In the last week or so the government of Borut Pahor was dealing with yet another reality check. Not that it really needed one, but there you go. The reality in this case being the fact that not nearly enough money is flowing into its coffers. The reason is simple and countries all over the world are trying to deal with it: as productivity took a dive, so did the amount of taxes and excises levied. This goes for both personal income tax and value added tax, as well as most other taxes.
“He works better than talks” PM Pahor on finance minister Franci Križanič (source)
So, what to do about it? Finance minister Franci Križanič (nick-named “minister for optimism” by PM Pahor) said days ago that te government will have to re-introduce one or two levels on personal income tax for top earners. In plain-speak that meant going back to nearly 50% taxation of personal income of the wealthiest Slovenians, those who earn more than 37,000 EUR per year. Now, to put things in perspective: average monthly income in Slovenia is about 11,000 euros per year (slightly more than 900 EUR per month), with two-thirds of Slovenians earning less than that. Reintroduction of the highest level of taxation would thus affect only the extremely rich.
However, all hell broke loose. Virtually within hours Križanič’s plan was attacked as anti-development oriented and de-stimulative, inciting people to earn even less and thus buy even less, therefore causing an even bigger budget deficit, whereas those who will still earn a lot will be even more prone to tax evasion. Strangely, the flak Križanič was taking did not only come from the direction of the opposition (it was Janša’s government which did away with the top levels of taxation), but from media in general.
Curiously enough, just about that time KMPG – the world’s largest auditing and financial consultancy company ever since Arthur Andersed died of shame (which is still a fatal disease in some parts of the galaxy) after Enron scam was discovered – published a report saying that Slovenia has the highest rate of personal income tax in the world. The reaction was predictable: media went on a rampage and public opinion went apeshit. Katarina Kresal’s LDS went on the record saying that the ruling coalition had not yet decided on whether this was really such a good idea and to top it off PM Pahor said of his minister that “[Križanič] is the only minister who speaks his mind, but that he works better than he talks” Which meant that Križanič’s plan was basically dead in the water.
Slightly off topic: I suspect Freudian psychoanalysts would have a field day with Pahor assesment of Križanič. PM effectively said that noone in the government save Križanič is speaking his mind and that (by extention) everyone else – himself included – are better as speaking than doing. I’m sure Pahor did not mean to say that, but he said it, albeit via a Freudian slip. Go figure.
But, to get back at the business at hand: the deconstruction of Križanič was so swift and merciless that is resembled a surgical air strike. Think about it. The finance minister talked about raising taxes to the top couple of percent of Slovenians. Although this country is not as egalitarian as it once was, the divisions between the filthy rich and those who are not comfortably well off, are nothing compared to the US, Great Britain or Russia (to pick three examples at random). And yet the idea of taxing the rich is welcomed at gunpoint, especially by the media. Why?
The usual answer would be that higher taxes would hurt the media owners. But Slovenia does not have those – not in terms of Rupert Murdoch or Robert Maxwell at least. And ever since Boško Šrot is over and done with, we’re not likely to see media owners directing fiscal policy. Most newspapers are owned by several competing funds or firms, none of which have a dominant influence on them. And owners of those few media which are foreign owned have so little vested interest that one can hardly accuse them of letting their media loose on the government. Besides, that would not explain the across the board rejection of Križanič’s plan. In fact, for better or for worse, in Slovenia it is still politics, which controls the economy and not the other way around.
So, it wasn’t the media owners and it wasn’t the egalitarian-oriented society. Which means that the plan was sabotaged from within. Actually, you don’t have to be a rocket scientist to figure that one out, especially since Katarina Kresal’s Liberal democrats (LDS) made their displeasure with Križanič’s original plan moe than clear. So what probably happened (and this would account for the media rampage which killed the plan) is that a small lobbying operation took place, where some elements of big business reminded LDS who their really were. All that was needed were a couple of carefully placed press releases or subtle hints about KPMG’s report by one PR agency or the other, while the herding instinct of Slovenian media (not wanting to be outdone for a story) did the rest.
But Fortune is a fickle lady as Katarina Kresal learned not long ago, when Draško Veselinovič, her pick for the top dog of NLB, failed miserably and within weeks found himself on the very end of a long wooden plank, while his political sponsor took a big black eye. She may very well get bitch-slapped yet again (metaphorically speaking, of course :mrgreen:). Only days ago the government proposed keeping all social expenditures in the next fiscal year on this year’s levels, meaning that no public sector paycheques, no pensions and no state scholarships will be adjusted for inflation in 2010 and will thus be effectively lowered. Even more, even raises that were already negotiated are to be shelved. This naturally sent shivers down the spine of most people and suddenly taxing the rich doesn’t seem such a bad idea at all…
So far, cuts in the social expenditures are apparently a go, while taxing the rich is “not off the table”, to quote minister of labour Ivan Svetlik. But the way things are going, the government will probably have to do both anyhow, at which point little of what will be said will matter, and getting things done will be the only true measure of things