Despite economic recovery elsewhere, Albania still faces tough times ahead, but the government should think twice before moving too fast in increasing the retirement age and taxes
TIRANA TIMES EDITORIAL
In the current political debate an important factor is being overlooked – the state of the economy – which was the voters’ primary concern ahead of last summer’s elections.
It’s understandable why there is little debate on the economy at this point. The government has been on the job for too short of a time to be blamed for what’s going wrong, and the opposition has been out of power for too long to continue to be accused for doing everything wrong in the economic sector, as the government did in the first few months of power.
However, the time is now to focus on the economy, as decisions taken today will influence the years to come, which several recent report indicate, will continue to be hard on the Albanian economy.
The International Monetary Fund and other expert bodies are saying Albania will only fully recover from the economic crisis and return to stable growth two or more years down the road. With that in mind, they are proposing the usual recipe of reforms: increase the pension age, raise taxes and increase the cost of energy for consumers to grow income for the state budget.
The Albanian government should be careful in heeding that advice.
On pensions, the IMF is has proposed a reform in the pension system by increasing the retirement age for men to 67, up from 65 currently and to 65 for women, up from 60 currently.
It the reasoning behind the advice is sound. The current public pension scheme in Albania has gone bankrupt – the government has to pay for it directly from the state budget and the obligations rose in 2013 alone to 44.5 billion lek from around 40 billion lek in 2012, unveiling the need for an emergency reform in the pension system which suffers poor collection rates due to widespread informality. The more they stay off the pension rolls, the less the government’s obligation will grow.
But the advice doesn’t look at the other side of the employment spectrum. The country’s unemployment is very high, and much of that unemployment comes from youth unemployment. An army of recent university graduates is looking for jobs and can’t find them. Increasing the retirement age will mean even less chances for a youthful and productive workforce to take the place of elderly workers.
Some would argue that to the social fabric of this country it is better to foot the low pension bill of a retired worker and hire a recent graduate than leave the latter unemployed, with no income and wasting potential.
The same goes for raising electricity prices and taxes of large swathes of Albania’s population – which would be political suicide for the government and cause more economic pain for a population already suffering the effects of the economic crisis. Rather the authorities should focus on better collection of both electricity fees and taxes that are already in place making sure everyone pays what they owe.
The Albanian government has already adopted a higher corporate income tax, increased excise taxes on cigarettes and energy drinks, doubled property taxes, and increased the environmental tax on fuel – all of which are not surprising for a leftist government that promised in its campaign to shift a higher burden of taxes on high-income earners.
But the government should be careful with introducing other proposals for higher taxes as they can have the opposite effect – scare off foreign investors and lower consumption – thus making economic growth even harder to achieve.
