IB revija 1-2/2006 UMAR 123 Alvin Rabushka* A Flat Tax for Slovenia The object of this paper is to estimate the parameters for a flat tax for Slovenia, modeled on the framework of the Hall-Rabushka flat tax, which would be a revenue-neutral replacement for Slovenia’s current corporate and individual taxes on income and profit.1 The table is based on data posted on the web sites of the Statistical Office of the Republic of Slovenia and the Ministry of Finance. I want to thank Mr. Gonzalo Caprirolo in the Ministry of Finance, who clarified the tax treatment of social security contributions paid by employers and employees, provided the actual data on allowances, the change in 2005 in the way additional allowances for pensions was provided to make the system transparent, and the appro- priate percentage of allowance on investments. Table 1 derives the revenue-neutral flat rate for a Hall-Rabushka flat tax for Slovenia. Line 1 is the gross domestic product of Slovenia in 2004 in Mio. SIT.2 Line 2 is indirect business tax, consisting of VAT and Excises, that is included in GDP but not under the flat tax. Line 3 is left blank (I have no data on this). It is income included in GDP but not in the tax base, mostly the value of houses owned and lived in by families (imputed rental income of owner-occupied housing); this income does not go through the market. Line 4 is wages and salaries that would be reported on the first line of the wage-tax form (see Figure 3.1 in Chapter 3 of The Flat Tax, 2nd Edition) and would be deducted by businesses.3 Investment, line 5, is the amount spent by businesses purchasing new plant and equipment (expensing of investment, or 100 percent first-year write-off).4 Line 6 shows the taxable * The David and Joan Traitel Senior Fellow at the Hoover Institution. Author or co-author of more than 20 books, among them “The Flat Tax” with Robert Hall. 1 The Hall-Rabushka flat tax model is set forth in Robert E. Hall and Alvin Rabushka, The Flat Tax, 2nd Edition (Stanford: Hoover Press, 1995), pp. 52-82. Any mistakes in this derivation are my responsibility. 2 Statistical Office of the Republic of Slovenia, Rapid Reports, September 30, 2005, st./No 262. 3 National Accounts, st./No. 1, Table 2, “Gross value added by activities at basic prices and gross domestic product, current prices, 2000-2004,” p. 3. 3 Ibid., Table 4, “Gross domestic income and primary incomes, 2000-2004,” p. 5. The figure is wages and salaries of employees, excluding employers’ social contributions. 4 Ibid., Table 5, “Gross domestic product by expenditures, current prices, 2000-2004,” p. 5. The number inserted in line four amounts to 70 percent of gross capital formation for 2004, based on the approximate percentage on allowances for investment in 2003 supplied by Mr. Caprirolo. It is likely that expensing of investment would increase investment, but it is also true that expensing and low rates would enhance growth that would raise revenue, thus offsetting any loss from a smaller tax base due to higher investment. income of all businesses after they have deducted their wages and investment. The revenue from the business tax, line 7, is 17.5 percent of the tax base in line 6. (The 17.5 percent rate was the derived revenue-neutral flat rate.) Line 8 shows the amount of personal allowances (relief) under Articles 8, 0A)8. 6  A)&    &  .  A) $ +!  A 9 5.+ %!%! %     !!< 14.! !<2   %!!9;5!!%!!