Tax pressure should be reduced from 36 percent to 30 percent of GDP

You can criticize him for many things, but there are two things you cannot – like an experienced juggler, he is both a doomsayer and a beacon of hope. An old-school economist (which means he has not been fed by neoliberal economic theory), who predicts the economic death of the country as early as 2017 if we continue on the beaten path, has just published a book with a ‘bright’ title: ‘Let’s Bring Back the Smile to Our Beautiful Homeland’.

The book serves as a sort of textbook from which future authorities could ideologically draw, as the author has covered all the sick areas of the economy that are on the verge of collapse. Instead of a development strategy, which requires more pages, a well-coordinated team, and more brainstorming, the book could be a good start for reforms that only David Copperfield could avoid.

• Which taxes should be reduced? The biggest burdens are contributions; if we touch them, the pension and health systems will collapse. – If there were no subsidies from the budget, they would not survive anyway. There is no other option but a package of reforms that we will present to creditors. When we simultaneously launch the entire package, the story about public debt falls into the water. The problem is not the growth of public debt but the insufficient capacity of the economy. Luxembourg has a public debt seven times greater than its GDP, and that does not worry them because they borrow to stimulate business. Many are convinced that a lower income tax would reduce budget revenues, but that is debatable because we do not know how large the gray economy truly is. If the non-taxable portion were five thousand kuna, no one would be receiving a salary under the table. I would also arrange that, for example, those who receive a net salary of 20 thousand kuna or more would contribute more to health insurance. Pension reform should move towards a social model, and the workweek should be reduced.

• I can already see enthusiastic employers agreeing to have their employees work less, not more. – But if this is compensated by reducing income tax, introducing a protective interest on capital, the budget revenues will ultimately be higher, social expenditures lower, and thus the overall burden on the real sector will be less!

• Nevertheless, he lacks capital for technological renewal. How to capitalize companies in a time of, on one hand, illiquidity, and on the other, liquidity surpluses? – Part of the answer lies in the proposal to direct two-thirds of the credit growth into the economy. This should be supplemented by the obligation of the state to allow exporters to sell foreign currency receivables forward, which is essentially an interest-free commodity loan. Part of the illiquidity should be attributed to the state because fiscal philosophy dominates the tax system. Taxpayers pay the price of such an approach – tax pressure is now greater than 36 percent of GDP! This is unsustainable! Economists call such behavior functioning under a soft budget constraint. The state simply issues invoices to the economy and citizens. Other rapidly growing economies have burdened their companies with less than 25 percent of GDP. Therefore, I propose reducing tax pressure to 30 percent of GDP over the next four years. If we do not do this, our economy will continue to rapidly lose competitiveness.

You can read the entire interview in the new issue of Lider.