State budget 2011 looks optimistic and non-transparent
28 October, 2010
State budget 2011 looks optimistic and non-transparent

The main fiscal document of Georgia looks optimistic in its income part, predicting GEL 770 million revenue growths in 2011. But the paper lacks transparency in expenditures part, as it provides with no detailed scheme how more than GEL 900 million of the state budget will be spent actually next year.
Non-transparency and exuberant optimism became indispensable epithets describing Georgian state budget in the post-rose-revolution epoch. The draft of the main fiscal document of Georgia put under parliamentary procedures starting October

4, 2010 prognosis 4.5% of GDP growth, GEL 6.960 billion is supposed to be spent on expenditures, and tax-based revenues are supposed to make GEL 5.3 billion that makes 76% of the entire budget. Government plans to keep state outlays within the frames of 20% of GDP next year and hopes to cut down expenditures to 25% of GDP by 2013.  The current budgetary deficit of 6.3% [of GDP] is supposed to drop to 4.3% next year in line with the governmental policy to reduce the deficit to 3% by 2013.
Apart of this figures the draft project does not provide any other detailed analysis where the state-budget allocated finances will go exactly. Economic analysts fear lack of transparency bespeaks of lack of political ideology.


“When the state budget does not provide with detailed analysis on which sector the money will be spent it is impossible to find out which sector is the priority to government actually and what political ideology and portfolio they have. The more detailed is the budget the clearer is the political standpoint,” Davit Narmania, an economic analyst with the Center for Economic Policy Research, said.
However he hopes that the draft project is still too “fresh” and it will provide with more detailed expenditure picture after revision at government.


Oppositionist political parties whipped the draft budget project however. Irakli Alasania, leader of Free Democrats, dubbed the paper drafted by irresponsible government that relieved itself of taking care after population for the budget does not envisages increase of pensions and allowances to socially vulnerable people [number of which exceeded 1.8 million lately] against the backdrop of price hike. On the other hand, financing of medical programs [including insurance program] as well as other social programs reduced. He believes that the budget project envisaging growth in revenues is excessively optimistic while about GEL 900 million is defined as “other expenses” that means  it is impossible to find out where the money will go.


Giorgi Targamadze, the Leader of the Christian-Democrats Faction at parliament, asked for the withdrawal of the state budget 2011. According to him, the serious discussion on the budget draft is not reasonable for the paper is a “semi-finished” product.
Kakha Baindurashvili, Minister of Finances of Georgia, assures the draft paper of the state budget 2011 is based on “tightened belt” policy undertaken by Georgian government in 2008 and aimed to cut down administration-related outlays of government to reduce government’s share in the economy and divert money in the private sector.


And irrespective there is a GEL 31 million drop in the state budget of 2011 financing of priority sectors including education, social and health care, as well as infrastructure increases.
According to Baindurashvili, the funding of agriculture increases four-fold and will be used for implementation of the programs and the big share of the budget will be used for infrastructure projects.  The funding of education increases by GEL 16 million. He does not provide with more detailed information on spending part. Baindurashvili advises those interested in “other expenses” chapter to find out where exactly the money [defined in the questioned chapter] goes at ministries separately. Although finance minister pledged that the revised draft project of the main fiscal document of 2011 will include detailed analysis of healthcare programs. 
Some economic analysts also fear that not GEL 900 million but almost entire state budget expenses are unclearly distributed.
“Yes, we have figures how much will be allocated to this or that sector but there is no detailed analysis on what projects the money exactly will be spent that means the entire state budget can be defined as “other expenses” actually,” Nodar Javakhishvili, an economic analyst, said.
Economic analysts also fear that the GEL 770 revenue growth prognosis has no economic ground and it means increase of crack-down on business.


“The economic picture of the country does not lay ground to such revenue growth,” Narmania told Georgian Journal. “The investment inflow is sluggish, privatization process also goes at slow pace and most probably incomes got from privatization will reduce.”
He believes that the tax-based revenues of the state budget 2011 will be implemented through stronger administration as well as on expense of enhanced taxation area. According to the new tax code that enters into effect in 2011, excise on spirit drinks increases; also cell communication will be taxed by excise. Moreover income tax rate on rent increases from 12% to 18%, and the penalty rates go higher.
Narmania fears that the stronger administration means focus on penalties and duplicates this year practice as the revenue prognosis of this year is implemented thanks to stronger administration pressing on business in fact.
“If you take a look at the dynamic of tax-raise speed you will witness that the curve of GDP growth lags much behind the tax-raise curve,” He said.

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