Slovenia withdraws planned VAT rise to 24%

Following an emergency 2% VAT increase proposal last week (see below), the Slovenian government has pulled back and decided not to raise the consumption tax.  The government will instead raise duties and attempt to cut spending.

The Slovenian government has been forced to propose raising the standard VAT rate from 22% to 24% on 1 May 2014 until the end of 2014.  The measure comes as the country hits 14.7% budget deficit to GDP following a 2013 banking bailout.  As part of the Euro currency union, Slovenia must be below 3% to avoid action by the European Union.

This emergency rise follows an increase in Slovenian VAT from 20% to 22% in July 2013.  Slovenia is heavly dependent on the banking sector, and was heavily hit during the Euro currency crisis in 2011 and 2012.  It came close to a European bail out in 2013.   In a move replicating Cyprus' banking crisis, Slovenia had to inject over €3 billion in December 2013.

Today's move came following the failure last week to secure a new tax on real estate.  The Slovenian Constitutional Court struck down the proposal as lacking details.  This tax would have raised €125 million as the government aimed to dip below the Euro currency target of a 3% GDP deficit ratio.  The government has to raise over €1.5 billion in bonds this week and this VAT rise is crucial to plug the gap left by the real estate tax setback.