Decline of Slovakia, Resurrection of Hungary | Mandarin
The Makronóm Institute announced on its community page that, based on Eurostat statistics, between 2009 and 2020, the third largest tax deduction in proportion to GDP decreased in Hungary. This news can be interpreted in all kinds of ways, and of course we know this too, since we have a critical attitude. In connection with the news, a Slovak economist writer expressed his opinion the other day, who brought up this Hungarian example as an explanation of why the Slovak reality does not work.
In its social media post, the Makronóm Institute clearly shows that, while in 2009 the Hungarian state took away 38.9 percent of GDP in taxes and contributions, in 2020 it will only take 36.4 percent. This value is the average of the EU member states.
Taxes are the amount and value of contributions to a country’s competitiveness Roland Izip drew attention in his writing, editor-in-chief of Trend economic weekly newspaper and portal. THE “Slovakia’s decline and Hungary’s resurrection live. Who is to blame?” he begins his writing with Igor Matovič’s Saturday morning post, which perhaps drove the final nail into the coffin of the Slovakian coalition of four. The vice-president, the current finance minister, reacted to the biggest investment in Hungarian history on Friday, saying that the lack of it in Slovakia is due to the inaction of his counterpart, the economy minister Richard Sulík.
“The Chinese company CATL is building a battery production factory in Hungary for 7.3 billion euros. (…) I congratulate the Hungarian economy minister for not going on strike, but for working! (…) This is how it should be done, you bastard! A mega investment five times bigger than Volvo…” – wrote the finance minister, who even added:
“The Hungarians are going like rockets, and we just look like poor relatives next to them”.
the editor-in-chief of Trend is also right about the former prime minister, since Slovakia not only slowed down, but completely reversed its catch-up with Europe.
Cocking hurts their chances
As an explanation, let’s add that there is already a fight between Igor Matovič (the leader of the larger coalition party) and Richard Sulík (the leader of the smaller coalition party with free democratic features), which has already led to the inability to govern. At the beginning of the summer break, Sulík gave an ultimatum at the beginning of the summer break that if Igor Matovič was not recalled from the post of finance minister by the end of August, his party would leave the government. However, both of them have big enough egos to prevent a compromise, so the remaining coalition can either govern in a minority with the support of the extreme right, or early elections can be held, where the victory of the parties of Robert Fico and Peter Pellegrini can be sealed.
Who is to blame?
Roland Izip considers the idea that the economy minister would have been able to bring a CATL-sized investment to Slovakia to be ridiculous. “The reason is not Sulík’s incompetence, but rather the fact that there are long and certain obstacles to Slovakia’s decline” – writes.
According to him, the most important of these is the decrease in the country’s competitiveness, since in the third decade of the 21st century, Slovakia no longer knows anything for investors. After the rapid rise in living standards experienced in the last decade, the price of Slovak labor has become uncompetitive.
It may seem paradoxical, but the cost of labor in Slovakia is almost at the level of the Czech Republic, although here you can pay well with a net salary.
What’s more, the hourly labor cost in Poland is a fifth cheaper than the current exchange rate, and in Hungary even a third cheaper. For the investor, this means huge labor savings if he opens the factory in these countries. cheap The workforce in Slovakia is not only expensive, but also poorly trained. Izip therefore identifies high taxes and contributions as Slovakia’s fundamental problem.
Hourly cost of labor in euros (Czech Republic, Hungary, Poland and Slovakia)
Of course, he also mentions another important criterion –
the amount of corporate tax. While this is 21 percent in Slovakia, it is only 9 percent in Hungary.
That is, it is a full 12 percentage points higher, which gives Budapest another competitive advantage. So it is understandable for him Viktor Orban why did he therefore veto the global agreement of more than a hundred countries of the world on the 15 percent global minimum tax. Even though the American president canceled the double taxation agreement in response, Brussels is blocking the release of European funds.
Ronald Izip sees it as: “Orbán bet that his populist domestic policy is driven by strong economic growth driven by foreign investments. The Slovak government with its servile economic policy on the other hand, Viktor Orbán fights hard for the interests of his country, independent of the demands of Brussels or Washington. And it works.”
Big mistake
Ronald Izip gives Budapest the truth that he considers low corporate tax rates to be a fundamental competitive advantage. The economic data show that the low rate really brought huge investments to the Hungarian economy.
When the interest rate was 19 percent in Hungary, gross capital accumulation in the country was 20 percent of GDP. Since 2017, when this 9 percent was reduced, capital accumulation has increased to 25 percent.
That is, it changed from below average to above average and overtook capital accumulation leaders such as the Czech Republic and Estonia.
Capital formation in proportion to gross GDP (Hungary, Slovakia, the Czech Republic and the EU)
Slovakia, on the other hand, raised its corporate tax to the average, and capital accumulation fell further below the average.
Where there is no capital, labor productivity does not increase – a key factor that ensures long-term and sustainable growth in living standards. Instead, the standard of living in Slovakia was artificially raised through higher taxation and redistribution – a strategy that, on the contrary, destroyed the country’s competitiveness, Izip found.
What led you to this point in Slovakia?
The author believes that the flawed social model set up by Robert Fico, which led Slovakia to an unsustainable path of excessive spending, was followed by the government of Igor Matovič and Eduard Heger, which further increased legislative stability and worsened the stability of the business environment. They did exactly what Slovakia needed.
He also states that it is not only Hungary that attracts foreign investments with a low tax rate. In Romania it is 16 percent, in Bulgaria it is 10 percent, and in Estonia, although the rate is twice as large, you only have to pay for the profit. However, the example of Ireland really shows the huge advantage of the low corporate rate of 12.5 percent in the environment of a highly qualified workforce. In Slovakia, on the other hand, the corporate tax rate is the lowest of all Eastern European countries.
Izip therefore judges that
Slovakia’s decline is not caused by Richard Sulík’s inaction, but by Igor Matovič continuing Fico’s policies.
The money that he spends inefficiently on his family-friendly policies could have been used to increase the attractiveness of Slovakia’s business environment. However, it would not be Igor Matovič if the public resources were used for political marketing instead of the country’s future would be used to repair it.
Let us add that Richard Sulík, who, as a good free democrat, rejected any tax increase as a matter of principle, which would have left room for the reduction of other forms of taxes and contributions, and for the development of a healthier tax mix. Inaction in such a time of crisis is not a mistake, but rather a sin.