Slovenia needs to comprehensively rebalance its tax mix away from employee social security contributions (SSCs) towards personal income tax and less distortive taxes such as VAT, the Organisation for Economic Co-operation and Development (OECD) has said.

As part of its country based Tax Policy Reviews, the OECD said the country needed to make these reforms in order to prepare for its ageing population.

This tax reform should be complemented by a broader set of reforms, including to its pensions and health care systems.

Slovenia has a rapidly ageing population, with projections suggesting 30% of people in the country will be 65 by 2050 – among the highest proportions in the OECD.

While an ageing population is hardly unique to Slovenia in Europe, the OECD said it was particularly worrying in this instance, because the country also has a relatively low participation rate among those aged over 54 in the workplace – despite the official retirement age increasing to 65 in 2013.

The OECD said: “A well designed PIT is the cornerstone of a tax a system that can effectively produce inclusive economic growth.”

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By GlobalData

It added that while personal income tax raises 25% of total tax revenues on average in the OECD, it only raises 14% in Slovenia. Instead, SSCs raise almost 40% of tax revenues in Slovenia, compared to just over a quarter (26%) on average in the OECD.

Rebalancing this would encourage greater workforce participation among workers who are not currently active in the labour market, including low-income, low skilled and older workers, the report said.