Lake Bled in Slovenia

Slovenia Politics May 2018

Slovenia: Slovenia to head to the polls for snap elections

Slovenia will hold a parliamentary election on 3 June, in what is expected to be a tightly contested race. Snap elections were called after Prime Minister Miro Cerar resigned on 14 March following the Supreme Court’s decision to nullify the result of a referendum that approved what would have been the government’s largest infrastructure project to date, the Koper-Divaca railway expansion, worth EUR 1 billion. As no party is expected to garner a majority, the most probable scenario is a hung parliament, with the largest party needing to form a coalition. This could generate a prolonged period of political uncertainty.

The latest polls show that the biggest opposition party, the center-right Slovenian Democratic Party (SDS), is set to take the lead in the country’s fractured parliament, ahead of the center-left parties, List of Marjan Serc (LMS) and Social Democrats (SD). Cerar’s Modern Centre Party (SMC), meanwhile, is trailing significantly behind. Among the election’s pivotal issues have been proposed changes to fiscal policy. SDS is headed by controversial former Prime Minister Janez Jansa, who has pledged to reduce the corporate tax rate and suspend taxes for newly-established small companies as a means of boosting investment and stimulating growth. Another potential growth-fuelling policy proposed by SDP is cutting the VAT to pre-crisis levels in a bid to shore up private consumption and lowering taxes for individuals. While the SDS is running on a business-friendly platform, its polarizing anti-immigration stance could threaten to jeopardize the nation’s relationship with the European Union.

SD and LMS have also called for reducing income taxes, but they would aim to compensate for the lower revenue by raising corporate taxes. The stalled privatization of Slovenia’s largest state-owned bank, Nova Ljubljanska Banka (NLB), has also been a key issue. One of the main tasks of the new government will be to sell a majority stake of NLB to gain the European Commission’s approval of state aid. Cerar’s government backed out from the sale in June owing to risks and a low suggested selling price.

Commenting on the implications of an SDS win for the economy, Velimir Bole, Economist at Institute EIPF, stated:

“Knowing its track record, it is difficult to say what would be the policy stance of the government led by SDS. After Slovenia entered the EU, SDS namely led the government twice (2005/I-2008/IV and 2012/I-2013/I). But in those two periods economic policy stance was completely opposite. The only common characteristic of both periods was a U turn to the stance of the preceding government.”

Slovenia was one of the fastest-growing economies in the Eurozone last year—annual GDP growth in 2017 climbed to 5.0%, supported by stellar growth in exports and solid expansion in domestic demand—and its economic performance is expected to remain buoyant again this year. Whoever emerges at the helm of power will be tasked with maintaining this robust expansion path. Extended political uncertainty, however, could impact adversely on confidence, weighing on economic growth.

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