The Slovak government is considering changes to the pension system that would raise employment taxes and boost state income, a social affairs ministry document showed on Tuesday.
The plan has unsettled businesses, which criticised the move as another government measure raising labour costs and hurting Slovakia's competitiveness after lawmakers approved last week new labour code giving more protection to workers.
Leftist Prime Minister Robert Fico is looking for ways to fund spending on the poor while also cutting the fiscal deficit below 3.0 percent of gross domestic product to meet Slovakia's goal of adopting the euro in 2009. The need to cut the deficit has pushed Fico to postpone fulfilment of many of the welfare promises that helped him defeat a centre-right government in a June 2006 election.
While Fico has backed down from his pre-election plan to raise income tax for the rich, his social affairs ministry has now drafted changes to the pension system designed to bring billions of crowns to the state from higher employment taxes.
"The aim is to strengthen the social solidarity of higher-earning persons in financing social insurance funds," the ministry draft said.
The previous cabinet introduced private savings in pension funds, fearing the loss-making pay-as-you-go scheme could not support an ageing population in the long run.
The currently proposed changes include abolishing ceilings for compulsory payments to the pension system and would allow those entering the job market to choose between a private pension scheme and pay-as-you-go. Fico has repeatedly criticised the previous government's pension reforms as weakening the pay-as-you-go system.
The government estimates it will have to spend 22.5 billion crowns ($910.9 million), or around 1.2 percent of GDP, to cover the gap in 2008 and tens of billions more in the future. The social affairs ministry expects the proposed changes to raise 11.5 billion crowns next year. Abolishing the limit for compulsory contributions alone should bring in 6.5 billion.
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