In any undergraduate course the value of legal certainty is taught. Fiscal policy, of all policies, should be following the principle more strictly, as it is one of the basic elements for any investment decision – and investment is the basis for economic growth and job creation. But that has not been the rule in Portugal, and in fact this report would be rather different if it was written six or even three months ago. For that reason, this year’s report will focus on the most important issues of the year, without giving fully detailed account date by date, which would be tiresome and useless for the reader.
Political instability and its corresponding ?scal uncertainty characterized the 2012 election year (local in June, legislative in December). A cabinet resigned, another was dismissed by the Parliament after few months, a new cabinet took over and was replaced after the legislative elections, but it kept the same Prime- Minister. A referendum for the resignation of the President had highly controversial results (87% in favor, but with no consequences because of insuf?cient participation). The Constitutional Court took almost two months to decide the referendum’s (lack of) effect. Meanwhile, the incumbent president was suspended and replaced by an interim president, who actually was his main opponent and among the initiators of the referendum.
The government is embarking upon a programme of fiscal consolidation, though delivering the reduction in the government’s deficit has not been as successful as it hoped. The fiscal consolidation was largely achieved through tax increases in the early years. Government spending remains very high as a proportion of national income. At the same time, with very little room for manoeuvre given the decision not to cut government spending faster, the government is trying to cut some tax rates. In particular, the level of earnings at which individuals start to pay tax has risen and the corporation tax rate is falling.
The tax system in the UK is very complex and, especially when combined with the impact of the benefits system, some very unfortunate results are achieved when it comes to work incentives and incentives for saving and family formation.
Internally, corporate taxes have been lowered further in several cantons. Much uncertainty surrounds the planned corporate tax reform to increase acceptance of the Swiss tax system towards the European Union, which has been criticizing some cantonal corporate tax rules for years and is expecting progress on the part of Switzerland. In the field of international tax compliance of non-resident clients of Swiss banks, agreements have been implemented with Austria and the UK on a withholding tax designed to regularize the situation of potentially untaxed assets, and with the United States on a simplified implementation of its controversial FATCA legislation.
Sweden has a center right government since 2006. This government has reduced the total taxes as percentage of GDP from 48,8 in 2006 to 44,0 in 2012. Only Denmark has higher total taxes. In 2013 the corporate income tax was reduced to 22 percent. Including taxes on income paid by employers, Sweden still has the highest marginal tax rate in the world, 70 percent. The Swedish National Tax Agency is perhaps more important on tax policy than the ministry of finance.
Fiscal consolidation should have been the priority of the government in 2012, but due to early elections in spring, most of the measures were deferred to year 2013. As a result, public de?cit of 4.6% of GDP did not change compared to previous year. New leftist government applied some moderate changes in taxation and social contributions in 2012, but main tax package came into force in 2013. Flat tax rate was wiped out, tax hikes in corporate and personal income tax rate has been introduced. With a 6% growth of total government expenditures in 2012, the public de?cit exceeds 10% of total government tax revenues leaving the question of further tax hikes open.
For many years since the break-up of Yugoslavia in early 90’s, Slovenia represented a success story which was not frequent among transitional countries. The world’s ?nancial crisis came to Slovenia in 2008 and caught the country totally unprepared. The value of most shares decreased sharply thus resulting in serious losses which in turn became a problem for Slovenian banking sector due to the fact the banks in most cases were ?nancing purchases of the shares for the investors (state-owned banks have the biggest proportion of bad debts). Since then Slovenia is facing general economic downturn and in 2013 Slovenia the banking system is still not working properly resulting in very low activity of domestic banks. On top of this, this country is facing a recession – GDP fell by 2,3% in 2012 and is very likely to further decrease by 2,1% in year 2013. The investment activities decreased tremendously and the almost entire construction sector went bankrupt in 2012. In addition Slovenia was very slow in cutting the expenditures – simply, there was not enough political will to adopt crucial structural reforms in the area of social welfare (labor and pension legislation, social transfers, … ) in the mandate of Slovenian government between 2008 and 2011.
The economic crisis in Spain highlighted the lack of response from the Government as well as the wasteful public spending, both mirrored in the huge public de?cits and the resultant sovereign debt crisis. The Socialist Party called early general elections for November 2011 due to lack of popular support and credibility. The alternative, the conservative Party (Popular Party) went to the election promising not to raise taxes and, even, lower them, and bring order to public ?nances.
Systemic chaos
Looking at the main tax types, there was no change in the corporate profit tax in 2012, the rate of the personal income tax remained 16% but the tax temporarily became progressive due to changes in the calculation of the tax base while the standard VAT rate increased from 25% to 27%. Furthermore, the sectorial taxes previously claimed to be temporary were definitively incorporated in the tax system, and a number of small-volume consumption taxes were introduced under the pressure for continuous budget adjustments due to the deteriorating economic figures.
