2013 State Budget is a controversial one

{Analysis by Gheorghe Costandachi for Info-Prim Neo} The 2013 State Budget is a controversial one. The salaries will not rise and the Government anticipates an inflation rate of 5%. This means that those who receive salaries from the State Budget will buy less and this way the sales of services and goods will reduce. As a result, the VAT on products and services may be decreased significantly and will thus not be transferred to the State Budget. According to the economic forecasts for 2013, the industrial production, agricultural output and investments in long-term material assets will increase essentially, but the State Budget envisions an insignificant increase, of only 5.8%. Despite the rise in the macroeconomic production indicators for 2013, projected by the Ministry of Economy, the Gross Domestic Product for next year is expected to diminish by 0.6%. In general, the 2013 State Budget shows that the population’s situation worsened and the economic situation did not improve at least slightly. [In several years the State Budget will have a different form and content] The State Budget revenues for 2013 total 22.737 billion lei, up 5.8% on a year before. This rise is based on the increase in certain taxes. It’s not certain that this rise will stem from the economic growth. The budget deficit for the next year is projected to be 874.8 million lei, a 27% increase. The taxes and import duties represent about 68% of the 2013 State Budget. The incomes coming from import operations make up 82.2% of the fiscal incomes, adding up to 14.908 billion lei. The budget starts to be devised and approved based on programs and performance and this is a positive thing. This means that the budget will gradually have a different form and content. Another situation is the chronic dependence of the State Budget on foreign grants, which were planned at 2.613 billion lei for 2013, up 213.1 million lei. This shows that the state becomes poorer and more dependent on finances and foreign assistance. However, the main financial document of the country continues to be orientated towards imports. This confirms the hypothesis that the real sector of the economy in unlikely to develop over the next few years. [The incomes remain on the shoulders of those who fulfill the fiscal obligations] The most important observation is that the incomes continue to remain on the shoulders of those who honor their financial obligations and is not oriented towards the hidden sources from where incomes are collected into the State Budget, like the tax evasions involving economic entities and private individuals that avoid paying taxes by different methods. No reference to the exploration of the conserved potential of the fiscal incomes is made in the 2013 State Budget law. According to preliminary calculations, this potential is equal to at last one more State Budget. There was designed no mechanism for identifying the hidden economic activities and undeclared incomes of the population. Such a mechanism would be welcome as it would serve as an appropriate instrument for increasing the budget collections. The State Budget for next year is not in accordance with the main macroeconomic indicators forecast for 2009-2015. According to forecasts, all the components of the national economy will rise essentially. The GDP will decrease, while the State Budget is expected to rise. But this is not compatible for a functional economy. The rural economy will continue to be stagnant. The investments for the small business grew by 12.5 million lei. Anyway, these allocations are insufficient for developing the real sector of the economy. In the countries with a functional market economy, the small and medium-sized businesses represent 85% of the real economy. [State Budget cannot be an assistance fund for administrative inefficiency] A sum of 384 million lei will be allocated in 2013 for the scientific and innovation areas, up 12 million lei on 2012. The research sector receives large allocations from the State Budget, but its efficiency has never been calculated during Moldova’s 21 years of existence. According to the classical economic laws, the 2013 budget provides for much lower allocations for the education system. Financing of 1.9 billion lei was planned for education for the next year, down 385.9 million lei. The reduction in the financing for education is a negative phenomenon for a state, especially when the incomes of the workers of this sector are the lowest in the region and even among the former Soviet republics. Instead, the health sector will receive by 254.9 million lei more than a year before. But we should not forget that the health protection system has one more independent source of financing – the Mandatory Health Insurance Fund that is much larger than the State Budget allocations. The state social insurance budget will get 4.07 billion lei, by 543.3 million lei more. It’s impossible for the State Budget to be in continuation an assistance fund for the administrative inefficiency of state services and bodies that receive large allocations, but are rather inefficient. The social insurance is reported to the salary fund. The financial analysis calculations for the previous years predict a gap of about 6.5 billion lei in the state social insurance budget, especially in the salary fund. The incomes from the sale and privatization of public property will decrease by 10 million lei. I think that the senior administration does not concentrate its efforts on obtaining as many benefits from privatization as possible. The 2013 draft State Budget law was passed in the first and second readings on October 18. It wasn’t supported by the Communist MPs and the lawmakers who announced their intention to constitute the faction of independent MPs. They argued that the budget is disastrous, aimed against society and based on interests, while the revenues are exaggerated. The bill is to be adopted in the third, final reading. [Gheorghe Costandachi, economic expert of the Institute for Development and Social Initiative IDIS “Viitorul”, for Info-Prim Neo]