Serbian freelancers protest new taxation law that threatens push into poverty(globalvoices.org)
globalvoices.org
Serbian freelancers protest new taxation law that threatens push into poverty
https://globalvoices.org/2021/04/09/serbian-freelancers-protest-new-taxation-law-that-threatens-to-push-thousands-into-poverty/
76 comments
It's not a new tax it's existing legislation that was not enforced. By law they (the government) have a right to review your income in foreign currency for the past 5 years. So now freelancers are being taxed for those 5 years and are expected to pay, potentially thousands of dollars, in a short time period. Most of them knew this way of working was in the gray area at best and that the law is just not being enforced.
There was always an option of opening a small business, paying relatively small amount of taxes and doing it legally. This way you get medical insurance, and at least some pension. Of course this is not a good option for people that freelance as a side gig since taxes could range between 100 and 400 euros depending on what type of freelance jobs you did and where you live.
There was always an option of opening a small business, paying relatively small amount of taxes and doing it legally. This way you get medical insurance, and at least some pension. Of course this is not a good option for people that freelance as a side gig since taxes could range between 100 and 400 euros depending on what type of freelance jobs you did and where you live.
This looks like the Serbian government's mistake and not something that workers did. Mindboggling the government is now acting like a thug even if it's the one to blame.
To say that it was not enforced is just a one way to look at it. The obligation, per law, lay with the tax payer (income earner), and government could do random audits (which they are now doing, except they are not very random).
The 5 year of backtaxes comes from the statute of limitations on tax obligations being up to 5 years, but in theory, if someone owning taxes does not explicitly call out the law about the expiration of debt, they are liable for any tax debt even longer than that.
The 5 year of backtaxes comes from the statute of limitations on tax obligations being up to 5 years, but in theory, if someone owning taxes does not explicitly call out the law about the expiration of debt, they are liable for any tax debt even longer than that.
What happened is that basically noone was paying any tax because the Tax Service did not have a way to classify internet workers. You can't pay taxes if you don't know how much you need to pay.
Bigger issue here is that they are forcing the people to play for the preceding 5 years, and taxes include both health insurance (which those people could not receive) and retirement fund (which those people are not eligible for those 5 years).
But Serbian government as a whole is deeply corrupt and this surprises noone.
Bigger issue here is that they are forcing the people to play for the preceding 5 years, and taxes include both health insurance (which those people could not receive) and retirement fund (which those people are not eligible for those 5 years).
But Serbian government as a whole is deeply corrupt and this surprises noone.
Additionally, from what I've figured from the media reports on this, it's not just about this retroactive tax demand.
It's also about the level of tax they will have to pay going forward, which appears to be stupendously height (at least for freelancers). It appears on par with, or even higher than, what people with regular employment often pay, in countries with elaborate and functioning social security/welfare systems. Serbia certainly does not appear to have those.
It does appear as if this government really does not want freelancing to be a viable option. Considering the recent efforts to attract foreign investments into local Serbian (tech) companies, where almost insane return-on-investments figures are being promised (of course flowing back to the foreign investors), with all kind of questionable perks (pretty much destroying any potential competition from local businesses), it's not impossible that there is an orchestrated scheme going on here.
It sadly would not be a new phenomenon if/when in Serbia a small group of shot-callers are manipulating anything and everything to just enrich themselves, by collaborating with questionable (and ultimately abusive/destructive) foreign enterprises, at the expense of Serbia's citizens and in fact the country as a whole.
But, we'll see what happens.
It's also about the level of tax they will have to pay going forward, which appears to be stupendously height (at least for freelancers). It appears on par with, or even higher than, what people with regular employment often pay, in countries with elaborate and functioning social security/welfare systems. Serbia certainly does not appear to have those.
It does appear as if this government really does not want freelancing to be a viable option. Considering the recent efforts to attract foreign investments into local Serbian (tech) companies, where almost insane return-on-investments figures are being promised (of course flowing back to the foreign investors), with all kind of questionable perks (pretty much destroying any potential competition from local businesses), it's not impossible that there is an orchestrated scheme going on here.
It sadly would not be a new phenomenon if/when in Serbia a small group of shot-callers are manipulating anything and everything to just enrich themselves, by collaborating with questionable (and ultimately abusive/destructive) foreign enterprises, at the expense of Serbia's citizens and in fact the country as a whole.
But, we'll see what happens.
> It does appear as if this government really does not want freelancing to be a viable option.
This is the key. Freelancers earning their living on the internet are not inherently dependent on government and are much more likely to support opposition and fight back against the corrupt government.
It's easy to control people working in overblown administration or public/government sector, or in companies working for them, but controlling free financially independent people not afraid of dying of hunger if they oppose is not that easy.
This is the key. Freelancers earning their living on the internet are not inherently dependent on government and are much more likely to support opposition and fight back against the corrupt government.
It's easy to control people working in overblown administration or public/government sector, or in companies working for them, but controlling free financially independent people not afraid of dying of hunger if they oppose is not that easy.
Corruption and incompetence have been the "standard" of the Serbian administration for a long time, regardless of the political party in power.
The current goverment is just milking the ones caught breaking the law because of the economy being cash-strapped and well... because they can!
I still think it should be fair to offer them the best terms under which they could have incorporated (eg. for anyone with under 4.500 EUR a month it'd be self-employment with fixed rate taxation that was available to anyone), but to pretend that protesting freelancers were not breaking the law is dishonest imo.
The current goverment is just milking the ones caught breaking the law because of the economy being cash-strapped and well... because they can!
I still think it should be fair to offer them the best terms under which they could have incorporated (eg. for anyone with under 4.500 EUR a month it'd be self-employment with fixed rate taxation that was available to anyone), but to pretend that protesting freelancers were not breaking the law is dishonest imo.
> It's also about the level of tax they will have to pay going forward, which appears to be stupendously height (at least for freelancers). It appears on par with, or even higher than, what people with regular employment often pay,
That's not true either.
Proposed changes (not accepted by the protesters) are to consider 43% of income as non-taxable personal deductions (up from 20% in the existing law, though actual, receipt-backed deductions for performance of work are accepted), and then pay the regular tax percentages that employees pay, except that Serbian law splits the employer and employee obligations for employees, but charges the sum total of those tax rates in percentage points to freelancers (eg. see the numbers on https://taxsummaries.pwc.com/serbia/individual/other-taxes — so freelancers would pay 25.5% of the taxable income into the pension fund).
A total cost of a single employee for an employer is considered a gross contractual salary (out of which employee taxes are paid from the link above) + employer taxes on top. So because of the slightly lower "base" calculations are done on, actual percentages are slightly lower for employees, but it was basically negated with the 20% deduction. With a 43% deduction, freelancers get to pay fewer taxes than state gets for a single employee for the same net salary.
Eg. if a freelancer ends up with 100k RSD after all taxes, state gets 36k RSD in total taxes: 36k out of 136k gross is not "stupendous" at all! An employee receiving a net 100k RSD salary, state gets around 66k RSD in taxes. If existing law was upheld, it would be around 60k RSD for freelancers (iow, much closer to what employees are paid for).
That's not true either.
Proposed changes (not accepted by the protesters) are to consider 43% of income as non-taxable personal deductions (up from 20% in the existing law, though actual, receipt-backed deductions for performance of work are accepted), and then pay the regular tax percentages that employees pay, except that Serbian law splits the employer and employee obligations for employees, but charges the sum total of those tax rates in percentage points to freelancers (eg. see the numbers on https://taxsummaries.pwc.com/serbia/individual/other-taxes — so freelancers would pay 25.5% of the taxable income into the pension fund).
A total cost of a single employee for an employer is considered a gross contractual salary (out of which employee taxes are paid from the link above) + employer taxes on top. So because of the slightly lower "base" calculations are done on, actual percentages are slightly lower for employees, but it was basically negated with the 20% deduction. With a 43% deduction, freelancers get to pay fewer taxes than state gets for a single employee for the same net salary.
