Parallel Session II: Labor Taxes and Fiscal Policy
Croatia is more advanced than the Western Balkan countries, but still shares a lot of problems (sluggish growth, large government consumption leading to fiscal imbalances, high rate of unemployment and low participation rate as well as lack of competitiveness).
Some of Croatia's achievements in labor taxation and fiscal policy include: reduced tax wedge, but increased indirect taxes, (and therefore no big difference in total tax receipts); reduced tax burden for the poor through an increase in PIT allowance; the problem of employment in the informal sector addressed by imposing social security benefits on earning based on independent work contracts, so that people could be eligible for pensions; the government opted for a 'second best' option, by reducing taxation instead of its consumption.
Immediate reforms to be undertaken should tackle the problems of budget imbalance by reducing government expenditures, Health care expenditures should also be reduced. Increased labor mobility and more robust economic growth would also have positive effects on job creation.
Serbia employs several fiscal measures to increase employment, social security and poverty reduction. The strategic objectives of the Ministry of Finance include sustainable economic growth, macroeconomic stability and the continuance of fiscal reforms as well as a stable fiscal policy. Fiscal reforms include increased contribution rates in 2004, the reduction in half of the corporate income tax, simplification of customs tariff and the introduction of the VAT. The newly introduced program budgeting will help determine budget allocations needed for the implementation of the PRS.
One of the main problems Albania faces is informality, which influences the collection of contributions. After all the attempts made in Albania, informality was reduced by 1/3 since 2000 but has not gone below 20%. Some reforms have been undertaken, including the improvement of legislation, the new pension law and the new social insurance tax rate of 41.9%, down from 45.9%. Payments of employers' contributions have increased as a result. The Albanian government helps employment also directly from the budget (by paying for pensions for instance).
Questions from the audience:
Zef Shala, Mother Theresa NGO from Kosovo described briefly the tax system in Kosovo and requested from Croatia the same information. In Croatia, VAT = 22%, PIT has 4 income brackets (15%,25%,35%,45%), corporate income tax of 20%, social insurance tax in the amount of 15% by employers and less by employees.
Joachim Ruecker of UNMIK in Kosovo raised the issue of VAT, which in Kosovo is collected at the border and many times is not claimed back, so it acts as an extra burden.
Question from EC representative: Does the lack of competitiveness stem from the high level of taxes or any other source? Answer: Labor cost and high taxes.
Geert Almekinders of IMF asked about the fiscal adjustment in Serbia in 2005. Answer: Cut in spending
In Croatia in 2002, a coalition government came to power, which made it difficult to decrease taxes. Pensions were linked only to increases in wages, indexation was removed. Political reasons explain the not so good results of fiscal adjustment in Croatia.
The last question was about the participation of women in the labor force. According to Ahmet Ceni of Albania, the economic restructuring has thrown women out of the labor market. Participation rate of especially older women has gone down drastically. Another point raised was the different retirement age for men and women, and the possibility for equalizing them.