Analysis of the initiative for decreasing the social contribution rate in the RS

The aim of this analysis is to provide information for public discussion on the initiative by the Government of the Republic of Srpska for a labor taxation decrease by 1.4% of the gross wage. This initiative has been included in the Draft law on changes and amendments to the law  on social contributions adopted by the National Assembly of the Republic of Srpska on March 4, 2015, and put for public discussion.
According to the draft law, the total social contribution rate will decrease by 1.4 percentage points (health insurance rate by 1p.p., children’s protection contribution by 0.1 p.p. and unemployment insurance rate by 0.3 p.p.). Thereby, the total tax burden on labor decreases to 36.9% in relation to the gross wage. In its explanation, the Government of RS states that the aim of this income tax decrease is to “create optimal tax burden and to support the expected growth of economy, increase of employment and economic development of the Republic”.

Will this step actually result in an optimal labor tax burden, and how much can it contribute to economic growth and an increase in employment?

The analysis in English can be found here.