Eg. if a freelancer ends up with 100k RSD after all taxes, state gets 36k RSD in total taxes: 36k out of 136k gross is not "stupendous" at all! An employee receiving a net 100k RSD salary, state gets around 66k RSD in taxes. If existing law was upheld, it would be around 60k RSD for freelancers (iow, much closer to what employees are paid for).
I'm not quite sure what you are trying to get at.
It appears you are explaining how the Serbian government wants to tax freelancers as if they would have been regular employees. Which other country does that? Where do self-employed people (freelancers) get taxed as if they are employees?
This assumption appears to be underpinning your whole comparison/explanation. Where did you get this assumption of "freelancer should be treated as employee" (as far as taxing goes) come from?
If it wasn't clear from my original sentence, I meant that this tax rate for freelancers is on par with what employees in OTHER countries often pay (if not higher). But I honestly don't know a single country that taxes freelancers as if they are regular employees.
Could you give me examples of other countries that do this, and what the rational behind such an unusual approach might be?
It appears you are explaining how the Serbian government wants to tax freelancers as if they would have been regular employees. Which other country does that? Where do self-employed people (freelancers) get taxed as if they are employees?
This assumption appears to be underpinning your whole comparison/explanation. Where did you get this assumption of "freelancer should be treated as employee" (as far as taxing goes) come from?
If it wasn't clear from my original sentence, I meant that this tax rate for freelancers is on par with what employees in OTHER countries often pay (if not higher). But I honestly don't know a single country that taxes freelancers as if they are regular employees.
Could you give me examples of other countries that do this, and what the rational behind such an unusual approach might be?
> Where do self-employed people (freelancers) get taxed as if they are employees?
In France, for example.
There's no actual concept of "Freelance" here [0]. Legally you're either an employee or you have some form of "company". An "independent" is basically someone running a company of one. But it's legally still a company.
If it's an "individual enterprise," you pay income tax and social security just like an employee. That's basically your revenue minus an allowance (40% I think but I'm not sure).
If you're a regular company, you'll either pay yourself a salary, in which case you pay almost all the taxes as a salaried person does (except for unemployment, which you don't get if your business falls through) or you pay yourself through dividends, in which case you pay a corporate tax (on the company's profits) + income tax (on your dividends). Even though there's a social security part levied on the dividends, you don't actually get anything in return. You're basically considered as someone who doesn't contribute to social security (no retirement and only basic health care — basically emergency). However, for any program that has an upper limit on income, your dividends are taken into account. So no social housing for you.
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[0] There's no such thing as "freelance" in France. There are some jobs that are more or less close, but they're related to show-business. For the purpose of the IT sector, there's no such thing as "freelance".
In France, for example.
There's no actual concept of "Freelance" here [0]. Legally you're either an employee or you have some form of "company". An "independent" is basically someone running a company of one. But it's legally still a company.
If it's an "individual enterprise," you pay income tax and social security just like an employee. That's basically your revenue minus an allowance (40% I think but I'm not sure).
If you're a regular company, you'll either pay yourself a salary, in which case you pay almost all the taxes as a salaried person does (except for unemployment, which you don't get if your business falls through) or you pay yourself through dividends, in which case you pay a corporate tax (on the company's profits) + income tax (on your dividends). Even though there's a social security part levied on the dividends, you don't actually get anything in return. You're basically considered as someone who doesn't contribute to social security (no retirement and only basic health care — basically emergency). However, for any program that has an upper limit on income, your dividends are taken into account. So no social housing for you.
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[0] There's no such thing as "freelance" in France. There are some jobs that are more or less close, but they're related to show-business. For the purpose of the IT sector, there's no such thing as "freelance".
Serbia has long had laws how any income not tied to employment is taxed.
It was always an obligation for the recipient of the income, if the payer is not a company in Serbia, to self report those taxes.
The rates were similar to how employees are taxed.
Does not matter how other countries do it, Serbia always had clear laws governing how taxes should be paid. I know that because I paid those myself in 2011 before registering as a self-employed entity (agency) and later a ltd (doo) company in order to reduce my tax burden.
FWIW, all countries tax all income for their residents, at similar or higher rates. Serbia is not too bad, and the proposed taxation rate for back taxes is actually quite low.
"Freelancers" are not some magical fairies, they are simply people earning money without a registered company being involved. Again, if a freelancer had a Serbian company as a client, that Serbian company would have the obligation to pay the taxes on their behalf. Otherwise, it is their duty to self-report any income using a PP OPO for since at least 2001.
One can also be regularly employed and have some side gigs which they would also have to self report to the Tax Office. The only benefit then is that social insurance taxes are added up and one needs not pay a total social insurance taxes larger than what it'd be for 5 times an average Serbian salary.
Any Serbian accountant would have shared as much.
For freelancers who have that as their main source of income, Serbia has had (and still does) extremely low tax rate with self employment entities (agency) unless you are actually in what amounts to an employee relationship. When I looked, I could not find any country in the world that had <10% taxes on gross income up to 4500 eur a month that included social insurance (health, pension and unemployment insurance).
It was always an obligation for the recipient of the income, if the payer is not a company in Serbia, to self report those taxes.
The rates were similar to how employees are taxed.
Does not matter how other countries do it, Serbia always had clear laws governing how taxes should be paid. I know that because I paid those myself in 2011 before registering as a self-employed entity (agency) and later a ltd (doo) company in order to reduce my tax burden.
FWIW, all countries tax all income for their residents, at similar or higher rates. Serbia is not too bad, and the proposed taxation rate for back taxes is actually quite low.
"Freelancers" are not some magical fairies, they are simply people earning money without a registered company being involved. Again, if a freelancer had a Serbian company as a client, that Serbian company would have the obligation to pay the taxes on their behalf. Otherwise, it is their duty to self-report any income using a PP OPO for since at least 2001.
One can also be regularly employed and have some side gigs which they would also have to self report to the Tax Office. The only benefit then is that social insurance taxes are added up and one needs not pay a total social insurance taxes larger than what it'd be for 5 times an average Serbian salary.
Any Serbian accountant would have shared as much.
For freelancers who have that as their main source of income, Serbia has had (and still does) extremely low tax rate with self employment entities (agency) unless you are actually in what amounts to an employee relationship. When I looked, I could not find any country in the world that had <10% taxes on gross income up to 4500 eur a month that included social insurance (health, pension and unemployment insurance).
To be clear, I have never said that freelancers should not pay tax, nor that they are some magical fairies. In fact, I think that they should have registered as self-employed entities and pay tax accordingly.
Why do you expect (or even insinuate) that I don't know that all countries tax income on residents working there? Of course they do. It actually is a bit more complicated than that, but never mind.
For freelancers (or as a small self-employed entities, which is how freelancers often are legalized), tax usually does not amount up to nearly half of their income. For regular employees this isn't all that unusual, but there are clear distinctions between employment and freelancing.
I find it hard to believe that a Serbian company would pay employment tax if they hire a freelancer, as you claim. Are you really sure about that?
Hiring a freelancer usually means that it is essentially a business-to-business relationship, leaving things like tax, insurance, pension, etc up to the freelancer to take care of. Failing to do that is of course a violation of the tax code, but it doesn't make somebody an employee all of a sudden. I don't think a business is even legally allowed to contract a freelancer unless that person has some kind of legal registration for that. So it would not just be the freelancer that is in violation, but probably also the business contracting them (it could even be an economical crime, for the unfair competitive advantage it might provide).
I guess that the crux here is that the Serbian government decided that anyone who didn't register themselves as a legitimate freelancer (agency, in your words), yet still received income from abroad, will now be treated as if this income was from employment.
Of course these people should pay tax, no doubt about that. But, unless these people are really actual employees and not freelancers (even if they failed to register appropriately), I don't see why they should (or even can) be charged as if they are employees. Other than "might makes right" and "just because we say so".
