Country Study, Slovenia: Winning the Transitional Economies Race

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Customs and Excise Duties

Rates for imports vary form 0% to 25% of the value of the goods.
There are also some excise taxes which apply to fuel, tobacco, and alcohol.[65]

Value-Added Tax

The VAT, which was introduced to Slovenia at the beginning of 1996, will provide important revenue to the Slovenian government. Before the VAT was introduced, sales tax was assessed on the sale of retail goods and services and on imports. However, several rates applied depending on the type of good. The tax was ultimately paid by the consumer. The VAT has already been introduced in 5 other transitional economies and it seems to be effective. In addition according to OECD, the VAT continues to be a key in the tax reform process in the transition countries.

As the previous discussion shows, Slovenia has developed a highly specific, and involved tax structure. The country is making an attempt to have a sophisticated tax administration and structure that is effective, efficient, equitable and has a yield that will allow for enough revenue for the government to function. In addition, the country has a highly diversified tax base, which also strengthens the income from tax revenue.
Social Insurance

Slovenia’s current social safety nets and income transfers are obstructing free market labor productivity, postponing structural adjustment and are harboring high levels of unemployment. Before entry into the EU, Slovenia must alter its social programs. There is a strong belief among EU members that the assistance for employment fostering policies leading to the future improvement in the quality of labor in
Slovenia is more efficient and desirable than the future income transfers covering unemployment benefits and social safety that would otherwise have to be provided.[66]

Housing

Housing Policy is yet another area of concern for the government. In
October of 1991, the government of Slovenia passed the Housing Act.
Creating a state housing policy was necessary for the private ownership of land and building. In addition, the government created the National
Housing Fund which was anticipated to be a "social cushion’ and was supposed to create national housing policy.[67] This did not happen!

The Housing Act ended up back firing. The Act was created to allow for equal ownership for all citizens. Unfortunately, some people were able to purchase greater amounts of property and effectively bought out the property rights of their neighbors.[68] This situation has caused many tenant-owner conflicts. Another problem created by the Housing Act was the inequity in the amount of housing sold in each region. There was a great amount of disparity which may cause problems for future housing reforms.

Unemployment

Slovenia experienced high levels of unemployment in its first stage of transition as the number of individuals seeking early retirement increased substantially. In addition, many enterprises that had entire branches, equipment, factories in the other Yugoslavian republics went bankrupt or lost a large sector of their business.[69] Therefore, unemployment was a huge social problem for the new Republic of Slovenia. In
1992, 140,000 people were unemployed.[70] The transition of the economy brought about increased need for social insurance. The residents considered retirement income systems(RIC) the most important part of the social safety net since the RIC alleviated the economic hardships faced by the retired elderly. The government of Slovenia knew how these problems used to be solved and they knew how the EU wanted them to deal with it.
The dilemma was deciding what was in the country’s best interest.

There was a complex relationship between spending priorities on social safety and on human capital development. The trade-off in the short- run balanced the government and the private sector expenditures on welfare and investment in human capital against high unemployment, increasing poverty, and a high share of retired persons in the total population absorbing funds that could otherwise be allocated on labor training programs. However, investment in human capital had the possibility of increasing productivity and labor force competitiveness in the long-run.
Without sufficient qualifications, Slovenia’s workers experienced high unemployment and created a demand for compensatory benefits that would have to be financed either by limited domestic sources or by external savings.[71]

Pensions and Disability

In 1995, the managers of the Pension and Disability Insurance Fund
(ZPIZ) finished the business year with a deficit of 12 billion Tolars.[72]
However, the ZPIZ has made it a priority to insure that all pensioners received their pensions. Additional support for the ZPIZ and their policy came from the Slovenian Parliament, which passed an increase of 42 billion
Tolars for the funding of the ZPIZ.[73] Furthermore, Slovenia is one of the few countries in transition that has tried to keep monthly old-age pensions as a relatively constant percentage rate of the average monthly gross wages. (See Appendix XII ) This has helped elderly citizens provide for their own needs through their pensions.

Unemployment

Slovenia also has a National Unemployment Office (RZZ). This office reported in February 1996, 123,689 people remained unemployed which is 1.9% more than February 1995.[74] This further supports that the economy of
Slovenia may be experiencing a slow down. As of July of 1996, the RZZ reported that unemployment was 13.7% but according to the ILO definition of unemployment, the figure was much lower at 7.3%.[75] However, with the change in government, hopes are that these issues will be discussed and policies implemented to reduce the level of unemployment. Currently, the country is providing unemployment insurance for the people without jobs who register with the RZZ.

Conclusion

Slovenia remains a powerhouse in comparison to some of the other former Eastern Bloc countries. It has proceed with some caution, realizing the changes that are necessary for a stable free market economy. Now, with new leaders, the country has to decide whether it will continue the course set forth by the originators of the country or whether it will go back, taking more conservative steps. From Slovenia’s current actions, it would seem that the next step is either Associate Membership or Full Membership in the European Union.

Janez Drnovsek when presenting the 1996 budget to parliament informed the legislative body that "Slovenia met three of the five Maastricht criteria for introducing a single European currency: ‘Our public debt is well below the European average and the budget is balanced, which is significantly better than the European Union average. We also meet the third criterion on the convertibility of the national currency. Two criteria remain: both our average interest rate and our inflation is too high, but we are planning to cut inflation down to about 6.5%.’"[76]
Currently, Slovenia seems to be ahead of some of the current members of the
EU in satisfying the Maastricht Treaty’s requirements. In addition, the question remains, whether Slovenia will join NATO. The new parliament may have a well defined opposition to this prospect.

Additionally, Slovenia is flourishing as an economic center of commerce in the East. Slovenia needs to strengthen its ties with other eastern countries, such as Russia, in order to develop its trade partners.
The transitioning countries can serve as a new market for the West as well as Slovenia. Furthermore, additional trade partners exist in the far east, which are currently not being considered.

Many challenges face the transition countries as the century comes to a close. It will be important to watch these economies as they begin to rise above the already established economies of the West. It will be important that Slovenia manage it’s inflation rate, keep interest rates at a stable level and insure that the Tolar remain at a controlled level. All these factors will play a large role in determining successful public financial and monetary policy in the Republic of Slovenia.

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