TIRANA, June 18 The budget is the main instrument for a successful mandate. It is the quantity of the budget that decides how many kilometers of roads will be constructed and reconstructed, how many new schools and hospitals will be built, and what salary and pension increases will be. As a result, it is understandable that fiscal policies are a top priority on the agenda of political camps as they compete for the June 28th election. And like all promises, some are doable, some are hardly doable, and some are simply impossible.
The Socialist Party promises to improve the fiscal administration in order to raise budget revenues. It will not touch the current taxation level, but it will remove the system of references and will improve the work (expenses) of the administration. The promise sounds evasive for the simple fact that no details have been shown how such administrative goals will be achieved. Improvement of fiscal administration has been on the agenda of every piece of legislation since 1990, but most have failed and a few have had only partial success. Experience shows that even when the fiscal goals have been achieved at 100%, problems have persisted regarding the efficiency and effectiveness of the administration’s work.
The Democratic Party, through current legislation, promises to continue its policy of low taxes. A few days ago, in a meeting with business representatives, premier Berisha promised fiscal benefits for certain sectors of the economy. Like its counterpart, the promise is debatable. Even though in principle fiscal reductions will improve investments in these sectors, it will, on the other hand, diminish budget revenues. Taxes are the main income source for the state budget, even more so when custom revenues will continue to suffer a sharp decrease due to implementation of custom agreements which are part of the integration process.
In addition, Democrats promise a change in the VAT reimbursement scheme, a major problem faced by private enterprises. According to the latest declarations, VAT reimbursement will be done within 30 days; otherwise business will have the right to halt their tax payments. The problem with the current timeline, even though sanctioned by law, is that it has never been respected and the arbitrary tax authorities are a persistent issue.
Making an educated guess, one can predict that only those fiscal promises that will not cause problems to the budget will have a chance to be implemented. Whoever wins the upcoming elections, will be faced with budget issues that leave little space to maneuver with fiscal policies. Public debt has piled up during the last 2 years, and interest rates on the debt will take a nice chunk out of the budget every year, let alone repayment of loans when they mature. As stated above, custom revenues will continue to drop and the huge trade deficit will not make up for such a loss any time soon.
A sound fiscal policy should reflect an economic long term strategy focused on: balancing the budget; decreasing the public debt and trade deficit; restructuring of the public sector to result in a more efficient administration with less bureaucratic steps and the costs it accumulates; implementing laws and enforcing them; eliminating market distortions, and; boosting domestic production. In a thriving economy, income taxes from the private sector will slowly replace the lost income from missing customs revenue in a regional and continental economy without border barrier. It will also make up for the lost income from remittances while foreign direct investment will keep increasing.
Meanwhile, it goes without saying, the global economic climate is far from favoring such aspirations.