If all these people calling themselves freelancers are in fact legitimate employees working somewhere abroad, then I completely agree with your logic. However, if that's the case, then there is another snag. The various tax treaties between those countries and Serbia usually dictate that tax will only be charged in one of the involved countries, and usually in the country of employment. But, I'm pretty sure that those foreign companies in most cases did not treat these people as employees (because they'd pay far more) and instead treated them as freelancers. So this likely a moot point.
Maybe I'm still seeing this all wrong, but to me it appears that the government is conveniently classifying these people as regular employees, just because that happens to be a group/classification for which they can charge the highest amount of tax.
For me it is really odd that a freelancer (legal or illegal) can somehow become a regular employee when they fail to register. If anything, I would expect that they be people who have illegal been operating as an business entity. Dealing with that is whole different matter. Potentially dragging in criminal justice and not just tax code. I suspect the government would quickly shoot itself in the foot with that, so maybe that is why they are taking this route instead?
I believe I understood everything you wrote and don't disagree with it (besides what you wrote about a company hiring a freelancer). However, I really don't get how employment and freelancing can somehow be bunched up as if they are the same. But that is what I get from your story and the media. For a company contracting any work force, be that employees or freelancers, it certainly never is.
Why do you expect (or even insinuate) that I don't know that all countries tax income on residents working there? Of course they do. It actually is a bit more complicated than that, but never mind.
For freelancers (or as a small self-employed entities, which is how freelancers often are legalized), tax usually does not amount up to nearly half of their income. For regular employees this isn't all that unusual, but there are clear distinctions between employment and freelancing.
I find it hard to believe that a Serbian company would pay employment tax if they hire a freelancer, as you claim. Are you really sure about that?
Hiring a freelancer usually means that it is essentially a business-to-business relationship, leaving things like tax, insurance, pension, etc up to the freelancer to take care of. Failing to do that is of course a violation of the tax code, but it doesn't make somebody an employee all of a sudden. I don't think a business is even legally allowed to contract a freelancer unless that person has some kind of legal registration for that. So it would not just be the freelancer that is in violation, but probably also the business contracting them (it could even be an economical crime, for the unfair competitive advantage it might provide).
I guess that the crux here is that the Serbian government decided that anyone who didn't register themselves as a legitimate freelancer (agency, in your words), yet still received income from abroad, will now be treated as if this income was from employment.
Of course these people should pay tax, no doubt about that. But, unless these people are really actual employees and not freelancers (even if they failed to register appropriately), I don't see why they should (or even can) be charged as if they are employees. Other than "might makes right" and "just because we say so".
If all these people calling themselves freelancers are in fact legitimate employees working somewhere abroad, then I completely agree with your logic. However, if that's the case, then there is another snag. The various tax treaties between those countries and Serbia usually dictate that tax will only be charged in one of the involved countries, and usually in the country of employment. But, I'm pretty sure that those foreign companies in most cases did not treat these people as employees (because they'd pay far more) and instead treated them as freelancers. So this likely a moot point.
Maybe I'm still seeing this all wrong, but to me it appears that the government is conveniently classifying these people as regular employees, just because that happens to be a group/classification for which they can charge the highest amount of tax.
For me it is really odd that a freelancer (legal or illegal) can somehow become a regular employee when they fail to register. If anything, I would expect that they be people who have illegal been operating as an business entity. Dealing with that is whole different matter. Potentially dragging in criminal justice and not just tax code. I suspect the government would quickly shoot itself in the foot with that, so maybe that is why they are taking this route instead?
I believe I understood everything you wrote and don't disagree with it (besides what you wrote about a company hiring a freelancer). However, I really don't get how employment and freelancing can somehow be bunched up as if they are the same. But that is what I get from your story and the media. For a company contracting any work force, be that employees or freelancers, it certainly never is.
You seem to be misunderstanding a few things: nobody is treating them as employees, they are "contractors", and this concept was there since forever in Serbian law. These "freelancers" paid no taxes even if they were required to self-report their income.
I only said that the tax rates in question are the same for social security, and the income tax rate is effectively 16% (20% of 80% after 20% expense deductions; with proposed 43% of expense reductions, it's 20% of 57%, or 11.4%), which is not too different from the 10% income tax on employees. They are claiming the law doesn't recognize them, whereas in fact, it does, and the rates are worse than for employees. Which is why they should have registered.
Note that expenses are supposed to be business expenses, and if you've got much bigger real business expenses, they will be accepted (article 57 of the law: https://www.paragraf.rs/propisi/zakon-o-porezu-na-dohodak-gr...).
> I find it hard to believe that a Serbian company would pay employment tax if they hire a freelancer, as you claim. Are you really sure about that?
Serbian company is obligated to pay for any taxes that a non-company owes (income, social security) because they usually have an accountant and a physical person doesn't. If these freelancers were working with Serbian companies, all the taxes would have been paid for them.
This is not "employment tax", it's just that the same or similar rates are applied.
I am not an accountant, but I've been in this boat in Serbia ;-)
I only said that the tax rates in question are the same for social security, and the income tax rate is effectively 16% (20% of 80% after 20% expense deductions; with proposed 43% of expense reductions, it's 20% of 57%, or 11.4%), which is not too different from the 10% income tax on employees. They are claiming the law doesn't recognize them, whereas in fact, it does, and the rates are worse than for employees. Which is why they should have registered.
Note that expenses are supposed to be business expenses, and if you've got much bigger real business expenses, they will be accepted (article 57 of the law: https://www.paragraf.rs/propisi/zakon-o-porezu-na-dohodak-gr...).
> I find it hard to believe that a Serbian company would pay employment tax if they hire a freelancer, as you claim. Are you really sure about that?
Serbian company is obligated to pay for any taxes that a non-company owes (income, social security) because they usually have an accountant and a physical person doesn't. If these freelancers were working with Serbian companies, all the taxes would have been paid for them.
This is not "employment tax", it's just that the same or similar rates are applied.
I am not an accountant, but I've been in this boat in Serbia ;-)
That's not true at all. There was no classification needed at all to pay taxes, and how much should be paid was clear, and the requirement was to self-report on these taxes. I know because I've paid those taxes at exorbitant rates at one point which are now being retroactively reduced (by retroactively changing normalised expenses from 20% to 43% which are deducted from taxable income)!
There were (and still exist) problems with pension fund contributions being recognized, but that's more on the pension fund to figure out (I've got 11 months of payments from 2011 that they are not registering because of this, which is why I switched to self-employment then).
But this is also ignoring the fact that all these years until early in 2020, Serbia had an extremely low-tax mode of operation for such workers: self-employment with taxation on a predetermined fixed "income" up to an actual yearly income of 6 million RSD (~50,000 EUR). For IT workers, who had the biggest tax rates in those arrangements, it was not more than 400€ a month, which is pretty amazing for up to 4500€ of gross income. This arrangement only required registration with the tax office and business registry that you are operating a self-employment agency.
Sure, those at the lower end or irregular income wouldn't benefit from it, but Serbian government is already mostly forgiving their debt for anyone with less than 500€ of monthly income, and spreading the debt over 10 years, which are the terms protesters are not accepting.
I also think it'd be acceptable to offer the same taxation rate to anyone who would have been eligible for self-employement fixed-tax if it is more beneficial, and the accumulated interest would be the only "penalty" for skipping taxes.
That way people who did pay taxes wouldn't feel disadvantaged over the ones who avoided them.
There were (and still exist) problems with pension fund contributions being recognized, but that's more on the pension fund to figure out (I've got 11 months of payments from 2011 that they are not registering because of this, which is why I switched to self-employment then).
But this is also ignoring the fact that all these years until early in 2020, Serbia had an extremely low-tax mode of operation for such workers: self-employment with taxation on a predetermined fixed "income" up to an actual yearly income of 6 million RSD (~50,000 EUR). For IT workers, who had the biggest tax rates in those arrangements, it was not more than 400€ a month, which is pretty amazing for up to 4500€ of gross income. This arrangement only required registration with the tax office and business registry that you are operating a self-employment agency.
Sure, those at the lower end or irregular income wouldn't benefit from it, but Serbian government is already mostly forgiving their debt for anyone with less than 500€ of monthly income, and spreading the debt over 10 years, which are the terms protesters are not accepting.
