Transcript PRESENTATION -

Republic of Serbia
Fiscal Council
Proposed Fiscal Consolidation
Measures
2012-2016
30 May 2012
Public debt crisis threat
•
Continuous public debt growth – by the end of
2012 it will exceed 55% of GDP
–
•
Fiscal deficit on the rise – over 6% of GDP in 2012
EUR 2.5 billion new borrowing required by the
end of the year
–
For financing the fiscal deficit and repaying the
principal from earlier borrowing
 Public debt crisis possible already in this year
–
Dinar freefall, inflation, employment drop, significant
living standard decrease
2
Immediate measures to be taken
1. Short-term - to interrupt public debt growth
already in 2013
–
Thus averting the crisis already in 2012
2. Medium-term - for sustained public finance
recovery
–
The deficit is structural – it would be high (4 - 5% of
GDP) even without the crisis...
–
...and even higher with the crisis (6.2% of GDP)
3. Reforms - to lay the foundations for high and
sustainable medium-term economic growth
3
Reduce the deficit immediately
•
The deficit is the main public debt growth driver
–
... Apart from the deficit, government guarantee
issuance control is required
•
Necessary cut – EUR 1 billion in 2012 and
2013...
•
... And additional EUR 1.1 – 1.2 billion from
2014 to 2016
–
In 2016 a balanced budget (deficit of 0% of GDP)
4
Short-term measures (2012-2013)1)
•
Pension and wage freeze (EUR 200-300 million)
–
•
In October 2012 and during 2013
Tax reform (EUR 300 million)
–
Reduction of tax burden on labour – from 65 dinars
per 100 dinars paid, to 54 dinars (from January 2013)
а) VAT increase to 22% (July 2012)
б) Or VAT to 20% and pension and wage cut by 5 – 6 percent
5
Short-term measures (2012-2013)2)
•
Additional expenditure cut (EUR 400 million)
–
Sustainable fiscal decentralisation model (EUR 200
million)
•
restoring the previous system (but with full transfers
to the local level, 1.7% of GDP) or devolving the
functions to local self-government units
–
Subsidies – abundant, unselective (EUR 100 mil.)
–
Remaining savings (EUR 100 million)
•
Government agencies and extrabudgetary funds
(closure, merger, integration in the budget, etc)
•
Savings in public procurement and improved tax
collection
6
Short-term measures (2012-2013)3)
 Without wage and pension freeze and VAT
increase the necessary short-term savings
cannot be achieved
• Short-term adjustment significantly larger in
expenditure than in revenue
–
Around EUR 700 million of savings
–
Revenue increase of EUR 300 million
7
Alternative Possibilities
• Without tax reform (i.e., without reducing the
tax burden on labour), but freezing wages
and pensions.
-Increasing VAT to 20%
• Only increasing taxes, without freezing
wages and pensions.
-Considerable increase of VAT, 25-27%
-Undesirable and rather unsustainable
8
Fiscal consolidation and public debt
• Without the tax reform
and pension and wage
freeze
– Unsustainable public debt
growth → crisis
• With the proposed
programme
– The trend is reversed in
2013 and the crisis
averted
– By 2016 it comes down to
around 48% of GDP and
continues to fall…
– ...to below 45% of GDP by
2017 or 2018
9
Medium-term reforms (2014-2016)
•
Goal - deficit reduction from 3% of GDP in 2013 to 0% of
GDP in 2016
–
Exclusively through expenditure cuts – without tax increase
–
Increase in investment share to 5% of GDP in 2016 (so far on
average around 3.5% of GDP)
 Current expenditure cut by 4% of GDP (2014-2016)
•
Required reforms: pensions, wages and employment, public
and socially-owned enterprises, subsidy system…
• … Plus: tax reform, sustainable fiscal decentralisation model, reform
of agencies and funds
• Savings only a year or two after the start of implementation…
• …Preparation immediately, implementation from 2013
10
Fiscal consolidation
and economic development
• Significant reduction of the fiscal deficit is the best policy for
increased economic growth
– Decreasing of the risk premia and interest rates for businesses and
households, and avoiding crisis – falling production and employment
– Empirical analyses: less public spending  higher growth
– In the first half of the year there was fiscal stimulus…
– …leads to the increase in current account deficit, dinar depreciates,
uncertain influence/impact on the economy at large, GDP falls
• More public investment and infrastucture
– Desirable stimulus in the short term
– Incentive for private investments (higher FDI)
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Fiscal consolidation
and economic development (2)
• Structural changes in public revenue
– Higher tax on consumption, less on production
– Increase of price competitiveness (fiscal devaluation), increased
incentives for exports, and investments.
