Gospodarski krog sees the development cap, introduced by the emergency intervention act (ZIURS), as an important and long-awaited measure to support Slovenia’s development. International comparisons show that Slovenia has one of the highest tax burdens on labour and is among the few EU countries without an upper limit on social security contributions. The development cap addresses this issue for some of the most highly skilled positions in the economy, including engineers, researchers, R&D specialists, experts in artificial intelligence, digitalisation and pharmaceuticals, and other high-value-added professionals. Slovenia competes for precisely these people on the global talent market, while their higher incomes also mean that they make some of the largest contributions to public finances. Gospodarski krog therefore calls for the development cap to be implemented and followed by further measures that strengthen Slovenia’s development and competitiveness.

From a Labour-Based Economy to a Knowledge-Based Economy

Slovenia no longer competes globally on the basis of low-cost labour. It competes with countries that know how to create an attractive environment for top talent and corporate R&D operations. If Slovenian companies want to offer highly skilled professionals competitive net salaries, the total cost to the employer is significantly higher than for comparable companies in Austria, Germany, or Croatia. In a modern economy, investors consider not only salary levels but, above all, the total cost of employment, access to talent, and the predictability of the business environment.

The consequences are already visible. Top professionals are leaving Slovenia or choosing not to come in the first place, R&D and management functions are being relocated to neighbouring countries, and investment is moving towards more competitive business environments.

The number of people affected is limited, but they are critically important to Slovenia’s development. Around 13,000 individuals currently earn above the proposed development-cap threshold of €7,500. This figure says less about those individuals than it does about how few of Slovenia’s jobs are at the very highest levels of added value, and how important it is to create more of them. The purpose of the development cap is not to provide a benefit to the existing 13,000 employees, but to create the conditions for Slovenia to generate many more such jobs.

Caps Already Exist on Benefits

Pensions, sickness benefits, and parental benefits are subject to maximum limits, while social security contributions remain uncapped. In other words, there is a ceiling on what an individual can receive from the system, but no ceiling on what they are required to pay into it. An individual can therefore contribute substantially more to the system than they could ever receive from it.

Part of this difference is an understandable expression of solidarity, for which there is broad social consensus. It is reasonable, however, to ask at what point unlimited contributions begin to discourage precisely the work, value creation, and economic development that ultimately finance the welfare state. Austria and Germany, both among Europe’s most successful social market economies, also apply caps on social security contributions.

The development cap therefore seeks to establish a better balance between solidarity and competitiveness. Developed European economies continually adjust their tax systems so that they can maintain strong welfare states while remaining attractive places to work, do business, and invest.

A First Step After More Than Three Decades of Debate

From a business perspective, we believe the development cap would have a stronger effect if the threshold were set lower, for example at twice the average salary, thereby covering a broader group of highly skilled professionals and making a greater contribution to competitiveness. We therefore see the solution adopted under ZIURS as a first step after more than 30 years of delay, rather than as a final solution.

Gospodarski krog does not see the proposed development cap as an end in itself, but as the beginning of a broader reform of Slovenia’s tax and business environment. ZIURS has shown that progress towards reducing the tax and administrative burden is possible. To achieve a meaningful improvement in Slovenia’s development prospects, this must be followed by a second phase of comprehensive measures addressing productivity, investment, digitalisation, deregulation, skills development, and a more efficient business environment.

There Can Be No Welfare State Without New Value Creation

Countries with strong welfare states are generally not those with the highest tax burden on labour. They are countries with high productivity, strong economies, and large numbers of well-paid jobs. These jobs generate the public revenues that fund healthcare, education, pensions, social security, and other public services.

Labour costs in Slovenia have been rising faster than productivity for several years. As a result, companies are finding it increasingly difficult to remain internationally competitive, while investment in development is becoming more expensive. Over time, this makes Slovenia less attractive for new investment and for the creation of high-value-added jobs. Despite the substantial increase in labour costs, Slovenia has made little progress towards the EU average in terms of economic development in recent years. In this year’s IMD World Competitiveness Ranking, Slovenia fell to 49th place among 70 economies.

Gospodarski krog therefore expects the Government of the Republic of Slovenia, irrespective of the further legislative process, to ensure that the development cap is implemented and to continue preparing reforms aimed at strengthening Slovenia’s development and competitiveness. Slovenia needs a tax and business environment that encourages work, innovation, investment, and the creation of high-value-added jobs. Only in this way can we sustainably support higher wages, high-quality public services, and a welfare state capable of meeting the challenges of an ageing society.

 

About Gospodarski krog

Gospodarski krog bringst together 17 of Slovenia’s leading business and agricultural organisations, collectively representing a broad range of companies, industries, and business communities. It provides a platform for cooperation through which the business community develops shared positions, exchanges arguments, and creates space for responsible, informed, and long-term dialogue.