I also think it'd be acceptable to offer the same taxation rate to anyone who would have been eligible for self-employement fixed-tax if it is more beneficial, and the accumulated interest would be the only "penalty" for skipping taxes.
That way people who did pay taxes wouldn't feel disadvantaged over the ones who avoided them.
You're right on most parts, I'm not as well informed as I thought I was, but I think you're going with assumption that all the freelance folk should have registered 'agencies' and worked with that. That wasn't an option for everyone.
Most of the freelancers I know only did occasional gigs (most were either students or designers) and having to pay for monthly tax wasn't really an option as they didn't make that much.
People with 'agencies' have no tax debts, so they aren't really the issue here.
Most of the freelancers I know only did occasional gigs (most were either students or designers) and having to pay for monthly tax wasn't really an option as they didn't make that much.
People with 'agencies' have no tax debts, so they aren't really the issue here.
I fully agree with all your points, but it still doesn’t make sense to me that they need to back-pay for health insurance as one of the regular welfare payments, when they haven’t had the opportunity to use it during that period.
Well, if they've paid it on time, they would have had an ability to use it. :)
Generally, taxes for public services are paid even if you don't use them — it's the nature of the beast. Many people with decent income in Serbia almost exclusively use private healthcare because of the annoying see-a-GP-to-be-scheduled-to-see-a-specialist-in-several-months dance, yet they are obligated to pay for it.
But sure, it still feels bad for whoever has to pay (it's like a car loan that you want to pay off, and you still owe more than what the car is worth at that point: feels terrible, but that's your legal obligation).
Generally, taxes for public services are paid even if you don't use them — it's the nature of the beast. Many people with decent income in Serbia almost exclusively use private healthcare because of the annoying see-a-GP-to-be-scheduled-to-see-a-specialist-in-several-months dance, yet they are obligated to pay for it.
But sure, it still feels bad for whoever has to pay (it's like a car loan that you want to pay off, and you still owe more than what the car is worth at that point: feels terrible, but that's your legal obligation).
Btw, this problem is endemic to all public services in Serbia. If you skip your self-registered healthcare payments for 6 months, you won't be able to use the services, but government will still charge you until you pay up, instead of voiding your contract.
I agree this should be fixed elsewhere too, not just in the case of back-taxation.
I agree this should be fixed elsewhere too, not just in the case of back-taxation.
I was under the impression that for freelance income it was only a personal income tax. What you are referring to is for employees: https://en.m.wikipedia.org/wiki/Taxation_in_Serbia
Are freelancers considered employees here?
Are freelancers considered employees here?
Income tax rates apply to any income from work, including contracted temporary work (including specifically "authorship works" which IT services generally fell under and which get 20% "normalized expenses", though if your actual costs are higher, you _can_ document expenses instead). Method of calculation is slightly different because of expenses and treatment of gross income, but rates are the same by law.
They are, however, not treated as employees (which have a lot of protections like minimum hourly wage, maximum working hours, maximum daily and weekly overtime hours, minimum number of paid vacation days, sick leave coverage at 60% of salary...). For freelancers, this does cause trouble with the pension fund employees not wanting to count your contributions toward your pension, but it depends heavily on who deals with processing your forms.
They are, however, not treated as employees (which have a lot of protections like minimum hourly wage, maximum working hours, maximum daily and weekly overtime hours, minimum number of paid vacation days, sick leave coverage at 60% of salary...). For freelancers, this does cause trouble with the pension fund employees not wanting to count your contributions toward your pension, but it depends heavily on who deals with processing your forms.
And to further clarify, as early as 2008 when I looked at it first, social insurance payments were required at the same rates employers and employees pay, with the main benefit being that if you already have other income (eg salary), your total social contributions should are capped at 5 times the average (eg if you've got a 3x the average salary, and a side gig getting you another 3x the average salary, you'd only be paying self-reported social insurance taxes on the extra 2x average salary).
Check out GILTI - a 10 year retroactive tax that the US hit me (and all expats who own small businesses) with. A retroactive double tax, at that.
Looks like it's a 2001 law that is now being enforced?
As a victim of IR35 in the UK I can only say that yes, it does happen often. But that's what taxes are mainly for: to prevent citizens from becoming economically independent, otherwise they could start asking why should they take commands from the some state centre.
Victim? Please. Everyone I know who was a contractor (disguised employee) knew the glory days were numbered, it was only a matter of time before they were required to pay taxes just like the rest of us.
The worrying thing about IR35 is not what it does to the middle classes ability to play tax games like the rich, but what implications it has for employment at the wage slave end of the scale.
The worrying thing about IR35 is not what it does to the middle classes ability to play tax games like the rich, but what implications it has for employment at the wage slave end of the scale.
The Laffer Curve definitely applies here. Not sure if intentionally. 6 years of retroactive taxes due in one lump sum with punitive rates going forward can only lead to tax avoidance and a change in market behavior.
https://en.wikipedia.org/wiki/Laffer_curve
https://en.wikipedia.org/wiki/Laffer_curve
I came to know about a similar situation in Bosnia a few years ago. People (freelancers, software devs and PO/SM) working for other European companies experiencing a difficult status. While living in an apparent "no tax" region, to whom willing to dive deep into legislation and taxation schemes it was very clearly a sort of suspended situation due to government agencies not willing to do their homework and try to figure out how to correctly categorize those workers. So a lot of them was keeping money for the time in the future they would start being asked to pay taxes.
This seems to be a change in taxation policy almost precision-made to push yet more young educated people abroad.
In Serbia, a country with a major brain drain problem, this is tantamount to serious self harm.
In Serbia, a country with a major brain drain problem, this is tantamount to serious self harm.
It all depends on your position, or frame of reference.
No doubt it is self harm, when viewed against the well being and progress of the country as a whole. On the other hand, for the individuals and systems that appear to determine what actually happens in Serbia, having this brain drain might be everything but a problem. In fact, it might be their main source of profit, power and success.
It's a lot easier to convince/coerce uneducated and desperate people, into supporting things that are eventually against their own interests. Just providing short term benefits that make them appear better off than all "other" people is usually enough. It doesn't matter that it's a pyramid construction and that everyone will eventually pay through their nose. The people who support such schemes usually either can't see how they are being played, or just don't have a "luxury" to even care about whatever might happen tomorrow (they just need whatever benefits they can grab now).
No doubt it is self harm, when viewed against the well being and progress of the country as a whole. On the other hand, for the individuals and systems that appear to determine what actually happens in Serbia, having this brain drain might be everything but a problem. In fact, it might be their main source of profit, power and success.
It's a lot easier to convince/coerce uneducated and desperate people, into supporting things that are eventually against their own interests. Just providing short term benefits that make them appear better off than all "other" people is usually enough. It doesn't matter that it's a pyramid construction and that everyone will eventually pay through their nose. The people who support such schemes usually either can't see how they are being played, or just don't have a "luxury" to even care about whatever might happen tomorrow (they just need whatever benefits they can grab now).
To share a bit more of the factual situation on site.
The recently published guidelines for Serbia tax officers on what the back taxes should be include income ranges up to 10.000 EUR/month — there are some serious earners in there who haven't paid any taxes for likely more than 5 years (but the statute of limitations only allows the government to claim for that much, or rather, accused can call upon the expiration of tax debt if no action was taken in 5 years)!
Serbian government has already made provisions to cut the taxes retroactively by ~20% (which those who've paid them on time do not get the benefit of), and another set of provisions which almost nullifies all the backtaxes for anyone in the <500 EUR/month income bracket (an average net salary in Serbia) for the last 5 years, so the ones most affected are going to be those having earned more than the average. And it sure sucks for those being just slightly over the hump, so they are most negatively affected!
Serbia, until early last year, allowed for self-employment with pre-set taxes without any bookkeeping (for IT professions at around 250-400 EUR a month, other professions had it even cheaper) for years up to a total of 50.000 EUR a year, so anyone who was earning any money between 700 and 4500 EUR a month gross had an extremely beneficial taxation situation if they only registered with the tax office).
