The government expects the higher VAT to bring in an additional EUR 250m in tax revenue, although the figure is disputed by economists, who say it will only additionally curb spending and thus further slow the economy.

The reduced VAT rate applies to food and many other everyday products, whereas the standard rate is levied on all other products, including most consumer goods.

It is unclear to what extent and how quickly the higher rate will impact on prices. The government has admitted that household spending could drop by up to 1.5% as a result of the higher prices.

The Chamber of Commerce has vehemently opposed the VAT increase as a misguided measure. It expects that the negative effects on spending and subsequently on economic activity will outweigh the effects of additional revenue.

This has been echoed by the Consumer Association, which said that Slovenia lacked measures to boost consumer demand. "We hope that retailers and the food industry will not be transferring the higher taxes into prices for basic food products and that the burden will be spread out."

The first prices to increase as a result of the higher VAT were those for fuel, which rose at the stroke of midnight. Regular unleaded is 2.4 cents dearer at EUR 1.495 a litre, diesel 2.3 cents at EUR 1.366 and premium unleaded 2.4 cents at EUR 1.519.

The government opted to raise the VAT rates ahead of imposing a special crisis tax on income. However, it has not yet fully scrapped the idea of a crisis tax, which could be back on the table when the budget for next year is drafted.

Slovenia is currently dealing with a widening budget deficit, which hit 10.4% of GDP in the first quarter of the year due to a drop in tax revenues and the costs of capital injections at state-owned banks.

Slovenia has been running a budget deficit in excess of the EU's 3% ceiling since 2010. While originally promising to bring the deficit back under 3% by 2013, it was granted a two-year extension on the deadline by the European Commission in May.