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