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Business Sector Using Estonian Model – Surged Prices Aggravates Economic Condition of Our Population

The year of 2017 started with positive tendencies in Georgian economy. In January, preliminary indicators of economic growth marked 5.2%, in February the figure totaled 4.4%, in March – 5.3%.

As compared to the first quarter of 2016, economic growth indicator made up 5%, that is the highest figure after economic and political unrest started  in the regions in the third quarter of 2014. In March, the following sectors made major contribution to economic growth:

  • Housing sector (growth 18.4%, ratio p.p.)
  • Processing industry (growth 9.1%; ratio 1.0 p.p.)
  • Real estate operations (growth 12.1%; ratio p. p.)
  • Hotels and restaurants (growth 29.9%; ratio 0.5 p.p.)
  • Trade (growth 7.3%; ratio 0.5 p.p.)

Economic tendencies were reflected on state budget fulfillment indicators too. In the first quarter, state budget revenues exceeded the planned indicator. Revenues marked 2 376.4 million GEL, up 327.9 million GEL as compared to the first quarter of 2016 (+16% year on year).

This figure constituted 24.9% of the annual forecast and this is an unprecedented high indicator. As compared to the first quarter plans, the surplus made up 163.4 million GEL (7.4%).

Positive tendencies are recorded in other sectors too. As a result, accumulated funds in the first quarter made up 2 914 million GEL, up 180.9 million GEL as compared to the planned indicators (2 733.1 million GEL) and it constitutes 23.1% of the annual plan.

The January-March 2017 state budget forecast revenues were determined by 2 233 537.6 thousand GEL. In the reporting period, the state budget mobilized 2 426 727.8 thousand GEL, that is 108.6% of forecast indicator.

Payments forecast indicator made up 2 097 000.0 thousand GEL, while in the reporting period 2 274 272.0 thousand GEL was mobilized, that is 108.5% of the planned indicator.

It should be also noted that the profits tax reformation started on January 1, 2017. Profits tax was replaced by distributed profits tax that was enacted on January 1, 2017. According to the first quarter of 2017, it was planned to mobilize 206 000 000 GEL from profits tax. Revenues marked 259 184 000 GEL, up 53 184 000 GEL, up 25.8% year on year.

This reform was to promote business sector in terms of reinvestments. Consequently, it should make positive effect on economic growth. However, according to the first quarter indicators, revenues from profits tax exceeds the planned revenues.

In the first quarter, the business sector has not applied the so-called Estonian Model and surplus from profits tax proves this. Namely, the plan in the first quarter was 206 000 000 GEL, and the fact was 259 184 000 GEL. The state budget received 53 184 000 GEL more revenues from the mentioned tax, compared to the plan.

As a result of this reform, the state budget was to be replenished by 400-500 million GEL. However,  the Government raised excise tax on tobacco, oil products and automobiles. Referendum is required to increase other taxes. Higher excise tax became the heaviest burden for our population, product prices increased  amid unfavorable social conditions.

Why does the business sector prefer not to apply the Estonian model? Maybe, business sector needs a certain period to get adapted to the new model, but this reform was announced long before and businessmen had enough time to reasonably apply it. As a result, business and state  sectors are content, while population has to suffer from the burden of increased prices.