Government outlines plans for public finances: VAT to rise by 1%

Coalition partners meet to fix public finances (photo: John Boyd)

Yesterday the government met in an endeavour to map out the revival measures it wants to apply to prop up the paralysed public finances. The original plans of finance minister Ivan Miklos, which were directed mainly at people’s incomes, were shelved after a wave of criticism and lobbying. At the press conference yesterday, the coalition partners outlined their plans.

As anticipated, the standard VAT rate is to be increased from the beginning of next year from 19% to 20%, with this 1% increase being openly referred by the coalition to as the “Fico tax”.PM Radicova also informed that the reduced VAT rates on books and medications would remain on the 10% level.

This ‘temporary’ increase in VAT is to be kept until the public finance deficit falls to below 3% of the GDP, which the government expects to happen in 2013. The increase is projected to generate about one fifth of the planned EUR 800 million boost on the side of public revenues. In total the government wants to fill a EUR 1.7 billion hole in public finances, with the other EUR 900 million to be generated through savings in public expenditure.

The savings will include a 10% cut in current expenses and payroll costs at individual ministries, as well as major savings in the area of public procurements. The PM also said that they would halt some public tenders if necessary.

Other measures agreed by the coalition include an increase in excise duty on tobacco and beer, but not on wine. The current three bands of flat-rate expenditures for sole traders will be unified into a single band of 40%. Health insurance is to be levied from all earnings, including dividends. It will also no longer be possible for people to receive early old-age pensions and still work full-time in public service.

After the meeting, the Prime Minister listed the scope of the debts in all areas of public finance, claiming that the former government had increased the deficit from 3% to 8% during its term of office, which is why the coalition is referring to the hike in VAT as the “Fico tax”.

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  1. […] ago, but the first discussions only took place yesterday, 6 September, just one hour before the coalition meeting met to tackle the deficit in public […]

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