State Budget 2013 Tightens Belts
08 November, 2012
State Budget 2013 Tightens Belts

The new state budget of 2013 keeps the tendency of so called “tightened belt” policy undertaken by ex-government since the financial crisis of 2008. The prognosis for the new budget makes GEL 8.5 billion and expenses take more than GEL 7.3 billion.  The draft project prioritizes health -and- social-care, education, agriculture and in order to find needed funding for the priority sectors, cuts down the administration costs for the president and government alike. 

The revised version of

the draft project for the state budget 2013 already entered parliament on November 5, 2012 and will be put under parliamentary vision starting the plenary session of November 7.  The revised paper is tailored on the governmental program of the new ruling power of Georgian Dream Coalition rather than on the program of ex-ruling National Movement as the first draft project, shaped by previous government, suggested.

Priorities of both governments looked very similar in wording but approaches differ as the revised draft budget attested. Nevertheless, the major macroeconomic data remain untouched: GDP is forecasted to grow by 6%, the budgetary deficit will shrink from 3.5 to 2.8% of GDP, and the state debt will drop from 36.5% of GDP to 32.6%. The major part or around 78.2 % of the state revenues will be based on tax incomes.

As to prioritized social, education and agriculture financing the revised budget project keeps close with the promises. More than GEL 2.473 billion is earmarked to cover social-care including pensions. However unlike USD 100 equivalent pension’s rate promised by Nationals, new budget suggests the pensions equivalent to the subsistence minimum fixed at around GEL 150 at the moment. This rate is to be increased soon after the consumer basket will be revised and enlarged, as Nodar Khaduri, Minister of Finances, explained to Georgian Journal.

As the explanatory note of the draft project suggests apart of funds allocated on the agriculture ministry there will be attracted investments and loans in the sector based on which a GEL 1 billion worth fund of agriculture development will be created to push Georgian agriculture forward.

Instead of the 2% drop in income tax from 20% to 18% starting 2013 as Nationals promised, the new state budget project exempts  the subsistence minimum [equivalent sum] in the income tax for salaries less than GEL 6 thousand that translates into GEL 1800 of relief in a year [per person].

To find due financing to the priority sectors new government decided to tighten belts to the governmental and presidential administrations and has already scratched GEL 740 million of spare sums to this end.  First of all new finance ministry by approximately 40% squeezed reserve funds incorporating the presidential and governmental special funds designed to finance “natural or other disasters as well as unforeseen state liabilities” when they were created shortly after rose-revolution. However, quite soon the Funds became a subject of severe criticism for unreasonable and non-transparent money squander on sundry attractions. Only in 2011 it spent GEL 70 million [out of the total GEL 110 million allocated in both funds] on entertainment events like Placido Domingo’s gala concert and show-concert of Maya Key. This year GEL 100 million were allocated in both funds but when the natural disaster came over Georgian regions in June the reserve funds failed to provide legally foreseen aid.

According to the explanatory note of the revised draft budget of 2013, GEL 1.738 billion is earmarked on funding the common state services [that incorporates the reserve funds too] and only 3.5% of the total funding or around GEL 60 million will be allocated in the said funds. Funding is reduced to the administrations of the president and Security Council.

Bidzina Ivanishvili, Prime Minister of Georgia, said the state budget cannot afford to support the costly Presidential Palace in Avlabari, Tbilisi downtown, and appealed to Mikheil Saakashvili, the President of Georgia, to leave the luxurious palace and move to the State Chancellery’s 11th floor accommodation.

“We will sharply cut down funding to the presidential administration for the service provided to it is huge. GEL 800 thousand was earmarked to cover only the electricity bill of the president’s palace. Financing like this will never be allocated again,” Ivanishvili said during the governmental session on November 2.

Irakli Alasania, Minister of Defense, refused to pay GEL 80 million from the budget of his instance to support the president’s airplane.

Premier also wondered why the Security Council requires GEL 24-30 million while the Ministry for Reintegration with the similar personnel amount as Security Council needs just GEL 1.2 million.

New government also refused to issue illegal transfers from the state budget to the City Hall assumed by the ex-Prime Minister Vano Merabishvili. The transfer envisaged allocation of around GEL 25 million this year and GEL 78 million in 2013 to the City Hall to fund the social preferences of Tbilisi population that apparently falls within the competence of Tbilisi municipality. According to the governmental decree number 440 issued on October 19, 2012 by Merabishvili, the state budget assumed obligations to transfer money to the Tbilisi City Hall to finance social preference initiated by municipality to 600 thousand inhabitants in transportation, social and healthcare. However the state budget did not envisage this kind of expenses and faced problems.

Khaduri assures the ex-premier implemented the illegal change in the state budget since it is beyond the Prime Minister’s mandate to assume financial obligations on behalf of the state budget when there is no financing source of these expenses.

“It is an absolutely illegal action, violating the budgetary law. Only parliament is mandated to pass a law on adding expenses in the state budget and parliament has not passed any law,” He said.

Government believes more budgetary cut-down will come on the way during the parliamentary discussions over the draft state budget.

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