Parliament okayed a massive tax hike and Slovakia will pay lower bond rates

All 79 ruling coalition MPs approved a €2.7bn consolidation package to reduce the public finance deficit to 4.7% of GDP in 2025 from this year's expected 5.8%. The basic VAT rate will rise from 20% to 23%. Basic foodstuffs will have a 5% rate and the remaining foodstuffs 19%. Medicines, books, hotels, restaurants, gyms, and sporting events will have a 5% rate, too. VAT on gas and heat will rise from 20% to 23%, while that on electricity will fall to 19%. The VAT changes are expected to bring in €712m. A new tax on financial transactions (0.4% per bank transfer, max. €40) will bring €466m. Income tax for businesses with annual profits above €5m will rise to 24%, the highest level in the region. The annual revenue is estimated at €504m. On the other hand, companies with sales below €100,000 a year will pay only 10% tax. For sole traders, the income threshold up to which they pay 15% tax will increase from €60,000 to €100,000. Dividend tax will fall from 10% to 7%. The special levy for Slovnaft will rise by €36m and for telecoms companies by €25m. The cap for payroll levies will rise from 7 to 11 times the average wage. The parental pension will drop from this year's average of €338 per year to tens of euros (-€326m). The tax bonus for children will also be cut; moreover, it will only apply to children up to the age of 18 instead of 26 (-€170m). Highway vignettes for cars will rise by half and tolls for trucks by €100m. The state wants to cut the wage bill for 50,000 civil servants by 10%. Doctors' salaries are to rise by 3% instead of the original 10%. The state will reduce the share of the personal income tax revenue it sends to municipalities and regions VÚC from 100% to 84%. (sme.sk)

The consolidation package’s approval is likely to further reduce the interest rate on government bonds, whose yield has fallen from 4.3% to 3.2% over the past year, pushed down by the European Central Bank's interest rate cuts, in addition to the government's plans. Analysts expect interest rates to fall to 3% by the end of this year. This March Slovakia had the highest risk spread in the eurozone, while currently Italy and Lithuania have a higher spread and Malta, Greece and Croatia are only just ahead.

(hnonline.sk)