Georgia's budget for 2013: dreams and reality


Author: Georgi Kalatozishvili, Tbilisi, exclusively to VK   


The Georgian parliament is actively working on a draft budget for the next year. No document or political declaration indicates the priorities of the new government better than the main financial document. To the credit of the leaders of "Georgian Dream", in the budget there are almost no "blind spots", which were numerous in similar bills from previous years - in the era of the governance of the pro-presidential party United National Movement (UNM), which is gradually tapering off.

However, that era is not over, but not just because Saakashvili  will retain the presidency until the end of next year (the next presidential elections will take place in October, and the actual transfer of power – until December 31). There is another, more fundamental reason: Prime Minister Bidzina Ivanishvili and his team have to make serious risks to fulfil their main campaign promise - to improve living conditions for hundreds of thousands of citizens who consider themselves disadvantaged in the past.


All public opinion polls show that citizens of Georgia consider problems of unemployment, low incomes, meagre pensions, the high costs of learning and medical care, that is, all the "social set", which is constantly under debate in all societies, forcing politicians to seek the best solution to the dilemma between the development of a market economy and the need to strengthen the social functions of the state, to be the most burning problems.  


In Georgia, which has suffered civil war, two ethno-political conflicts and a clash with Russia, this dilemma is solved in a more complicated way than in other post-Soviet states, where the elites, for the past 20 years, were able to construct more or less normal relations with Moscow, not completely losing their traditional market sales, as well as foreign investors willing to invest in production based on exports to Russia.   


The first thing that catches the eye in the draft budget for 2013 is a sharp decline in defense spending and in the needs of the Ministry of the Interior, as well in financing ministries. According to Finance Minister Nodar Khaduri, for him a situation in which Finance Ministry employees - from the minister to the regular clerk - received bonuses equal to their annual salaries was not acceptable. Everyone should “tighten his belt”, including the president: the new government has cut the funding of the presidential administration by 20% and even returned to the leasing company the plane which Saakashvili used in order to visit other countries. The presidential administration had to turn off the outdoor lighting of the Avlabar Palace - the main residence of Saakashvili - in order to save money for other needs. 


On the personal orders of Ivanishvili, for the first time the section of the budget called "Other expenses" is specified in detail; this part of the budget has always provoked reprimands and suspicion of NGOs because of the “lack of transparency" of spending money on these items. No one ever really could explain where hundreds of millions of dollars in this chapter are going. Government officials only vaguely hinted at some "important purchases" in defense and other "necessary expenses."   


The total budget for 2013 is 4.525 billion dollars. The external debt of the country is 4.604 billion dollars. Of course, not all of it is to be paid in the following year, but the figures are very revealing.
The government intends to spend 1.431 billion dollars on social services the next year instead of the 1.09 billion dollars budgeted for the current year. But the funding for the Defense Ministry, Interior Ministry, ministries of finance, energy and economic development is significantly reduced.  


The funding for the Ministry of Corrections and Probation is greatly increased. This is not surprising, given the role played by the "prison scandal" in the defeat of the former ruling party and the rise of "Georgian Dream" to power. The financing of the Foreign Ministry, Ministry of Culture and Ministry of Sport and Youth was reduced by approximately 10%. 


The government decided to introduce a tax innovation: now salaries less than 500 laris (about $300) will not be subject to income tax. Some economists have proposed reducing corporate income tax from 20% to 18%, but the social orientation of the policy of the new ruling team has affected this decision. Finance Minister Nodar Khaduri mentioned an argument which is well-known among left-wing forces in Europe and in the former Soviet Union: "For those whose income is thousands GEL per month,18% instead of 20% would be a very nice gift, but those who have a lower income will not save much money. Establishing the exemption limit will be much more useful for them.”

Not surprisingly, during the discussion of the budget a conflict arose in the "Georgian Dream" between the supporters of Ivanishvili from the left wing and the right wing, who united before the parliamentary election into a "popular front" - on the basis of opposition to Saakashvili and the desire to change power in the country. But as soon as one of the leaders of the "Dream", chairman of the People's Party Koba Davitashvili, proposed considering a bill that restricts the right of an employer to fire a worker, everything changed: the innovations were not supported not only by members of the pro-presidential party, but also by the republicans of the coalition of Ivanishvili . Their argument was also very revealing and echoed the arguments of right wingers around the world: the more limited the right of the employer to dismiss an employee is, the less motivation to hire workers, that is to create jobs, he has. The argument, of course, is not without reason, but it has not only "applied", but value character. And since the new government has participated in the elections under leftist slogans, it cannot ignore the request of the electorate, even if Ivanishvili understands the fairness of the judgements about "scaring potential investors" as a result of strengthening the social component and the rights of workers in labor law.


 The result of the turning was immediate: soon after the October parliamentary elections, the influx of investment into the country fell by 50%, and some world famous companies suspended construction of hotels in Batumi, Kutaisi and other cities. Ivanishvili openly says that tourism is not a priority. He is ready to become the largest investor, having invested about one billion laris from his own resources in agriculture, in particular, in the construction of 70 large-scale processing plants, where farmers can bring their products. But this project, with all its nobility, might be unsuccessful, given the Russian embargo. Experts warn that in Georgian conditions it is just better to develop tourism as a backbone industry than to throw money away by investing huge sums in unpromising directions.