NGOS WIN CAMPAIGN TO PRESERVE FUNDING MECHANISM

UNCLAS SECTION 01 OF 02 BRATISLAVA 000953 SIPDIS SIPDIS FOR USAID E.O. 12958: N/A TAGS: PGOV KDEM PREL SOCI LO SUBJECT: NGOS WIN CAMPAIGN TO PRESERVE FUNDING MECHANISM ¶1. (U) Summary. In a significant though by no means permanent victory for Slovak civil society, Parliament voted on December 6 to preserve for tax year 2006 the option for individuals and corporations to assign two percent of their tax bills to non-governmental organizations of their choice. Smer proposed to reduce NGO revenue sources, but did not succeed because coalition partner HZDS declined to support the proposal (after some wavering). During the past two months, the Embassy has weighed in heavily with the GOS on many levels to preserve the NGO funding mechanism in order to show our support for NGOs carrying out excellent transformational diplomacy activities outside Slovakia. The approved legislation is far from perfect, however, since many advocacy-oriented NGOs will lose eligibilty for funding from 2007 onward. The Embassy will continue to engage the GOS and Slovak civil society in order to develop a secure long-term funding mechanism for the NGO community. Smer Challenges Civil Society -------------- ¶2. (U) In September Finance Minister Jan Pociatek proposed eliminating corporate assignation of taxes to NGOs, and limiting individual contributions to one percent of tax revenue. The proposal was designed to raise up to 1 billion SKK (USD 37 million) in new revenue for a stretched federal budget, and to eliminate abuse by certain corporations that set up phony charities in order to avoid taxes. Smer also argues that the system of assigning taxes directly to NGOs was highly unusual, and should be replaced by a system that more closely resembles tax deduction systems in other countries. ¶3. (SBU) While Pociatek's arguments have merit in isolation, the proposal to reduce NGO funding mechanisms without any proposed replacement served as an unpleasant reminder of the ruling coalition parties' long-standing hostility to civil society. It was also strongly suggestive of these parties' insular view of Slovakia's role in the world. In reality, Smer's proposal was least threatening to established, U.S.-friendly NGOs working to promote democracy and human rights outside Slovakia's borders. Leading NGOs such as the Pontis Foundation, People in Peril, Ashoka, and Partners for Democratic Change receive their primary funding from international foundations, Slovak Aid, or UN agencies. Only a small percentage of their budgets is procured from the 2% assignment rule. But these same organizations nevertheless took the lead in mounting the campaign to preserve the funding source, viewing the proposal as a direct challenge from Smer to the vitality of Slovak civil society. HZDS, Power Broker -------------- ¶4. (SBU) NGOs looking for new allies found support from an unlikely source: HZDS, the party of Vladimir Meciar. From October onward, HZDS MP (and European Affairs Committee Chairman) Milan Urbani took the lead in contacting the NGO community, indicating that they would not support Smer's proposal. NGOs viewed the party's offer of support with skepticism given HZDS' history of trying to suppress their activities in the 1990s. When Parliament convened in November, these suspicions were confirmed when HZDS voted with Smer in subcommittee, then brokered a compromise proposal that would have restricted the program in 2006 and eliminated it in 2007. When the plenary session convened in early December, there seemed little chance of a reverse in position. Consequently our lobbying efforts with HZDS and Smer intensified. In response, HZDS brokered support for a much better compromise proposal, allowing the 2% assignation program to remain unchanged in 2006. From 2007 onward, 2% assignation will be limited to NGOs specializing in charity, sports, health, and cultural values. The final proposal was passed with unanimous support in Parliament. The German Marshall Fund's Pavol Demes termed the result as "remarkable," and several NGO leaders expressed appreciation for our role. Our Role -------------- ¶5. (SBU) Many organizations played a part in the victory, with NGOs themselves taking the lead through its Ludia k Ludom (People to people) campaign. The Embassy remained committed throughout the process, engaging broadly with the NGO community and then with the government. The Ambassador, DCM, and the Political-Economic section spoke with a wide range of political figures about the issue, including President Gasparovic, various Ministry officials, and no less than a dozen MPs from Smer and HZDS. Urbani proved to be the most valuable contact, taking the lead role in brokering the BRATISLAVA 00000953 002 OF 002 final compromise solution shortly after his December 5 conversation with Ambassador Vallee. Urbani told the Ambassador that PM Fico was the primary obstacle to maintaining the 2% assignation, saying, "He is a communist at heart. If it were in his head he could change, but it is in his heart." Future Prospects -------------- ¶6. (SBU) While the legislation passed is fine for 2006, it strongly suggests that human rights, education, and environment NGOs would be excluded in tax year 2007. This could undercut embassy priority goals in these areas. Therefore the embassy will continue to engage the NGO community and the GOS over the course of the next year. Instead of defending the current program, we would likely be working to encourage development of a new funding mechanism for NGOs. Smer officals have indicated to us that they are flexible on this point. FinMin Pociatek has said that he would like to develop a new system based on tax deductions rather than assignations. We will begin to hold meetings with Smer leaders starting next week to begin moving toward new solutions. On a parallel track, Urbani plans to meet with Demes to discuss further proposals. VALLEE