TIRANA, May 19 – Underperforming public finances in the first four months of this year have forced government to curb spending in order 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.
Finance Ministry data show government revenue rose by 4.6 percent to around 121.5 billion lek (€850 mln) in the first four months of this year but yet failed to meet the target by 4.3 billion lek (€30 mln).
The lower than expected revenue was caused by a drop in the value added tax and a slowdown in excise taxes affected by lower imports of fuel and tobacco which both underwent tax hike last January.
The value added tax, which is levied at a fixed 20 percent rate on almost every product and service and accounts for around one-third of total government revenue dropped by a considerable 9 percent in the first four months of this year, hinting sluggish domestic consumption which is the key driver of Albania’s growth.
Meanwhile, excise taxes registered a 16.7 percent increase but yet failed to meet the target by 3.3 billion lek (€23 million) on lower imports of tobacco whose excise rate was further raised last January.
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.
Public finances kept growing in the first four months of this year thanks to a 29 percent increase in the corporate income tax and a 44 percent increase in non-tax income, the latter driven by the transfer of some €23.5 million from the sale of three 4G licences to mobile operators by the country’s electronic communications authority.
Government has warned the poor performance of public finances in early 2015 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.
“We are aware that we could have 6 billion lek (€42 mln) less in revenue this year, but we have a plan B that will examine expenses or revise the budget next June or September,” Irena Beqiraj, a deputy Finance Minister and acting customs director general has said.
The Albanian government continues applying a tight fiscal policy with both total government spending and public investments failing to meet targets set for this year.
Government spent around 124 billion lek (€867 million) in the first four months of this year, up only 0.6 percent compared to the same period last year but down 9.1 percent compared to the target it had set.
Meanwhile, public investments rose by around 18 percent to 13.5 billion lek (Euro 94.7 million) but yet failed to meet the target by 8.2 percent.
At 13.5 billion lek, the amount spent on public investments was only slightly higher compared to around 12 billion lek (€83 mln) it paid on interest rates on public debt which stands at a record of around 70 percent of the GDP.
The Albanian government also paid around 7.6 billion lek (€53 mln) in accumulated unpaid bills to the business community in the first four months of this year as part of its three-year program initiated in 2014 which targets clearing around Euro 500 million in arrears.
In a bid to bring the economy back to sustainable growth, the Socialist Party-led left wing majority has 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.
While key taxes such as the personal and corporate income taxes will remain unchanged, defying businesses calls for a return to the flat tax regime after the corporate income tax was raised by 5 percent to 15 percent in 2014, the fiscal burden has further increase by raising the withholding tax on dividends and rents and capital gains to 15 percent, increasing the circulation tax on fuel and imposing higher excise rates on tobacco.
