UnitedLife 03

The past repeats itself and the future isn’t clear

buducnost

Free market is the most significant factor for economic growth in our society. The expansion of international trade had a unique effect on total GDP growth of this planet. Where will its next turn take us?

Vladimír Záleský
(33) | Bratislava | CFO United Group

 

   The end of the cold war and establishment of business relations between East and West seem to be the last significant changes in this area, resulting in the European Union and its free market expansion with a positive impact on both new and existing members. “Old“ Europe had to deal with protectionist moods felt in home markets as well as concerns about the employment of its citizens. The beneficial impact on companies is indisputable though, as they benefited from a cheaper workforce supply practically immediately.

   Dismantling further barriers such as freedom of movement and capital is imminent and it is one way how to increase efficiency of individual members of the European Union.
Switzerland is apparently walking just the opposite way. There is no way to tell how the country approaches the referendum results and the approved employment restrictions for foreigners, as the bilateral agreement between Switzerland and the European Union remains the main issue. Neither one of the involved would benefit from terminating the agreement.

   The most fundamental changes are happening east from us. Many of us recalled 1968 when enemy troops marched into Ukraine’s sovereign territory. The situation is considerably different yet almost identical in its key points. The aggressor is the same and he even uses the same excuse – an alleged invitation based on civilian protection against evil western agendas.
Predicting how this trend affects our future economy at this point is a delicate task. Our past suggests that Europe will adopt a submissive (read sheepish) attitude and most probably nothing extraordinary will come from USA either. The US government doesn’t prove itself as strongest when it comes to bold decision making and the Russians know it.

   There is no question a military approach would be a bad move. There is a chance for success for a diplomatic approach, adapted by all western countries; yet it would require a much quicker and bolder move. (What is the reason for not only Slovakia to keep its ambassador still in Russia?) It is therefore more than likely that the situation will lead to sanctions in the end and politicians are concerned about the impact on their home economies. A cut back in trade relations with Russia is potentially the gravest risk for economic growth in the developed world. Slovak economy relying nearly fully on automotive exports would be hit catastrophically. And who wants that, right?

   So even when the second cold war most probably isn’t just around the corner, potential economic outcomes of the current situation will be considerable for both parties involved. Sanctions planned will hit primarily Europe than USA due to its higher involvement with Russia. These sanctions can be limiting planned and developing investments even now before they are imposed. Some predict banks will stop cofounding projects in Russia.

   The changes in tax laws are presumably the hottest economy topic in Slovakia, particularly the registration tax (tax losses) and the submission of an electronic VAT ledger along with the VAT returns.

   Registration tax isn’t expected to improve anything except for the treasury for a short time. After a serious effort to solve the tragic level of Slovak unemployment and after the market has been freed from dormant companies I expect this policy to be reversed as soon as the first collection round is over.

   The electronic VAT ledger to VAT returns has the power to improve tax collection significantly. Only the time can show if the system is still able to work efficiently after some time and if it succeeds in correct pairing of relevant invoices as well as if the state will treat all discrepancies in the same manner.

   We urge you to treat all business relations and clients that haven’t been verified before with increased attention since the first bank statements reported number of fraudulent attempts has risen. It is possible that certain groups are fishing for profits in other waters after their tax fraud options have been reduced.



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