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Reflections on the budget for 2011
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We can already see that the approval of the state budget for 2011, even at this stage, i.e. by the government, is a welcome gesture as such. Being primarily a political document and than a economic one, the budget projection understandably provoked disputes not only between government and the opposition, but also between parties in AIE. And if during previous years, the complaints from the opposition were in particular about the insufficient allocation of financial resources to local public authorities, favouring those local administrations where then the ruling party had a majority, now the complaints come both from this direction and from the dimension of allocations for the ministries, which are headed by members of different political parties, and it became quite natural for everyone to pull at his “cake”.
However, beyond political tricks, taking also into account the socio-economic situation, the budget is more or less rational. Undoubtedly it has several shortages, it is not perfect and it cannot be so, but in terms of its role in the discussions that authorities had and will have in particular with IMF, the budget has major advantages: first of all, it exists, and secondly, it can be modified at any time, for according to the annual budgetary laws it is allowed to adjust the budget. At the same time, it becomes clear that government doesn’t quite believe either in the strength of the chapter of budgetary revenues, and for that reason it sought to introduce changes in fiscal policy by raising some indirect taxes (excises, VAT).
Of course the costs on several dimensions and chapters were “chopped”, sure there si short of money, and there are many problems and priorities, so it was really impossible for us to do according to the saying “may the wolf be fed, and the sheep remain whole”. The money are as much as, according to forecasts, Moldovan economy could generate over one year. For the economic fall in 2009 happened not only under the impact of financial and economic crisis, but also because following the weakness of a model of economic growth based on debt, large external deficits, poor resource allocation. So where should we have high incomes from, all the more so that tax evasion (estimated at about 15% of GDP) is enormous, and this also swallows huge financial means, which otherwise could eventually get into budget.
In general, it is a rather social budget, as it was also the case for the last years. It could not be different, as the finance minister also said, and its social dimension will prevail for another several years, because it is very difficult to subject the resource allocation model to structural changes. In fact, the social costs are expected to reach over 42% of the total expenditures, compared to 44% for 2010. However, the economic costs increased, particularly for capital investments, up to almost 15% of the total, compared with about 12% in 2010.It is a very important aspect, by the way, stressing the structural changes that will bring profit and added value in the future, i.e. in long run.
According to the draft budget for 2011 it will double the capital investments in constructions up to about 1.9 billion lei. The money will be allocated in priority to transportation and road industry, housing and public utilities. The increase of resources allocated to the Ministry of Transportation and Road Infrastructure (1.3 billion lei) shows that 2011 will be the ’richest’ year so far in terms of expenditures for public investments. Sure these will be directed into several categories, including the salaries of the workers in this field, and about 800 million lei were allocated to the road fund for maintenance activities, which is over 25% more than in 2010. It is important to use these resources in rational and transparent way and based on legal norms. Actually, the budget for roads is 6.5% of total expenditures, which is quite consistent. Moreover, the increase of costs could be compensated by attracting extra-budgetary funds (Road Rehabilitation Project funded under the Compact Programme, the World Bank projects, etc.).
The are also some other positive things in the construction of budget, which have to be outlined as such: stagnation of the level of main duties and taxes, focus on exports, which would contribute to economic growth planned for 2010 etc. A very important aspect is that the system of education and science have been allocated over one billion lei from the budget. And even if the resources to cover the teachers’ salaries are prevailing, good money were allocated for activities for the maintenance of schools and educational institutions, capital investments etc. Logically speaking, these in fact would be for medium and long term the priorities for a competitive economy that wishes to be competitive before the foreign investors — that is the education system and infrastructure. As several studies and analysis show if there is no proper infrastructure and an educational system to provide skilled labour force, then the foreign investors would not rush-in the country.
Turning back to political disputes on the budget, some of them focused on changes in fiscal policy, particularly the increase of excise duty for cigarettes and alcohol beverages. Sure fiscal policy measures can not please, especially when they are applied in a rather unfavourable economic situation or when the manufacturing sector has not yet recovered following the effects of economic crisis. However, the economic group interests may be also at stake, so to say, since they may be “affected”. Yet, the revolutionary measures in tax policy, as they have been characterized by some politicians, could hamper the interests of those who stimulate the tax evasion — a phenomenon which here is estimated at hundreds of millions lei.
These are measures of indirect taxation of people who afford exorbitant costs outside of declaration on income and which directly affects the interests of some economic groups. In fact, this area embodies the shortcomings of Moldovan society, system deficiencies, often investigated lately by media: theft, illegal connections between state and private sector, lack of honesty of some public officials, etc. And probably only by defining by law the great tax evasion, even as an attack on country’s economic security, the struggle in this regard could be efficient. So far, the group interests or group clients, which lately are associated with political interests and corrupt systems, make it impossible to progress in the struggle against this phenomenon.
At the same time, as far as possible the government should in the future think of reducing the social security contributions (SSC), which are excessive, so that a good part of employers might leave the “underground”, as well as individuals who usually try various ways to evade the payment of various taxes, including those for the social security system. These conditions require fiscal consolidation, which involves the reconstruction of public expenditures, including social ones. This is the perspective for judging upon the reform in the sector of public salaries and the system of pensions. In addition, we must not forget about the care of the state for the budgetary deficit, which according to forecasts for 2011 is not likely to exceed 2% of GDP, but in the absence of efficient resource allocation policies the deficit raises serious questions about the borrowing abilities of the state under conditions of an international environment that is increasingly unstable and hostile.