So it's a tricky situation to be caught "red handed" in, but nothing has really changed in the law, it's just that the Tax Office has become more vigilant in chasing down the offenders of this particular tax (which requires self-reporting). I'd personally have more sympathy if they admitted to being caught breaking the law, and then asking for better conditions that do not bankrupt them.
The biggest argument for those protesting is that Tax Office employees were not giving any advice about how to file tax reports, which is true (I've experienced it myself, which is why I got outside counsel and read the laws myself back in 2000s), even though they are required to give tax advice to private persons by law.
But in a functioning system, that would be settled in the damages court against those tax office employees, and part of the obligation would still be with the tax avoider, though Serbia has anything but a functioning judicial system. :)
The recently published guidelines for Serbia tax officers on what the back taxes should be include income ranges up to 10.000 EUR/month — there are some serious earners in there who haven't paid any taxes for likely more than 5 years (but the statute of limitations only allows the government to claim for that much, or rather, accused can call upon the expiration of tax debt if no action was taken in 5 years)!
Serbian government has already made provisions to cut the taxes retroactively by ~20% (which those who've paid them on time do not get the benefit of), and another set of provisions which almost nullifies all the backtaxes for anyone in the <500 EUR/month income bracket (an average net salary in Serbia) for the last 5 years, so the ones most affected are going to be those having earned more than the average. And it sure sucks for those being just slightly over the hump, so they are most negatively affected!
Serbia, until early last year, allowed for self-employment with pre-set taxes without any bookkeeping (for IT professions at around 250-400 EUR a month, other professions had it even cheaper) for years up to a total of 50.000 EUR a year, so anyone who was earning any money between 700 and 4500 EUR a month gross had an extremely beneficial taxation situation if they only registered with the tax office).
So it's a tricky situation to be caught "red handed" in, but nothing has really changed in the law, it's just that the Tax Office has become more vigilant in chasing down the offenders of this particular tax (which requires self-reporting). I'd personally have more sympathy if they admitted to being caught breaking the law, and then asking for better conditions that do not bankrupt them.
The biggest argument for those protesting is that Tax Office employees were not giving any advice about how to file tax reports, which is true (I've experienced it myself, which is why I got outside counsel and read the laws myself back in 2000s), even though they are required to give tax advice to private persons by law.
But in a functioning system, that would be settled in the damages court against those tax office employees, and part of the obligation would still be with the tax avoider, though Serbia has anything but a functioning judicial system. :)
Nation states seem to not want people to cross borders. This shouldn't be surprising as it causes all sorts of admin-work and opportunities to pay lower taxes etc. But this is clearly a trend.
One other point is the EU's GAIA X project with the stated goal of building a cloud infrastructure that reinforces national borders. Why this is a good thing is up for debate I guess.
One other point is the EU's GAIA X project with the stated goal of building a cloud infrastructure that reinforces national borders. Why this is a good thing is up for debate I guess.
The high heat nationalism in the ex-yu managed to distract the populace from the fact that their countries are unreformed socialist era dinosaurs. They never realized that even formerly poorer countries like Bulgaria and Romania reformed 10-20 years ago.
Every single reflex and action of management in these outdated states is to grab more tax and control more of the economy.
The mentality of the people is the same, every ill is prescribed to the state(or the politicians who lead it) and every problem is the state's to solve.
Every single reflex and action of management in these outdated states is to grab more tax and control more of the economy.
The mentality of the people is the same, every ill is prescribed to the state(or the politicians who lead it) and every problem is the state's to solve.
But isn't the correct reform her to make the freelancers pay taxes to put them on an equal footing with everyone else? They seem to have fucked up everything about the details, but the general direction seems the correct one: equal taxation for everyone.
In theory, everyone should be taxed equally.
In practice, the tax burden tends to shift to those that cannot easily escape it. Small countries like Serbia need to take into account ease of emigration, too.
That is a classic case of "is-ought". Taxation is a Darwinian system that exerts evolutionary pressure on individuals and businesses.
In practice, the tax burden tends to shift to those that cannot easily escape it. Small countries like Serbia need to take into account ease of emigration, too.
That is a classic case of "is-ought". Taxation is a Darwinian system that exerts evolutionary pressure on individuals and businesses.
There's a slight difference here - freelancers are bringing money into the country from outside. Local employees are just moving the money around. And even if the freelancers didn't pay income paxes, they still payed VAT (20%!). So the country already benefited from VAT and influx of capital.
And there were others who did the same yet paid all the taxes required by law. I was one of those.
Should I ask for a return of my back taxes?
Should I ask for a return of my back taxes?
> The high heat nationalism in the ex-yu managed to distract the populace from the fact that their countries are unreformed socialist era dinosaurs.
It's not so much nationalism as much as people _wanting_ their countries to stay unreformed socialist era dinosaurs. Many smaller communities here (Croatia) depend on government handouts or jobs in the public sector.
Without them, those communities would cease to exist.
It's not so much nationalism as much as people _wanting_ their countries to stay unreformed socialist era dinosaurs. Many smaller communities here (Croatia) depend on government handouts or jobs in the public sector.
Without them, those communities would cease to exist.
Unfortunately, Bulgaria is not in a much better place. We are in EU and NATO, but not many other differences. Our ruling elite hasn't changed much - still communist secret police related figures and oligarchs.
Romania seems more reformed, they even managed to put some politicians in jail recently.
Romania seems more reformed, they even managed to put some politicians in jail recently.
The simplest solution for countries like Serbia is just to adopt poll taxes and property taxes, perhaps with a flat income tax of 5% without payroll taxes, and to make participation in the welfare state entirely optional and privatised.
If low taxes like this are formally embraced, then instead of working as individual freelancers, Serbians can instead formally create companies and increase their productive output and market power. Money could be retained inside the economy and reinvested, instead of hoarded in USD, EUR or BTC.
The problem is that it is just too appealing for politicians to run giant taxation and redistribution systems, in order to maintain a voting mass of Government workers and pensioners (and to feed money into their corruption pipelines).
If low taxes like this are formally embraced, then instead of working as individual freelancers, Serbians can instead formally create companies and increase their productive output and market power. Money could be retained inside the economy and reinvested, instead of hoarded in USD, EUR or BTC.
The problem is that it is just too appealing for politicians to run giant taxation and redistribution systems, in order to maintain a voting mass of Government workers and pensioners (and to feed money into their corruption pipelines).
This is just stupid. Children don't have an income but they would be subject to a poll tax. In fact, you would run into the same problem with inmates in prison. Not only is a part of the population unable to work, there is a part of the population that is not allowed to work at all.
If we are going to have a pissing contest about tax reforms the we should abolish corporate income tax and capital gains tax and replace both with slightly lowered income taxes. After you did this simplification you would then replace income taxes by land value taxes. This wouldn't get rid of things like mandatory health insurance contributions.
I'm honestly pissed how companies are forced to play tax games for the global race to the bottom. Nothing should stand in the way of a honest corporation earning money through productive work. They shouldn't do weird things like stockpile cash abroad and get into debt within the country. No company should prefer stock buybacks over dividends simply because of tax efficiency. All of this is stupid and that is why we should get rid of it.
Meanwhile your idea is just your own flavor of "private market over everything".
If we are going to have a pissing contest about tax reforms the we should abolish corporate income tax and capital gains tax and replace both with slightly lowered income taxes. After you did this simplification you would then replace income taxes by land value taxes. This wouldn't get rid of things like mandatory health insurance contributions.
I'm honestly pissed how companies are forced to play tax games for the global race to the bottom. Nothing should stand in the way of a honest corporation earning money through productive work. They shouldn't do weird things like stockpile cash abroad and get into debt within the country. No company should prefer stock buybacks over dividends simply because of tax efficiency. All of this is stupid and that is why we should get rid of it.
Meanwhile your idea is just your own flavor of "private market over everything".
