European Trade Union Institute, ETUI.

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24 January 2019

Slovenia: public sector pay improves, but 2019 will bring more structural income policy and tax reforms

An agreement on improved public sector pay reached between the Slovenian government and the public sector unions has put the country’s income and fiscal policy back on the agenda. Several actors have pinpointed the need for a fiscal reform that transfers the tax burden.

After an agreement was reached, shortly before the end of 2018, on improvements in public sector pay, several political actors and institutions have expressed the need for further, more structural reform, of the country’s income and fiscal policy. The current government has noted that labour taxes are still rather high while taxes on corporate profits are relatively low. Among the measures being considered is an increase in the monthly minimum wage, which is currently set at 638 euro net. According to the government, there was in the past too much focus on economic growth in the short-term, and its goal now is to stimulate long-term economic growth and secure a fairer income distribution.

The governmental fiscal advisory body, the Fiscal Council, said that, with pay rises in the public sector and higher transfers to municipalities, it is necessary to address long-term challenges, especially concerning demographic change, which would contribute to a lasting improvement in the public finances. The Council suggested to make the tax system more efficient.

In August 2018, the OECD had identified that only 14% of total tax revenues in Slovenia comes from income tax (the average in OECD countries is 25%), while it collects 40% from social contributions (the OECD average is 26%). According to this assessment, such a system increases the cost of work and discourages employers from hiring. The OECD proposed that the major part of the tax burden should be transferred to income tax instead.

In November 2018, the public sector trade unions decided no longer to negotiate with the government in joint talks but instead to discuss their demands in separate meetings. On 5 November this approach was applied for the first time. The government has assented to this and agreed that every trade union group has the right to separate talks. By late November 2018, after weeks of negotiations and strikes, the government and three public sector trade unions had come to an agreement on wage increases that are said to be worth more than 300 million euro. The agreement was made with SVIZ union of teachers and two unions representing health care employees.

In the aftermath, nearly 20 public sector unions are continuing to negotiate with the government. They also reached an agreement and a strike announced for 5 December 2018 was called off. In the autumn of 2018, the government's macroeconomic forecaster, IMAD, presented a study on pay differentials between the public and the private sector during a wage conference. It revealed that on average public sector wages were roughly a quarter above private sector wages, but it was noted that about 60% of public sector employees had higher education versus 35% in the private sector.

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