,” which overturned Janša’s labour cost cuts, is already showing its first results.
At 9.4 percent, Slovenia’s inflation was slightly above the euro area average and slightly below the European Union average (which also includes countries that have not adopted the euro, such as Poland, the Czech Republic and Hungary). In its second assessment, Eurostat confirmed February’s 8.5 percent annual inflation in the euro area. Meanwhile, inflation in the EU as a whole reached 9.9 percent.
However, Slovenia was among the countries with the highest labour costs inflation in the euro area. Hourly labour costs rose by 5.7 percent in the euro area and 5.8 percent in the EU in the fourth quarter of last year compared with the same period a year earlier, the European statistical office Eurostat announced recently. Slovenia was among the countries with the highest growth in labour costs, at 10.8 percent.
In the euro area, wage and salary-related costs rose by 5.1 percent, while other costs rose by 7.7 percent. In the EU, the former increased by 5.4 percent and the latter by 7.2 percent.
Slovenia among the countries with the highest growth in labour costs
In the euro area, labour costs per hour in both non-business and business activities rose by 5.7 percent, with industry up by 4.4 percent, construction by 6.9 percent and services by 6.2 percent. In the EU, these costs rose by 5.5 percent in non-business activities and by 5.9 percent in business activities, with increases of 4.9 percent in industry, 6.8 percent in construction and 6.3 percent in services.
Labour costs per hour rose the most in the last quarter of last year in Bulgaria (+16.5 percent), Lithuania (+15.7 percent) and Hungary (+14.9 percent), while statistics also showed growth of more than 10 percent in Romania (+11.2 percent), Slovenia (+10.8 percent), Poland (+10.2 percent) and Estonia (+10.1 percent).
Golob’s income tax reform delivers results
Slovenia is one of the most taxed countries in the EU and the euro area in terms of labour taxes. Taxes and contributions as a percentage of gross wages and salaries are 42.9 percent, ranking us 8th among OECD countries. Only Belgium, Germany, France, Austria, Italy, the Czech Republic and Hungary have a higher tax burden. The Janša government successfully corrected this by reforming the Income Tax Act (in line with OECD recommendations), but then the Golob government repealed the law and re-introduced the previous income tax scale. The 2021 Income Tax Act adopted by the Janša government would have brought each worker another month’s wage in 2025 at the expense of tax relief. That is to say, workers would earn more without their employer paying them a higher gross salary.
Why does this matter, and why does it affect inflation?
Slovenia is one of the most burdened countries in terms of labour costs, even in global terms, especially since we do not have a social cap which other developed countries have, and the income tax scale of the “rich” is set ridiculously low. And the current government has re-introduced a fifth income tax bracket, which the previous one had abolished. Labour costs account for about a third of an employer’s costs.
This makes the country less export-competitive, as exporters compete in a global market, while services and domestically produced goods become more expensive. Labour costs growth is also influenced by the fact that Slovenian companies, due to the global situation and the unstable business environment at home (a significant tax increase has recently been announced, but not yet made concrete), are borrowing at ever higher interest rates or are no longer able to obtain adequate loans at all.
Andrej Žitnik
