The pandemic is inflicting much suffering, which has been met with swift, substantial, and well-coordinated policy responses. The anti-crisis measures have helped preserve jobs, provide liquidity to companies and income support to the vulnerable groups. They averted a larger decline in output and kept unemployment under control. After contracting by 5.5 percent in 2020, real GDP is projected to grow by 3.9 percent in 2021 and 4.5 percent in 2022, as vaccinations help achieve herd immunity. However, risks to the outlook are large and tilted to the downside, given the epidemiological situation.
1. After containing the first wave of COVID-19, Slovenia witnessed an exponential increase of cases during the second wave. Since the first confirmed COVID-19 infection on March 4, 2020, there have been over 200 thousand cases (10 percent of the population) and more than 4,000 deaths. The first wave of infections was relatively contained, and the authorities lifted most restrictions in May. COVID-19 cases surged in the fall, prompting another lockdown in October, and a third one in April 2021. The share of old-age population and prevalence of comorbidities have contributed to a high death rate.
On behalf of our Slovenian authorities, we would like to thank staff for the constructive dialogue during the 2021 Article IV Consultation with Slovenia, and for their comprehensive and candid analysis. The Slovenian authorities broadly agree with staff’s assessment of the economic developments and outlook in Slovenia, as well as with the policy challenges.
This Selected Issues paper argues that revenue-neutral tax rebalancing would help Slovenia address long-term fiscal and growth challenges. The present tax-benefit system is supportive of distributional fairness in Slovenia; however, it is argued that tax reform can help bring stronger employment and productivity growth and enhanced resilience to the challenges of population ageing. The paper lays out the case for tax reform in view of long-run fiscal and growth challenges and it also reviews the current tax system and its weaknesses in comparison with international best practices. The paper also sets out tax reform options and uses a model simulation to illustrate the medium- to long-term fiscal and growth impact. The analysis on the tax rebalancing impact suggests that it can permanently and significantly increase potential output in Slovenia. The simulations indicate that a revenue-neutral tax rebalancing has positive fiscal and growth benefits over time.