The situation was a result of poor performance in the value added tax and excise tax, the most two important taxes which are also an indirect indicator to measure consumption
TIRANA, August 2 – Total government revenues during the first half of this year were up only 1.1 percent, 6.8 percent less compared to what government expected, a situation which led to forced budget cuts for the second mid-year in a row.
Finance Ministry data show tax revenues rose by only 4.7 percent during the first half of this year mainly because of the poor performance in the value added tax and excise tax, the most two important taxes which are also an indirect indicator to measure consumption.
The tax administration had predicted a 15 percent increase in VAT collection but figures at the end of the first half of this year proved almost identical to those of same period last year, registering only a 0.3 percent increase.
Meanwhile, income from excise taxes fell by 2.5 percent during the first six months of this year despite increased excise taxes for tobacco and the inclusion of some new products such as virgin oil, packaging, fireworks, tires and batteries on the excise list.
The slowdown in these two taxes was compensated by the profit tax which increased by 31 percent, the personal income tax and the national taxes which rose by 7.1 and 17.8 percent respectively.
Finance Ministry data show the budget deficit in January-June 2011 rose to 26.3 billion lek (USD 263, Euro 189 million), up from 21 billion lek last year.
Revenues in the first half of this year slightly rose to 155 billion lek, up only 1.1 percent, a situation which forced government to make mid-year budget cuts for the second year in a row. Expenditure in this electoral year also rose to 182 billion lek, up 7.4 percent compared to the first half of 2010.
Last July, the Democratic Party-led majority approved in Parliament a bill which raises wages and pensions but cut budget by 18.3 billion lek (USD 183 million, Euro 130 million) for the rest of the year to keep budget deficit at 3.5 percent and the public debt at 60 percent of the GDP. The new revised budget will cut investments by 8.9 billion lek (89 million dollars) for the remaining half of 2011
The International Monetary Fund advised government to freeze wages and pensions and raising the social security contributions and the flat tax if it wants to lower the public debt to 50 percent of the GDP in the medium term.
The budget cuts will also severely affect the public administration. A government decision dated July 2 foresees a freeze in new hiring in the public administration and a suspension in public procurement funds after July 1, except for food and medicine purchases. The disciplining of funds also foresees a cut in rewards and allowances for trainings and trips abroad.
The 18.3 billion lek (183 million dollars) budget cuts that the majority approved in Parliament will mostly affect the Public Works ministry whose funds will be cut by 2.8 billion lek (USD 28 million) for the remaining half of this year. Funds in the Ministry of Education and the Ministry of Defence will also be cut by 2 billion lek and 1.8 billion lek respectively.
Several independent institutions such as the President’s Office, Parliament, the State Intelligence Service, the Supreme State Audit and the Prosecutor’s General Office have also undergone slight budget cuts.
Government expects the country’s economy to grow by 5 percent after the budget cuts almost twice more compared to what the International Monetary Fund officials announced during their latest visit as government was revising the budget.
