The 2015 Budget is for social rather than economic means
27 November, 2014
The 2015 Budget is for social rather than economic means
Georgia’s 2015 state budget duplicates trends of the current year and will stick to social care policy similar to the current year. The negative aspect of this trend is that very likely it will be implemented at the expense of an increased tax burden on Georgian business. Another concern is the increasing state debt. The Georgian government will continue to borrow and to follow its current tendency of taking loans.

More social care means less care for economic growth, analysts
say. This is the same framework of the Georgian state budget that began in 2012 when the Georgian Dream coalition entered office. They want to keep their pre-election promises about increased pensions, more social and healthcare benefits, and more spending on education and agriculture. This trend will likely continue in 2015 according to the amended draft budget for 2015 in its second presentation to Parliament on November 14th. The second hearing is one of the most crucial as the key macro-economic indicators are already approved by central bank of Georgia and the main budgetary parameters are already settled.
According to Nodar Khaduri, Minister of Finance for Georgia, the budgetary revenues’ projection makes 8.090 billion lari and tax-based incomes are predicted to fund almost 99 percent of that figure. Tax-revenue projections stand at 8.030 billion. This is 800 million more compared to the 2014 projection and makes up 25.2 percent of GDP and roughly 35 percent of the budget project for 2015. Irakli Lekvinadze, an economic analyst, believes that this means an increased burden on business, that very likely end up financing the ambitious social and healthcare obligations assumed by the state.
The Ministry of Labor, Health and Social Affairs gets 2.775 billion lari, which is 117 million more than in 2014 and comprises 29 percent of total budgetary outlays. It includes a pension increase of 10 lari from the current 150 to 160 lari beginning in September of 2015, along with the overall healthcare that will be financed by 475 million lari and cover all citizens of Georgia.
“I believe the recent governmental initiatives to increase excise taxes on alcoholic drinks [except for locally-produced wines] as well as cigarettes beginning in 2015 is largely defined by increased social expenses assumed by the state,” Lekvinadze told Georgian Journal.
According to Soso Archvadze, an economic analyst, with its socially oriented budget Georgia is among the most developed nations of the world but it is far behind in income them.
“Only 42 countries around the globe cover overall healthcare. Their GDP per capita is 12-20 times more than Georgia’s. According to the current budget project, Georgian GDP per capita is $1,100, while similar figures in Israel and US, for example, are $13,000 and $20,000, respectively. On the other hand by its development rate, Georgia ranks 110th. That means there are almost 70 countries that have higher potential but do not allow themselves the overall healthcare luxury. This is a political gesture that victimizes the economic growth,” Archvadze said in an interview with GJ.
But both analysts acknowledge that the current trend of social care is an optimal solution for the socially vulnerable Georgian population and that by this, Georgia paves its way toward European society, which spends around 68 percent of its budget on social care.
Priorities of the 2015 Georgian state budget draft also include education, infrastructure and agriculture, which also are in line with the current budget and European policy, Archvadze indicates. One billion lari will be spent on infrastructure projects, 850 million on education (that means almost 100 million lari more than in 2014) and 291 million on agriculture. In the meantime, 640 million is drafted to be allocated for defense – that is just a 24 million increase compared to the current year.
“The fact that for the last three years education gets more financing than defense indicates a European way of thinking. It means we will be solving our problems by brainstorming rather than arms,” Archvadze said. However, he thinks the agriculture funding is inadequate compared to its portion in the economy. Agriculture makes up nine percent of Georgia’s GDP and its budgetary funding should not be less than nine percent of the state budget spending. Based on this analysis, the funding must be at least 400 million yet the current layout on agriculture is roughly half this figure.
Analysts do not like the government’s tendency to take more state loans [both foreign and internal] but acknowledge that government needs this money to finance the increased obligations it has assumed. In 2015 the government plans to borrow around 1.3 billion lari, which is roughly 300 million less than in 2014. But the bad news about the state debt is that it is not quite clear how effectively this money will be spent. Also the frequency of taking loans is higher than the frequency of paying off these loans.
“We take three lari but pay back only two. Therefore despite the government taking less loans in 2015, the total state debt will be a little bit higher by the end of 2015 than in 2014 because the debt-paying frequency is behind the loan-taking intensity,” Archvadze said.

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