Road to economic growth still uncertain

TIRANA TIMES
The government finds itself between a rock and a hard place: More revenue for the state budget lowers overall economic risks by reducing public debt, while too high of a tax level could hamper economic growth and deter foreign investment.
The Socialist-led government and its allies in parliament have approved in principle an annual state budget and fiscal package that will result in overall higher taxes for Albanians, but one that makes sure public debt doesn’t grow any further, and even slightly lowers it.
Albanians will pay an extra Lek 16 billion, about Euro 112 million in higher taxes on non-wage income, fuel and tobacco taxes alone in 2015. Combined with the increase and a restructuring of the electricity prices it means the state budget will draw more income to deal with the deficit and invest in needed infrastructure improvements.
However, the increases could also mean hundreds of thousands of Albanians will have less money to stimulate economic growth or be tempted to go further more into informality to avoid paying up. It’s a similar situation with businesses, which have argued against any tax increase and even demanded that the country return to a flat tax regime to better compete with the neighbors for foreign investments.
In a positive outlook, as Europe and the world moves past the economic crisis of the recent years, and the government invests in key sectors like tourism and energy, the economy will start to pick up regardless of the higher taxes now being imposed.
In addition, if the government proceeds with it’s tough rule of law agenda — which is to be applauded — it will mean it would be able to further formalize the economy and increase tax revenue without having to necessarily increase tax levels, a move the business community prefers.
The Socialist-led government had not hidden the fact that it was looking to increase tax revenue through its move to progressive taxation last year. The problem is that barring any other factors, higher taxes seldom lead to economic growth. Consumers are left with less money in their pockets, investors and business lower of close their activities — curtailing job numbers, and so on.
It is an argument the center-left Democratic Party has made, claiming government action is increasing poverty and hurting the economy. As is often the case in Albania, the opposition makes things appear worse than they are, and the government likes to put on the rose-lens glasses.
The Democrats should have also made their objections in the place where Albanian voters sent them — in parliament. Opposing the budget in parallel meetings and in carefully-crafted PR appearances does little to increase the trust in the political system, which requires a healthy and constructive debate — in parliament — on taxes and budgets.
Opposition statements aside, the government, as others before it, is indeed overoptimistic for 2015, expecting a 3 percent growth and a slight reduction of public debt already hovering at 70 percent of the GDP at a time when the country’s economy continues suffering crisis impacts with the GDP having grown by only 0.56 percent in the first half of this year.