By: Vida Kocjan
Slovenia ranks among the group of predominantly European countries with the highest tax burden on labour. The ruling coalition has increased the tax burden by around 3 percentage points or nearly a tenth over the past three years. Due to changes in the income tax law and the introduction of additional taxes and contributions, employees will be deprived of between 2,110 and 5,200 euros during the period from 2023 to 2026.
The situation is unsustainable for the economy and, consequently, for employees. The tax reliefs that the government promised at the beginning of its term are still awaited in the economy. The Chamber of Commerce of Slovenia (GZS) also warned the government about this last week. They expect urgent tax relief for employees’ wages. The GZS has also prepared its proposals, meaning the government can no longer close its eyes and make excuses such as “they are working, preparing, studying, etc.”
The GZS has prepared fiscally sustainable changes in both social contributions and income tax, which would result in higher wages for employees.
Vesna Nahtigal, the General Director of GZS, pointed out that “the business environment in Slovenia has significantly worsened in recent years.” The economy is concerned because the government’s actions do not show an awareness of the seriousness of the situation in the Slovenian economy. Nahtigal also added that, in the last three years, companies in Slovenia have faced numerous new financial burdens from the state. Therefore, the GZS conducted an analysis of how much taxes and contributions have increased for employees, which directly reduce their wages. They found that employees with a minimum gross wage will lose between 2,100 and 5,200 euros in net income due to the additional taxes and contributions (including long-term care) passed so far for the period 2023–2024, while those with an average wage of 3,600 euros and employees with double the average wage will lose 5,200 euros.
Changes to laws that reduced wages
Bojan Ivanc, the chief economist of GZS, highlighted that “taxes and contributions that directly affect the net wages of employees have increased in Slovenia between 2023 and 2026, as a result of the adoption of three legislative measures amended during the current government’s term.” The Golob-led coalition government cancelled the announced gradual increase in the general tax allowance in November 2022, which took effect in early 2023, and raised the tax rate in the fifth income tax bracket (from 45% to 50%). Additionally, there were no adjustments to allowances and brackets for two consecutive years. Then, a contribution for long-term care was introduced, which will come into effect on July 1st, 2025, with a 1% increase for both employers and employees. Furthermore, voluntary health insurance was converted into a mandatory health contribution (OZP), which will be adjusted as of March 1st, 2025, in line with the mid-year growth of the average wage from the previous year. Both contributions are also included in the calculation of the tax burden for 2025.
According to the data on the tax burden in Slovenia between 2023 and 2026, the most significant increase of 3.2 percentage points is expected for those receiving the minimum wage, rising from 37.2% to 40.4%. For those with the average wage, it is expected to increase by 2.8 percentage points, from 43.3% to 46.1%, and for those earning double the average wage, it will rise by 2 percentage points, from 48.1% to 50.1%.
Effective proposals for tax relief
Therefore, the GZS proposes fiscally sustainable changes in both social contributions and income tax. In terms of income tax, they suggest automatic adjustment of the tax brackets and allowances according to the annual growth factor of the average gross wage (currently the adjustment factor is between 50% to 100%), abolishing the fifth tax bracket (50% rate), and tax relief for performance bonuses (exemption from income tax up to the level of the individual’s average wage, not the average wage in Slovenia). On social contributions, they propose delaying the implementation of the long-term care contribution for at least one year and introducing a cap on social contributions at 1.6 times the average wage (3,800 euros), which is comparable to Germany, a country that remains a social state despite this. Above the gross wage of 3,800 euros, social contributions would no longer be levied.
The GZS estimates that with the proposed wage relief, employees with an average salary could see an increase in their wages by 112 euros this year, and by 400 euros annually in the following years.
Increasing burdens
In 2024, several other economic burdens came into effect, with Mitja Gorenšček, the CEO of GZS, highlighting among the most significant the increase in the corporate income tax rate, which was raised by 3 percentage points for a period of five years. Similarly, a 0.2% tax on the balance sheet total of banks was introduced, which limits the growth of company lending. Starting in 2024, the period for sickness compensation coverage at the employer’s expense was extended from 20 to 30 days, and the maximum sickness benefit was capped at 2.5 times the average wage in Slovenia. Additionally, the tax treatment of income from posted workers has worsened, and the VAT on sweetened beverages has increased in 2024.
Slovenian wages among the most burdened
One of the first decisions of the government in this term was the abolition of more favourable taxation of wages under the old income tax law in November 2022, followed by the introduction of additional contributions. All of this raised the so-called tax burden. In 2023, Slovenian average wages ranked 7th among OECD countries in terms of tax burden, with social contributions and income tax accounting for over 43% of total labour costs. Over the past decade (up to 2023), this burden has increased by 1 percentage point, while it has decreased on average in OECD countries and in 22 European OECD member countries.
High tax burdens negatively impact labour activity and competitiveness, which is why many OECD countries are gradually reducing them. If Slovenia were to lower its tax burden to the OECD average, the average monthly net wage in Slovenia would be 200 euros higher, meaning employees would receive 2,400 euros more annually.
Vesna Nahtigal: We expected much more from a government with energy experts
Vesna Nahtigal, the General Director of GZS: “Employee wages are also excessively burdened with taxes and contributions. While other European countries have reduced taxes and contributions, our government immediately increased them after taking office. With the new changes expected in pension and health reforms, we estimate that wages will be further burdened. In addition to the high burdens on wages and companies with new contributions and taxes, another major issue is the high cost of electricity. From a government with energy experts, we expected effective action that would lead to acceptable prices for both households and businesses.
Such a business environment leads to poorer company performance, job losses, lower wages, and a lower standard of living for all of us.”