TIRANA, Aug. 4 – Public finances failed to meet the target by 61 million euros in the first half of this year when Albania held local elections forcing mid-year budget cuts.
Latest Finance Ministry data published this week in delay show government revenue deteriorated in the June local elections when total revenue were up by only 0.9 percent year-on-year and failed to meet the monthly target by 2.17 billion lek (€15.2 mln) on lower VAT and excise tax collection, the two key taxes accounting for around half of total government revenue.
For the first half of this year, the government collected about 183 billion lek (€1.28 bln) up 4.4 percent compared to the same period last year, but down 4.5 percent or 9.6 billion lek (€61 mln) compared to the target it had set.
The lower than expected performance was affected by a decline in the value added tax but somehow compensated by a boost in non-tax income following the sale of three 4G licences.
The value added tax, which is levied at a fixed 20 percent rate on almost all goods and services and serves as an indicator of domestic consumption, was down by 5.3 percent to 58 billion lek (€408 million) but yet accounting for around a third of total government revenue.
The excise tax, the second most important tax item, rose by 7 percent but was down by a sharp 24.6 percent compared to government’s expectations on lower imports of fuel and tobacco.
Meanwhile, the profit tax exceeded expectations by 9.5 percent while the personal income tax was down by 22 percent compared to the forecast for the first half of this year in the 2015 budget.
The government’s underperforming tax and customs revenue was somehow compensated by a boost in non-tax revenue from the transfer of some €23.5 million after the sale of three 4G licences to mobile operators earlier this year.
Meanwhile, the government continued following a tight policy on spending to keep the budget deficit in check unlike the tradition of election years in Albania when government spending and public investments soared causing trouble in the post-election period.
The Albanian government spent around 195.6 billion lek (€1.37 billion) in the first six months of this year when the budget deficit dropped to around 12.6 billion lek, (€89 mln) down 17.8 percent compared to the same period last year.
The tight spending policy also affected public investments which although increasing by 5.4 percent to 20.9 billion lek (€123 mln) were down by 12.7 percent compared to the target set for the first half of the year.
The Albanian government also paid around 12.5 billion lek (88.4 mln) in accumulated unpaid bills for public works in the first six months of this year as part of its three-year program initiated in 2014 which targets clearing around Euro 500 million in arrears.
Despite a pension reform gradually increasing retirement age and measures to curb labor informality launched in 2014, the deficit in the social security contributions remains huge. Finance Ministry data shows the pension gap remained almost unchanged at 21.4 billion lek (€150 mln) in the first half of this year.
Meanwhile, the Albanian government spent around 17.2 billion lek (€121 mln) in debt interest rates, down 17.3 percent compared to the first half of 2014 on lower domestic debt rates.
The government had earlier warned the poor performance of public finances could force it to revise its overoptimistic budget downward later this year on lower royalty collected from oil production, lower imports of fuel and tobacco and a rising number of VAT-free imports of machinery and equipment.
A two year deal with UK-based consultant Crown Agents, worth Euro 8.5 million, has also proved inefficient to boost customs revenue and reduce corruption, raising questions about the efficiency of the deal signed in early 2014.
In an effort to reduce smuggling and informality, the Albanian government has taken some tight measures in the oil and tobacco market following a decline in imports in early 2015 apparently fuelled by higher taxes and the shift to informal and cheaper domestic hand-rolled tobacco.
The Socialist Party-led left wing majority approved a rather overoptimistic budget for 2015 expecting an 11 percent increase in revenue, a 3 percent GDP growth and a slight reduction of public debt already hovering at 72 percent of the GDP.
