Novelties in Serbia's Budget

AIM Belgrade, March 19, 2001

In all states, the first logical reaction to the adoption of a new budget is to compare it with the old one. In Serbia something like that is impossible. Comparing the last year's and this year's Republican budgets would be, as people say, like comparing "apples and oranges". If we start from the total amount, it should be remembered that the former authorities were in the habit of resorting to budget revisions once in a while and that, apart from the republican treasury, there were many non-budgetary accounts to which significant funds were channelled.

A comparison of the 1294 billion dinars worth proposed budget with the one adopted at the beginning of last year would give a totally distorted picture of its enormous growth. It would have the same effect as the attempt of some "awakened" trade union leaders whose only argument is the percentage of funds allocated from the budget for their salaries. For, some 4.9 billion dinars were paid last year for policemen's salaries while this year that amount will be 10.1 billion dinars. Although this is a significant increase, the share of policemen salaries has been actually reduced from 34.5 to 10.1 percent.

As far as the Ministry of the Interior (MUP) is concerned, the basic budget difference is the initial re-distribution of allocated funds. In other words, behind the shown figures lies the determination that nothing can remain the same and the intention to introduce changes, no matter what. That is the foundation on which the Serbian Government is building its overall policy, including the budgetary one being well aware that the adoption of the budget represents the most important political act which systematically indicates the thrust and progress of announced fundamental reforms. Budget adoption marks the beginning of the process of introducing order, primarily in the field of finances. A set of some twenty taxation laws that will be submitted to the Republican Parliament for review and adoption as a beginning of a "principled taxation policy", should contribute to this end. "If the National Assembly adopts the proposed regulations for the reform of public finances, our lagging behind Europe will be reduced from ten to two-three years", assesses Minister Bozidar Djelic, the best-versed man in budgetary affairs.

All over the world, tax payers observe the budget exclusively from the point of their capability to set aside more money from their income than last year, i.e. whether they would be able to count on more exemptions than a year earlier. Nothing else concerns them. Will it ever be like that in Serbia which has for too long been accustomed to seeing the budget as an instrument which rules over all segments of life and which, when necessary, buys social peace? Unfortunately, it is hardly likely that the announced budgetary changes will be carried out without major protests. Those who will have to fill the major part of treasury will not like to proposed solutions, especially if in previous years they were among the “privileged" ones who did not pay anything to the state thanks to their connections with the ruling party.

They do not care that in future they will pay a single turnover tax rate and just one army tax, instead of existing 230. Those who until now had the monopoly over oil, cigarettes, alcohol, coffee deals have every reason to worry because the state did not make any secret of its intention to put an end to the grey economy in the shortest possible time and to channel 60-70 percent of the prices of oil derivatives to the budget.

Those who got used to observing the budget only as a cash box which pays their salaries, with the aid of strikes if required, will be certainly dissatisfied the first time they are forced to accept the stand that "the budget is not a flea market where one can bargain" as Serbian Prime Minister Zoran Djindjic explained in his typical way, as well as that these authorities have no intention of either issuing new unbacked money nor revising the budget.

The Prime Minister and his team are faced with a hard task of explaining the citizens of Serbia what will the new budget bring them. For example, that the introduction of the system of gross salaries, which practically means that not only the net salary, but also the meal, holiday and fieldwork allowances and other income will be taken as the taxation and contribution base, is not a pure bookkeeping change which brings nothing new either for workers or employers because the income tax, as well as pension insurance contributions will initially remain the same. Money wise, the workers will get the same amount they got till now and the employers will pay the same amount to the state because the rate of pension and health insurance contributions will be reduced in line with the broadening of the taxation base.

The novelty is that in future the workers will be certain that their retirement-benefit base will not be reduced because the state was deprived of payments on all "income allowances" and that the economy will profit because the overall burden will be reduced from the present 105 percent to 78 percent. And in just a few months, as Djelic promises, another 10 percent reduction of the tax burden on the economic sector can be expected.

The new concept of the budget will be certainly most carefully analysed in the welfare sector. The Government claims: "We have finally separated welfare policy from taxation policy". The Prime Minister is not hiding that he plans to have "those who are well-off pay the full price of goods on the market and to somehow compensate from the budget those who do not have enough, instead of forcing the producers by means of taxation policy to keep unrealistically low prices and thus make losses". The newly proposed budget envisages the sum of 16.8 billion dinars for welfare programmes which would cover 300 thousand families. Out of this amount 10 billion would be earmarked for child protection. The novelty would be the fund for the care of vulnerable families, which should get some 3 billion dinars, as well as transition fund, which should start with 1.5 billion dinars and serve for the retraining of workers who lose their jobs.

Also, it will be necessary to allocate 19.8 billion dinars for meeting the outstanding liabilities of the former authorities in relation to the pension, health and employment funds deficits. All these represent new budget items, same as the budget deficit. In 2001 it amounts to 22 billion dinars and the plan is to cover it with receipts from privatisation and with donations and loans. If that deficit, which accounts for 22 percent of the planned budget and 2 percent of the estimated gross social product of Serbia, is not covered in the planned way, the planned budget expenditures would have to be cut.

Basic principles in the elaboration of the budget are "equity and austerity", says Djelic adding that there "will be no exceptions". In order to show that it was serious when changes are concerned, the Government decided to set an example. That is the only way to understand the decision to freeze the salaries at the January level for Prime Minister and other Ministers and, in line with this, salaries in all public enterprises whose founder is the Government and where salaries are 20 percent above the republican average, i.e. over 4,585 dinars. The principle of equity for different budget users is reflected in the motto "approximate payment for an approximate work", i.e. the introduction of wage brackets.

The objective is to equalise the wage base of the federal administration of 900 dinars with that in the republican administration of 550 dinars "because both treasuries are filled by the same tax-payers

• those from Serbia". In this way it would be impossible for a Republican Minister to have the salary of 9,600 dinars and the President's waiter 10,500 dinars or the NIS (the Oil Industry of Serbia) cleaning ladies (who currently have higher wages than Ministers) to refuse to clean the premises which NIS has lent to the Government because they would be paid same as their colleagues working for the Republican Government, or the police administrative employees to get two to two and a half times higher pay than other Republican public servants.

In the Government's opinion, the introduction of wage brackets, which has already been commented as a return to the "long forgotten time of Broz's Yugoslavia", would make it possible for specific professions, such as street policemen or miners, to be able to count on a significant wage increase.

Otherwise, judging by the allocated funds, in contrast to the last year's which was the "police budget" because the MUP expenditures and policemen wages represented its largest item, this years' budget could be rightfully called "educational" because the greatest part of revenues would be allocated for elementary and secondary school teachers' salaries.

The Government is planning to subsidise and support the economy with 21.9 billion dinars and agriculture with 5.1 billion dinars, which is much higher than the last year's 1.8 billion dinars. But, Serbian Finance Minister reminds that "everyone who gets the state funds will also have to assume specific obligations and not just transfer the allocated funds for salaries". This change will certainly not be a good news for everyone. But, if it truly intends to initiate reforms, the Government should not have second thoughts. Simply, the budget represents the test of that readiness.

Tatjana Stankovic

(AIM)