> an advanced economy, with individual and corporate transparency and opportunity, or a welfare state.
These are not in conflict, they are complimentary; the welfare state is necessary for individual opportunity to flourish, rather than a purely family/connections system.
Nowhere has successfully done the "low tax advanced economy without a welfare state" transition without also being a tiny tax haven or having a massive natural resource to sell off.
These are not in conflict, they are complimentary; the welfare state is necessary for individual opportunity to flourish, rather than a purely family/connections system.
Nowhere has successfully done the "low tax advanced economy without a welfare state" transition without also being a tiny tax haven or having a massive natural resource to sell off.
Margaret Thatcher had a famous problem implementing a scheme likened to a poll tax.
If a proposed solution could not be implemented by the Iron Lady, it can hardly be called "simple".
If a proposed solution could not be implemented by the Iron Lady, it can hardly be called "simple".
Then people will go the cheap way and hope nothing wrong happens to them. But statistics is a bitch and it will inevitable happen to some. Then they'll start asking around for payouts.
We sort of had this in 90s and 00s in ex-USSR when not paying taxes was completely normal. The result is not pretty if you want to have a functioning society.
We sort of had this in 90s and 00s in ex-USSR when not paying taxes was completely normal. The result is not pretty if you want to have a functioning society.
Living in Serbia is cheap. Most people have extensive families. If they run out of work, they can move back to the countryside, to live with their father or grandmother.
Charities can also fill in the gaps.
The question is whether Serbia wants an advanced economy, with individual and corporate transparency and opportunity, or a stagnant welfare state.
Charities can also fill in the gaps.
The question is whether Serbia wants an advanced economy, with individual and corporate transparency and opportunity, or a stagnant welfare state.
If Serbia is not a very interesting exception, the intergenerational links are (sadly) fracturing day by day. While that may have worked a decade ago, that sure won't work a decade or two from now. And social system shall plan for what is coming.
While at it, we could also change pension system. If your kids emigrate (or you didn't have any), then you get only half of the minimum payout :)
While at it, we could also change pension system. If your kids emigrate (or you didn't have any), then you get only half of the minimum payout :)
> While at it, we could also change pension system. If your kids emigrate (or you didn't have any), then you get only half of the minimum payout :)
That's why I don't trust the pension system - too many people opining what we should do with the money. Let's borrow from the budget to pay pensions, or let's borrow from pensions to fix the budget, or let's invest pensions in stocks (which might crush), or let's raise the age, or let's add new rules.
I just want to save some money for old age, I don't want my savings to be redistributed 20 years from now by some new rules just invented. If I can't be sure of the pension then it's not fulfilling its role as an assurance that I'll be prepared when the time comes.
That's why I don't trust the pension system - too many people opining what we should do with the money. Let's borrow from the budget to pay pensions, or let's borrow from pensions to fix the budget, or let's invest pensions in stocks (which might crush), or let's raise the age, or let's add new rules.
I just want to save some money for old age, I don't want my savings to be redistributed 20 years from now by some new rules just invented. If I can't be sure of the pension then it's not fulfilling its role as an assurance that I'll be prepared when the time comes.
The primary expense of living in the West is rent and housing - due to mass immigration driving up populations beyond their natural size (given that fertility rates are sub-replacement in practically every Western country).
By contrast the primary expense of living in the 'East' is food and energy. For many people, housing is practically or exactly free.
The Serbian population is already down about a million people from its peak: https://www.populationpyramid.net/serbia/2019/
There is a lot of cheap real-estate out there outside cities.
What might make more sense is to have food kitchens and standardised subsidised housing for the poor and out of work. This kind of work could be done super-efficiently at a national level.
The other factor is that things like pension and welfare expenses are basically known expenses. It doesn't make sense to charge a % of consumption or income (thereby disincentivizing both of them). Just share the burden across everyone of working age with a poll tax, and to the rich with a property tax (with a credit for the number of children under age 16, to avoid penalizing families). You can find other externalities to tax like drugs, road use, and fossil fuels.
The USA, UK, Scandinavia, Australia have embraced these kind of transparent and simple taxes, and their societies are much wealthier because of them.
By contrast the primary expense of living in the 'East' is food and energy. For many people, housing is practically or exactly free.
The Serbian population is already down about a million people from its peak: https://www.populationpyramid.net/serbia/2019/
There is a lot of cheap real-estate out there outside cities.
What might make more sense is to have food kitchens and standardised subsidised housing for the poor and out of work. This kind of work could be done super-efficiently at a national level.
The other factor is that things like pension and welfare expenses are basically known expenses. It doesn't make sense to charge a % of consumption or income (thereby disincentivizing both of them). Just share the burden across everyone of working age with a poll tax, and to the rich with a property tax (with a credit for the number of children under age 16, to avoid penalizing families). You can find other externalities to tax like drugs, road use, and fossil fuels.
The USA, UK, Scandinavia, Australia have embraced these kind of transparent and simple taxes, and their societies are much wealthier because of them.
> The USA, UK, Scandinavia, Australia have embraced these kind of transparent and simple taxes, and their societies are much wealthier because of them.
This is nonsense. All of these states have complex and much higher rates of income tax than Serbia, plus consumption taxes.
The UK tried a poll tax once and there were riots, up to a third of people refused to pay and it was one of the main reasons a Prime Minister of 11 years lost her job to someone who promised to replace it. And that was a relatively low one just to fund local services with a reduced rate for registered unemployed. Of all the potential income tax alternatives it is undoubtedly the worst.
It makes far more sense to distribute the burden of paying for pensions according to current ability to afford it than to force people to pay money they don't have into a scheme which simply promises to give it back decades later if they're still alive.
This is nonsense. All of these states have complex and much higher rates of income tax than Serbia, plus consumption taxes.
The UK tried a poll tax once and there were riots, up to a third of people refused to pay and it was one of the main reasons a Prime Minister of 11 years lost her job to someone who promised to replace it. And that was a relatively low one just to fund local services with a reduced rate for registered unemployed. Of all the potential income tax alternatives it is undoubtedly the worst.
It makes far more sense to distribute the burden of paying for pensions according to current ability to afford it than to force people to pay money they don't have into a scheme which simply promises to give it back decades later if they're still alive.
VAT is just a poll tax by stealth. Instead of charging you directly, we will increase the price of all of the goods and services you consume, distorting and adding a huge bureaucratic layer to the economy as a result.
Secondarily we will print money to finance Government spending, and you will 'pay' for it through inflation.
Meanwhile the rich can avoid VAT by purchasing expensive personal electronics and cars through their companies and getting rebated, and see their asset portfolios increase in value thanks to the money printing.
If the psychological element of paying poll taxes is too extreme, just replace them with land taxes with credits for each citizen living there and large credits for children under 16. At least you can link the payment to the consumption of a resource (housing) and penalty if you don't pay (confiscation or the application of a lien).
Of course land value taxes are unpopular in European countries with a huge class of landed gentry...
Secondarily we will print money to finance Government spending, and you will 'pay' for it through inflation.
Meanwhile the rich can avoid VAT by purchasing expensive personal electronics and cars through their companies and getting rebated, and see their asset portfolios increase in value thanks to the money printing.
If the psychological element of paying poll taxes is too extreme, just replace them with land taxes with credits for each citizen living there and large credits for children under 16. At least you can link the payment to the consumption of a resource (housing) and penalty if you don't pay (confiscation or the application of a lien).
Of course land value taxes are unpopular in European countries with a huge class of landed gentry...
"due to mass immigration driving up populations beyond their natural size"
Jain, as the Germans say. The combination of immigration into several major metropolitan hubs with almost all good jobs being there is what drives the housing prices up. What is "natural size" of San Francisco? It used to be close to 0 some 200 years ago.
There is plenty of cheap property in rural areas of Europe that are too far from the next Top 10 city to facilitate a daily commute there and back again. You can literally buy houses in remote Italian countryside for 1 euro if you promise to stay there as an inhabitant. And no one wants to stay in rural Mecklenburg-Vorpommern in East Germany, even the asylum seekers from Pakistan of Afghanistan get on the first train and leave.
