OECD Tax Policy Reviews: Slovenia 2018
This report is part of the OECD Tax Policy Reviews. The Reviews are intended to provide independent, comprehensive and comparative assessments of OECD member and non-member countries’ tax systems as well as concrete recommendations for tax policy reform. By identifying tailored tax policy reform options, the objective of the Reviews is to enhance the design of existing tax policies and to support the adoption of new reforms.
This report provides a comprehensive tax policy assessment of the taxes paid by individuals in Slovenia as well as tax reform recommendations. The report is divided into six chapters, with a summary of the main findings upfront, followed by more detailed recommendations at the end of chapters 3 to 6. Chapter 1 sets the scene for tax reform in Slovenia. Chapter 2 focuses on the labour market, social policy and tax policy related challenges. The ensuing chapters assess the financing of the social security system (Chapter 3), identify strategies to strengthen the design of personal income tax (Chapter 4), indirect taxes (Chapter 5), and the taxation of capital income at the individual level (Chapter 6).
Labour market, social policy and tax policy related challenges in Slovenia
High employee SSCs, employer SSCs and progressive PIT rates result in very high tax burdens on labour income in Slovenia. This lowers incentives for employers to hire workers and net-take home pay for workers, thereby reducing incentives to participate in the labour market and increase work efforts. High unemployment and inactivity traps exist. Young individuals enter the labour market late and older workers leave early. To compensate for the high tax burden on labour income, Slovenia has put in place many tax exemptions, especially aimed at low-income taxpayers, families and pensioners. High taxes on labour exacerbate existing labour market weaknesses, and result in low labour market participation rates of younger and older workers. The pension and health funds, which rely predominantly on SSCs, face budgetary difficulties. In light of the ageing population, increasing the labour market participation of older workers is a priority.