Finance Minister Uroš Čufer's proposal to increase value added tax in order to salvage this year's budget appears doomed only a day after being floated, as the coalition Citizens List (DL) announced it would not get behind it. The party wants the budget stitched with spending cuts.
DL leader Gregor Virant said the party's executive council voted against replacing the revenue lost from the annulment of the real estate tax act with an increase in VAT rates.
The party instead proposes that the government tackles the expenditure side to salvage the budget. Moreover, it also voted to propose the introduction of certified tax registers as of next year.
Virant highlighted that the coalition had, at the proposal of DL, committed to avoiding tax hikes in the renewed coalition contract signed in February. A proposal to increase VAT would therefore require amendments to the contract.
As a liberal party, the DL cannot support tax increases "willy-nilly", said Virant, who called on the coalition partners to look for wiggle room elsewhere, including in public spending and better collection of taxes.
Virant said Čufer, who shoulders the blame for the failed real estate tax act, should draw up a package of acceptable measures.
He denied that the party was trying to throw a spanner in the works of the coalition and would also not speculate on whether a smaller VAT increase might be acceptable to his party.
Čufer made the proposal to offset the lost revenue from the real estate tax with an increase in VAT rate at a coalition meeting late on Sunday. He argued that this was the most viable solution because it could be implemented as early as May and "is backed by economic logic".
While he did not present details, it is thought that such a measures would involve a 2 percentage point increase in the standard VAT rate, currently at 22%, and a 0.5 point increase of the reduced, 9.5% rate.
The reaction of the DL comes hot on the heels of an outcry from business against what would be a second VAT hike in less than a year.
The top rate was raised by 2 points to 22% and the reduced rate by 1 point to 9.5% in July 2013 as part of a package aimed at stabilising public finances.
Čufer had hoped that the new VAT increase would be debated by the government as early as Thursday, but it appears the coalition will now have to return to the drawing board in a bid to find the EUR 170m to offset the lost real estate tax revenues.
Source: TheSloveniaTimes