A shift to remote work could alleviate some of that upward pressure.
Jain, as the Germans say. The combination of immigration into several major metropolitan hubs with almost all good jobs being there is what drives the housing prices up. What is "natural size" of San Francisco? It used to be close to 0 some 200 years ago.
There is plenty of cheap property in rural areas of Europe that are too far from the next Top 10 city to facilitate a daily commute there and back again. You can literally buy houses in remote Italian countryside for 1 euro if you promise to stay there as an inhabitant. And no one wants to stay in rural Mecklenburg-Vorpommern in East Germany, even the asylum seekers from Pakistan of Afghanistan get on the first train and leave.
A shift to remote work could alleviate some of that upward pressure.
> The USA, UK, Scandinavia, Australia have embraced these kind of transparent and simple taxes, and their societies are much wealthier because of them.
Eh, scandinavia doesn't use poll taxes but all have progressive tax rates (Just like the rest of northern Europe)? And AFAIK the UK and US also use progressive tax rates?
Eh, scandinavia doesn't use poll taxes but all have progressive tax rates (Just like the rest of northern Europe)? And AFAIK the UK and US also use progressive tax rates?
Yet the reality is that nobody wants to live in rundown houses in countryside. And a nice house in countryside still costs €€€.
Even with the current system, you can easily move to countryside, live in super cheap rundown house, do little work for cash and avoid taxes :) Abandoned gardens could replace food kitchens if you invest some time to preserve food in fall.
Yet most people ain't interested in that. And if we allow the masses to escape welfare, I'm sure they won't resort to above lifestyle when life gets difficult.
Even with the current system, you can easily move to countryside, live in super cheap rundown house, do little work for cash and avoid taxes :) Abandoned gardens could replace food kitchens if you invest some time to preserve food in fall.
Yet most people ain't interested in that. And if we allow the masses to escape welfare, I'm sure they won't resort to above lifestyle when life gets difficult.
And poll taxes is actually what could make such a life impossible do it is unclear why op advocates that.
This is an excellent point. It's too politically advantageous to run huge systems.
No, people won't save enough for retirement or major health issues. It's an existential problem.
Serbia is 7M people for gosh stakes it's the size of Greater Toronto or Chicago, there doesn't need to be a 'giant bureaucracy'.
Serbia is 7M people for gosh stakes it's the size of Greater Toronto or Chicago, there doesn't need to be a 'giant bureaucracy'.
Bureaucracy growth has often little to do with need.
Important governmental services tend to be understaffed, either because the work is arduous, unpleasant or does not pay enough to attract competent individuals.
What tends to grow are services that are politically expedient.
Important governmental services tend to be understaffed, either because the work is arduous, unpleasant or does not pay enough to attract competent individuals.
What tends to grow are services that are politically expedient.
This is not an argument though.
Of course government services can have too many or too few workers, that's a matter of efficiency.
All rich nations have mostly socialized infrastructure: water, electricity, roads and partially socialized retirement and healthcare.
That's partly why they are rich.
Of course government services can have too many or too few workers, that's a matter of efficiency.
All rich nations have mostly socialized infrastructure: water, electricity, roads and partially socialized retirement and healthcare.
That's partly why they are rich.
Then they will die.
You can't save people from themselves.
You can't save people from themselves.
In Serbia, a country that suffered government-caused hyperinflation, the idea is ask people to save money for retirement will meet some justified distrust. Not to mention that it is a low-income country where people have smaller margins from which to save. You can't just forgo a holiday in Bahamas to save some money if you cannot afford said holiday in the first place.
This is the thinking of poor countries, like Croatia, Zambia, Tajikistan.
All rich countries have some kind of basic retirement benefits and some measure public medical care (the US spends more per capita on socialized medicine than does Canada) - this is partly why they are rich.
It's not even controversial anymore, it hasn't been for 70 years.
All rich countries have some kind of basic retirement benefits and some measure public medical care (the US spends more per capita on socialized medicine than does Canada) - this is partly why they are rich.
It's not even controversial anymore, it hasn't been for 70 years.
>This is the thinking of poor countries, like Croatia
Croatia’s had pretty decent universal healthcare for many years.
Croatia’s had pretty decent universal healthcare for many years.
Croatia is anything but poor; can you imagine how rich a country must be to support Western Europe with labor, natural resources, defense and financial wealth for 600 years without interruptions? I know of no other country which has managed such a feat hitherto, do you?
Croats just save differently to others due to corruption and adversity in their country: an average Croat's wealth is in real estate. As there is no real estate tax on primary abode, real estate ownership is high, while the mortgage debt is almost nonexistent. Where do you think 7.5 billion euros which pour in every Summer from tourism go? That money mostly ends up in the newly built villas on the coast.
Croats just save differently to others due to corruption and adversity in their country: an average Croat's wealth is in real estate. As there is no real estate tax on primary abode, real estate ownership is high, while the mortgage debt is almost nonexistent. Where do you think 7.5 billion euros which pour in every Summer from tourism go? That money mostly ends up in the newly built villas on the coast.
"mortgage debt is almost nonexistent. "
This doesn't make a lot of sense, if there is low interest rates and no estate or real estate tax, then people should naturally have considerable leverage.
This doesn't make a lot of sense, if there is low interest rates and no estate or real estate tax, then people should naturally have considerable leverage.
That's because in Croatia, banks have often been the focal points of financial crime deeply intertwined with political crime; as the justice system isn't functional, the banks constantly and literally swindled citizens, so the average Croat does not take out a mortgage and does not trust any institutions. For example, several years ago, lots of people were intentionally misled by the banks providing loans in kunas which were tied to the swiss franc. When the Swiss National Bank lifted the peg in 2012, the franc, being the safe harbor currency, skyrocketed in value. The banks immediately demanded higher interest, which the loan consumers were of course unable to financially bear. The whole debacle ended up going all the way to the supreme court where it was finally overturned. Up until that point, the banks did not care and kept bankrupting people without so much as batting an eyelash.
This is just one example. In the '90's, bank of Ljubljana simply froze, then siphoned off all of their Croatian customers' assets in Croatia to their central office in Slovenia. Nobody ever saw any of their money up to this present day, and are unlikely to ever see it. Nobody went to jail, and it is unlikely anyone ever will. There are a sea of such examples in that country. This is why in Croatia, one borrows cash from family, relatives and friends at no interest, rather than get screwed over by the state and all kinds of private institutions, none of which can be trusted. Croats have zero confidence in their government or anyone else for that matter, sometimes they do not, or cannot even trust their own family or would-be friends.
This is just one example. In the '90's, bank of Ljubljana simply froze, then siphoned off all of their Croatian customers' assets in Croatia to their central office in Slovenia. Nobody ever saw any of their money up to this present day, and are unlikely to ever see it. Nobody went to jail, and it is unlikely anyone ever will. There are a sea of such examples in that country. This is why in Croatia, one borrows cash from family, relatives and friends at no interest, rather than get screwed over by the state and all kinds of private institutions, none of which can be trusted. Croats have zero confidence in their government or anyone else for that matter, sometimes they do not, or cannot even trust their own family or would-be friends.
> Croats have zero confidence in their government or anyone else for that matter
The zero trust in state and banks syndrome, I have it too. I'm from a different Eastern European country though. Since I don't trust the pensions, I save up individually.
The zero trust in state and banks syndrome, I have it too. I'm from a different Eastern European country though. Since I don't trust the pensions, I save up individually.
If that's the case, then none of the aforementioned issues matter one bit.
It's pointless to talk about the efficiency of public systems, for even the effectiveness of wealth taxes etc. if corruption is endemic, particularly in the financial sector.
If the banking sector is corrupt - there can be no real economy.
And FYI this notion of 'no mortgage debt' as something healthy is completely wrong. 'Credit' is the lifeblood of an economy, if you want to get people into good housing, it's essential. Mortgages enable people to spread payments out over time and are a fundamental artifact of affordability. Mo mortgages = bad housing and fewer jobs in the construction sector.
