BUSINESS
Budget 2012 Smells of Elections
20 October, 2011

Draft paper of Georgian state budget 2012, the parliamentary election year, smells of politics and pre-election fund-raising through stronger control over business and self-governance. 

The upcoming parliamentary election reads between the lines of main fiscal and political document of the country. Statistics outlined on the paper bespeak of that next year since the ruling power does not change the successful practice of financing its pre-election campaign by the state money.

It’s no secret that the incumbent authority sweeps votes thanks to perfect

PR machine based on the state social/infrastructure projects and the crackdown on business and local authorities.

To secure financing the state budget draft paper suggests attraction of GEL 323 million this year against the backdrop of slagging economy and business activity expecting the state budget prognosis to exceed far more than GEL 7 billion, while the draft project of budget 2011 showed only the GEL 30 million growth compared to the crisis affected 2010.

The sector pundits see no economic ground for making such an optimistic prognosis for the coming 2012 when the entire world worries of economic recession and presume the higher budget income next year can be achieved due to higher inflation and probably by stronger administration [that translates into stronger business pressure].

To secure political scores in regions the center squeezed pressure on self-governance bodies as based on the draft paper of budget 2012 central authority plans to pump by 50% more financing from municipalities that thanks to the rebound-based funding system of municipalities means stronger control over regions.

According to Georgian budget law, Georgian central budget takes more than 90% of taxes from local budgets [except the property tax and gambling business making just 3-4% of the local budgets] and compensates the gap through state transfers. Otherwise the state takes almost all money from the regions, pools it and then redistributes their own funding among regions according to the center’s will.

Therefore municipalities and regions depend on the central budget will as the center dictates the target on which the transfers should be spent expect the equalization transfer that local governments dispose at their own discretion. And this dependence increases each year.

If the central budget was fully responsible for its Regional Development Fund [focused on implementation of infrastructure projects in regions] till 2011this year it obliged municipalities to co-finance the Fund. And out of GEL 100 million earmarked to the Fund this year government and municipalities had to pay GEL 60 million and GEL 40 million respectively.

The pressure increases next year. According to the draft budget 2012, the Fund financing hits GEL 140 million pushing stakes of government and municipalities to GEL 80 million and GEL 60 million  respectively.

Davit Narmania, Board Chairman of the Center for Economic Problems Research, thinks that this kind of sharp increase [by GEL 40 million] of the Fund financing has never been before that bespeaks of pre-election campaign built in the draft.

According to him, central authority plans to implement more infrastructure projects in regions that is good news in fact but the bad news is the implemented projects will be associated with the ruling party alone that is not fair.

“Taking into account the practice of previous years the projects implemented in frames of the regional development fund will be highlighted in favor to Nationals [the ruling party] and other parties are behind the screen while the state money belongs to everybody,” Narmania explained to Georgian Journal.

He also worries that the municipalities have to pay more in the Fund that falls in competence of the central power and budget actually that counters to the principles of decentralization.  As a matter of fact the questioned Fund projects quite often duplicate the competences of local authorities and the center acts as a decision-maker usually thus dictating its political wills to the regions.

“Not a single European and developed country exercises this kind of upstream money flowing. The decentralization means the reverse principle of flowing money downstream. Municipalities should have their own budgets and if they face a deficit the state has to fulfill the gap and not vice versa as we witness here,” Narmania elaborated.

The opposition Christian-Democrats have already expressed their protest against the draft budget for 2012. According to Giorgi Targamadze, the Leader of the parliamentary minority party, similar to the budget of preceding years, the proposed draft budget is an eclectic document and does not address the challenges that the country faces. They appeal to the government to withdraw the draft and revise it fundamentally.

Nonetheless Narmania finds the submitted draft project much transparent than in previous years thanks to the program planning principle of the state budget introduced by Georgia since 2012 that provides with more detailed information on funding targeted programs.

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