• Medium-term reforms
– Economic environment, incentives for organizations et al. in the
private sector development, predictability of the working environment,
more efficient public enterprises…
12
Social policy priorities
• Temporary decline in living standards
– Increase in taxes, utility prices, and freezing of wages and pensions
– Inevitable, if not now then in crisis time (higher increase of prices and
taxes)
• Mid-term (in 2014 or 2015) recuperation of losses
– By 2016 ought to be past all negative effects
• Social security measures
– Social help will be allocated to those most in need (thus, those
receiving the smallest pensions will be exempted from the freeze)
– Funds for immediate/one-off relief for the disadvantaged
– Balanced distribution of fiscal burdens
– Indiscriminate struggle against corruption
13
Tax Reform
Burden on
wages •Graphic
•As earnings decrease, VAT increases.
VAT
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Tax reform
– Increase in excise duties on tobacco and alcohol
– VAT 22%, lower rate 10%, transfer of 1/5 of nonsubsistence goods to the standard rate
– More progressive wage tax, employers' contributions
from 17.9 to 10% of gross wage
– Burden on wages from 64% to 54% for average
employee, and 45% for the minimum wage
• 1% of GDP of additional budget revenue
• 2% of GDP transfer from wage to
consumption, economy rebalancing without
impact on the budget
15
Pension System
Pensions, %GDP
16
14
12
10
8
6
4
2
0
Italy
Serbia Austria France Portugal Greece Poland Hungary EU-10 Czech Lithuan. Romania Bulgar. Slovak. Latvia
Ireland
16
Pension System
• Introducing actuarial neutrality factors
– It's possible to receive a 200-eur pension over 20
year period or a 400-eur pension over a 10 year
period, but the possibility to receive a 400-eur
pension over a 20 year period needs to be
eliminated.
• Increase in age req. for women to be
eligible for retirement
– Unsustainable disparity in retirement eligibility
age-wise between men (65 y.o.) and women (60)
17
Wages and Employment
Wages, %GDP
Serbia
Slovenia
Estonia
Lithuania
Hungary
Latvia
Poland
EU-10
Romania
Bulgaria
Czech R. Slovakia
18
Wages and Employment
Public wage premium over the remaining economy
Serbia
Latvia
Hungary Lithuania
Slovenia
Bulgaria
EU’10
Poland
Estonia
Slovakia
Romania
Czech R.
19
Wages and employment
• Balancing wages in the public and the
private sector
• Balancing wages within the public sector
• Headcount reduction in the public sector
– Possible reduction by around 5% of 440,000
employees in medium term
– Requires serious structural reforms in education,
health, local and central government administration
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State-and socially-owned
enterprises
• Status and problems:
– After ten years of transition, in Serbia there are still around
1,300 companies under state control
– They receive direct and indirect subsidies (guarantees, no
payment of liabilities, bridging gaps in pensionable years of
service) – total government expenditure around 2.5% of
GDP
• Меasures:
–
–
–
–
In a two-year period privatisation or bankruptcy
Solid budget framework and subsidy elimination
Management improvement
Price liberalisation and correction
• Еffects:
– Savings of around 1% of GDP in 2012-2016.
21
Fiscal decentralisation
• Status and problems:
– Imbalance in the division of revenue and expenditure between
the Republic and local communities
– Low level of efficiency and minor competences of the local
government level
• Меasures:
– Short-term measures: prevention of wage and employment growth at
the local level, local self-governments should reduce arrears and
increase investment, increase in the Republic share in the wage tax to
60%/devolution of functions to the local level
– Medium and long term: reduction of local headcount and subsidies to
utility companies; promoting competition among local selfgovernments, improvement of transfers and political decentralisation;
increase in competences of local communities
• Еffects:
– Savings of around 1.5% of GDP in 2012-2016.
22
Budget beneficiaries and
extrabudgetary funds
• Status and problems:
– Around 160 government institutions generate own revenues (by
selling goods, providing services and collecting dues, fees for
issuing licenses, permits, approvals…)
– Own revenues remain at the disposal of budget beneficiaries
for spending
• Меasures:
– Comprehensive registry of all budget and extrabudgetary
beneficiaries, revenue and expenditure to be presented in the
consolidated government account
– Significant portion of fiscal and quasi-fiscal revenue to be
integrated in the budget, expenditure financed by the
institutions with their own revenue to be reduced, institution
merger/abolishment
• Еffects:
– Savings of around 1.5% of GDP in 2012-2016
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