There can be risk of housing bubbles etc. but that can be effectively managed. Or should be, a lot of countries struggle with that.
It's pointless to talk about the efficiency of public systems, for even the effectiveness of wealth taxes etc. if corruption is endemic, particularly in the financial sector.
If the banking sector is corrupt - there can be no real economy.
And FYI this notion of 'no mortgage debt' as something healthy is completely wrong. 'Credit' is the lifeblood of an economy, if you want to get people into good housing, it's essential. Mortgages enable people to spread payments out over time and are a fundamental artifact of affordability. Mo mortgages = bad housing and fewer jobs in the construction sector.
There can be risk of housing bubbles etc. but that can be effectively managed. Or should be, a lot of countries struggle with that.
I didn't mention, nor did I refer to any issues, so whatever you are stating here is none of my concern, nor does it have anything whatsoever to do with anything I wrote about, nor does it have anything whatsoever to do with me.
I also did not talk nor did I write about any efficiency of any public system, so that does not concern me or what I wrote about either.
"If the banking sector is corrupt - there can be no real economy."
There is no economy in Croatia; it has very little industry of any significance, with tourism being the only significant influx of funds into the country.
"Mortgages enable people to spread payments out over time and are a fundamental artifact of affordability."
SIGH Sir, how do I explain this? You are so deep into classical economy thinking, whereas the reality in Croatia is one of tribal mentality. People take on debts from friends and family, and nobody worries about making payments the way you understand them, because the money owed is paid back in cash, with physical bills, in person and in one lump sum. Cars, condominiums, houses... it has always been this way in Croatia, for hundreds of years, and will be that way for a very, very long time, possibly the next hundred years, if not longer. It's Croatia: that is the only way that people there were able to come up with which functions reliably. Ergo, nobody gives a flying fuck about a mortgage over there, that's just something one reads about on the InterNet. No Croat will trust themselves to apply for one after all that corruption, and even if one did, nowadays the banks are reluctant to lend money to consumers. So the chances of both parties coming together to consume a financial transaction are zero. It has effectively become a cash only economy, and even though kuna has been a stable currency for almost three decades now, every Croat will convert their excess cash (which they hide at home) into euros, cash again, the first chance they get.
When a Croat goes to buy a car, he or she will literally walk around with a small sport bag full of physical currency. There was a period of people going deep into debt with consumer credit to buy cars, of course that has failed spectacularly with most being unable to service their debt, so things are back to the usual - cash.
When a Croat goes to buy a house, he or she will literally walk around with a briefcase full of stacked bills.
I also did not talk nor did I write about any efficiency of any public system, so that does not concern me or what I wrote about either.
"If the banking sector is corrupt - there can be no real economy."
There is no economy in Croatia; it has very little industry of any significance, with tourism being the only significant influx of funds into the country.
"Mortgages enable people to spread payments out over time and are a fundamental artifact of affordability."
SIGH Sir, how do I explain this? You are so deep into classical economy thinking, whereas the reality in Croatia is one of tribal mentality. People take on debts from friends and family, and nobody worries about making payments the way you understand them, because the money owed is paid back in cash, with physical bills, in person and in one lump sum. Cars, condominiums, houses... it has always been this way in Croatia, for hundreds of years, and will be that way for a very, very long time, possibly the next hundred years, if not longer. It's Croatia: that is the only way that people there were able to come up with which functions reliably. Ergo, nobody gives a flying fuck about a mortgage over there, that's just something one reads about on the InterNet. No Croat will trust themselves to apply for one after all that corruption, and even if one did, nowadays the banks are reluctant to lend money to consumers. So the chances of both parties coming together to consume a financial transaction are zero. It has effectively become a cash only economy, and even though kuna has been a stable currency for almost three decades now, every Croat will convert their excess cash (which they hide at home) into euros, cash again, the first chance they get.
When a Croat goes to buy a car, he or she will literally walk around with a small sport bag full of physical currency. There was a period of people going deep into debt with consumer credit to buy cars, of course that has failed spectacularly with most being unable to service their debt, so things are back to the usual - cash.
When a Croat goes to buy a house, he or she will literally walk around with a briefcase full of stacked bills.
"so whatever you are stating here is none of my concern, nor does it have anything whatsoever to do with anything I wrote about, nor does it have anything whatsoever to do with me."
Why are you commenting on a thread about X and Y, and then saying 'X and Y are none of my concern and have nothing to do with me?'
You original response was in a thread concerning public welfare systems.
You commented extensively about financial systems in response to issues concerning mortgage debt and credit.
"You are so deep into classical economy thinking,"
This has nothing to do with 'classical economics' it has to do with a working financial system.
What you just did was more effectively explain why Croatia is poor. If banks are corrupt and/or don't offer credit, and if consumers have no interest in it, then of course, a credit system won't exist and it will keep Croatia poor.
If, as you say, Croatia won't have anything but a 'cash economy for hundreds of years' then Croatia will be poor for hundreds of years.
It's like not having electricity or water.
Why are you commenting on a thread about X and Y, and then saying 'X and Y are none of my concern and have nothing to do with me?'
You original response was in a thread concerning public welfare systems.
You commented extensively about financial systems in response to issues concerning mortgage debt and credit.
"You are so deep into classical economy thinking,"
This has nothing to do with 'classical economics' it has to do with a working financial system.
What you just did was more effectively explain why Croatia is poor. If banks are corrupt and/or don't offer credit, and if consumers have no interest in it, then of course, a credit system won't exist and it will keep Croatia poor.
If, as you say, Croatia won't have anything but a 'cash economy for hundreds of years' then Croatia will be poor for hundreds of years.
It's like not having electricity or water.
The people aren't poor, even though the country is poor on paper, but Croatia isn't really poor, because the people have cash stashed away and the rest of their savings are in real estate ownership. And then there is the matter of Croatia having so many natural resources, that the country isn't actually poor. They are not a poor nation and they do not live in a poor country, it's just that this country functions very differently from how you expect a non-poor country should function. Just because they don't do debt doesn't mean they are poor, or will be poor. People without debt are not only rich but free, because nobody can have them by the balls.
You're having a difficult time grasping what debt and credit is.
It's not a negative thing, it's a positive thing.
Advanced economies run on credit, not cash and it's a matter of allocating services and resources more efficiently based on need, and of course, being able to plan ahead for outcomes.
Nations that don't have a functioning financial and credit system will not be wealthy, it's just that simple.
Here is a YouTube by Ray Dalio where he explains what credit is, and how it functions in the economy. [1]
[1] https://www.youtube.com/watch?v=PHe0bXAIuk0
It's not a negative thing, it's a positive thing.
Advanced economies run on credit, not cash and it's a matter of allocating services and resources more efficiently based on need, and of course, being able to plan ahead for outcomes.
Nations that don't have a functioning financial and credit system will not be wealthy, it's just that simple.
Here is a YouTube by Ray Dalio where he explains what credit is, and how it functions in the economy. [1]
[1] https://www.youtube.com/watch?v=PHe0bXAIuk0
This attitude is precisely why people pursue socialist policies. I'm from the UK and have benefited hugely from socialist healthcare policies that even our conservatives pay lip service to supporting.
There's an awful lot of libertarian, social darwinist claptrap in threads on this post. It gets away from the fact that what has happened is a relatively newly capitalist country has made a very substantial error to its citizens' cost, and there exists a possibility of injustice alongside the possibility that the rule of law may appear to be being ignored, depending on when the law changed.
It isn't an opportunity to be performatively callous.
There's an awful lot of libertarian, social darwinist claptrap in threads on this post. It gets away from the fact that what has happened is a relatively newly capitalist country has made a very substantial error to its citizens' cost, and there exists a possibility of injustice alongside the possibility that the rule of law may appear to be being ignored, depending on when the law changed.
It isn't an opportunity to be performatively callous.
I've never heard of a tax that gets announced and is retroactively owed on prior earnings. That's terrifying. Does this happen often?