By increasing the minimum wage and social transfers, the government of Robert Golob has created a situation that drastically reduces the creditworthiness of young families with parents earning an average wage and completely removes the creditworthiness of those parents who have three children and earn an average wage. The good times when the Janša government increased creditworthiness (by lowering taxes and increasing incomes) are clearly over. We asked Anže Burger, a professor at the Faculty of Social Sciences, to comment on this, and he says that he does not expect structural reforms from the current government, given their programme and announcements. On the contrary, he expects tax increases, greater state interventions in the economic and private spheres of individuals, and a reduction in freedom – both economic and political.
According to calculations published by the Žurnal24 media outlet, a family’s creditworthiness will gradually decrease as the number of children increases. According to the calculations, a couple where both partners earn an average salary of 1,300 euros per month will see their creditworthiness decrease by a quarter. A couple with the same income and one child will have their creditworthiness reduced by as much as a third, while those with two children will have their creditworthiness reduced by as much as 60 percent. A couple with three children, who until now also had very low creditworthiness (they could get a loan of 46 thousand euros), will now no longer be creditworthy.
The increase of the minimum wage reduces creditworthiness due to the regulation introduced by the Bank of Slovenia in 2019. This requires banks to ensure that, once a customer has repaid all credit obligations, he or she must not be left with less than 76 percent of the gross minimum wage. If the consumer has children, this amount must be supplemented by a sum equivalent to the amount of social assistance for each child, if he or she (the child) would be entitled to it.
According to Žurnal24, the Ministry of Labour, Family and Social Affairs predicts that the gross minimum wage this year will be between 1,200 euros and 1,225 euros, which means that consumers will have to be left with between 912 euros and 931 euros of their salary after repaying their credit obligations. This figure, in line with the rise in the minimum wage, has been rising since the Bank of Slovenia adopted the regulation in question. In 2019, 674 euros had to be left from an individual’s salary, last year, it was 817 euros, and this year it is already a staggering 931 euros. This also means that the majority of pensioners will no longer be creditworthy. The average pension is around 777 euros. This means that around 250,000 pensioners will no longer be creditworthy, and even more of them will only be able to obtain low-value loans.
The Bank of Slovenia justifies the regulation in the following way – those on low incomes should not have the entirety of their salary taken away. At first sight, the regulation is well-intentioned, but unfortunately, it is precisely this regulation that is the obstacle that more or less condemns those who are less well-off to living in sub-par, rented housing while having to pay rents that are no higher than the monthly instalments of the loans that they would like to take out but cannot, precisely because of this regulation.
Anže Burger, an economist and professor at the Faculty of Social Studies in Ljubljana, argues the opposite. The Bank of Slovenia’s regulation is justified and necessary, as the growth of lending in the Slovenian banking system is much higher than the average in the euro area. As a result, inflation is also slightly higher. In his view, the upward trend in prices was a cause for concern, as this trend had already been reversed in other euro area countries. “Let’s not forget that the aim of a restrictive monetary policy is precisely to cause a reduction in credit issuance, in addition to other transmission mechanisms,” he writes.
How should we tackle the problem of insufficient creditworthiness?
According to Professor Burger, we should tackle the problem of insufficient creditworthiness in a completely different way from how the government has done it. First of all, we should liberalise construction and thus allow a marked increase in new housing in major cities. Next, public spending should be reduced, which would allow for tax cuts and tax optimisation, which would reduce taxes and contributions on income and increase taxes on economic rents and consumption. As a final measure, he mentions a series of structural reforms that would make Slovenia more attractive to domestic and foreign entrepreneurs, who would, in turn, raise the wages of the majority of the population, including those with incomes around the current minimum wage.
How to get your first apartment?
The measures mentioned above were part of the previous government’s package of measures. Namely, it lowered the income tax, tried to make it easier to plan and price construction projects, and worked fast to attract foreign investors. Before the end of the mandate, the housing guarantee scheme for youth, a law making it easier for young people to take out property loans, was adopted.
But as we noted in the introduction, the times of reforms are over. The current situation on the property credit market is as follows: according to calculations on the banks’ websites, a couple with an average salary of 1,300 euros a month and two children will now be able to take out a loan totalling around 40,000 euros or less. According to publicly available data, such a family would be able to afford a whole 17 square metres of new housing in Maribor. In Ljubljana, you will not believe it; a family of four on two average salaries could afford a whole ten square metres.
So much for our “freedom.”