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The ruling party NDSV promises tax cuts if it wins a second mandate.
submited on 18.04.2005 in category Political stability | Fiscal affairs
submited on 18.04.2005 in category Political stability | Fiscal affairs
The economic policy guidelines, presented by the ruling party NDSV focused the debate on the tax burden in the country. The changed offered is mild rather than radical, however we may now distinguish an alternative to the socialists’ program.
First, the tax cuts would start from the heaviest taxes, namely the tax-insurance burden on labor contracts (currently the tax wedge is about 40% on the basis of the average wage). The ruling party promises both reduction of the income tax as well of the mandatory contributions to the pension system (or more correctly, “pension tax”).
Secondly, gradually going towards a flat tax on the personal income, NDSV suggests a reduction of the marginal tax rate from 24% down to 19%. The tax rate on the highest income is an important indicator of the business environment quality. Although they are formally paid by the individuals (not corporations) these are the taxes on the most productive, most entrepreneurial and most innovative players.
Thee offered reduction of the “pension tax” would make sense only in a framework of an overall pension system reform. This would imply that next generations of pensioners insure their old age by saving, not relying of the future income redistribution. Thus, a gradual reduction of the “pension tax” will be possible as the current deficit of the pension system would gradually shrink. NDSV has not yet presented the details of the pension reform in question.
The ruling party faces a couple of challenges in the current election campaign. First, the tax cuts must be accompanied by reduction of public spending, which will be difficult to explain in a debate rich in populism. Secondly, some of the right voters may see the NDSV agenda as too timid, thus making them refrain for voting in order to “punish” their political representatives.
First, the tax cuts would start from the heaviest taxes, namely the tax-insurance burden on labor contracts (currently the tax wedge is about 40% on the basis of the average wage). The ruling party promises both reduction of the income tax as well of the mandatory contributions to the pension system (or more correctly, “pension tax”).
Secondly, gradually going towards a flat tax on the personal income, NDSV suggests a reduction of the marginal tax rate from 24% down to 19%. The tax rate on the highest income is an important indicator of the business environment quality. Although they are formally paid by the individuals (not corporations) these are the taxes on the most productive, most entrepreneurial and most innovative players.
Thee offered reduction of the “pension tax” would make sense only in a framework of an overall pension system reform. This would imply that next generations of pensioners insure their old age by saving, not relying of the future income redistribution. Thus, a gradual reduction of the “pension tax” will be possible as the current deficit of the pension system would gradually shrink. NDSV has not yet presented the details of the pension reform in question.
The ruling party faces a couple of challenges in the current election campaign. First, the tax cuts must be accompanied by reduction of public spending, which will be difficult to explain in a debate rich in populism. Secondly, some of the right voters may see the NDSV agenda as too timid, thus making them refrain for voting in order to “punish” their political representatives.
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