Decrease in salaries, increase in VAT – Six measures for economic recovery

At the open meeting, the Government of Serbia presented new economic measures which should generate savings in the state budget, provide fiscal stability and economy growth.

The Minister of Finance, Lazar Krstic, who presented the package of measures, in the introductory analysis, estimated that economical and fiscal policy in Serbia, as of 2008, was at least irresponsible and non-transparent.

- As of 2009, we have had a chronic deficit and we are the only country in east Europe which has not succeeded in decreasing it – Krstic said.

We are now in the situation that 28% of the budget goes to pensions, 27% on salaries in public sector and no one exactly knows how much funds goes to subsidies, Krstic pointed out.

The Minister of Finance grouped measures in six areas. Without them, Krstic pointed out, the state would go bankrupt in the next two years.

Reduction in salaries in public sector

The first measure refers to salaries reduction in public sector as of 2014. Amounts over RSD 60.000 will reduce by 20% and those over 100.000 will decrease by 25%.

The expected savings totals EUR 100-150 mil (0.3% GDP) which depends on the estimation of the public sector headcount. According to registry data on headcount in public sector, the latest calculations show that some 660.000 people works in the public administration while Krstic mentions the number could go up to 700.000.

Increase in lower VAT rate from 8 to 10%

The second measure refers to revenue side of the budget – the lowest VAT rate would be increased from eight to 10% for non-existential products. Apart from that, certain products and services could be “transferred” to a category for which higher VAT rate of 20% is paid.

Apart from that, Krstic is announcing, activities to decrease grey economy will be carried out, unique electronic tax forms will be implemented as well as online fiscal accounts control, field visits would be increased and thorough reorganization of Tax administration will be carried out as well.

VAT increase to 10%, the Minister explained, will result in increase in a shopping basket from RSD 65.000 to RSD 450 more.

Restructuring of public companies and decrease in subsidies

The third measure refers to restructuring of public companies and decrease in subsidies.

Due to debts of public companies, the budget of Serbia will be in minus of EUR 200-400 MIL at the beginning of the following four years.

Apart from large systems restructuring, Krstic announced finalization of privatization for 179 companies. He reminded that in Serbia, subsidies the state provides are two times higher compared to other countries.

Serbia started moving towards EU and, Krstic says, it can no longer provide support apart from agriculture and railways. Still, he announced that the state will continue to provide subsidies in line with the financial situation, stating loans for trade as examples and convenient terms for foreign investments and employment but to smaller scope.

Savings in goods and services

The next measure refers to savings in goods and services. Krstic mentions that all ministries got a task to define their savings within 10% of decrease in goods and service prices.

Cheaper loans

As one of the measures, the Minister announced cheaper loans though bilateral contacts and diplomatic relations.

Business environment improvement

We will work on a significant improvement of business environment which needs changes in legislation, first of all Labor Law and it is necessary to simplify procedures for construction permits while the government will have to change the model of infrastructural investments, Krstic announced.

- We will have to change the infrastructural investments models, the state will no longer be able to be a financier and one of the models will be public-private-partnerships where we will try to enable domestic companies to carry out majority of works- the Finance Minister said.

On structural reforms 2014, effects of measures in 2015

Krstic announced that in 2014 more detailed discussions will be carried out on structural reforms and the effects of the measures the Government of Serbia is suggesting are expected in 2015.

Announcing essential increase in cost for social protection of the most vulnerable categories for 50%, which takes EUR 60 mil, Krstic announced reforms of state administration, unique salary grades implementation and coefficients between different structures.

The plan is, as he says, to, by 2020, reach the retirement limit for men and women and that by that time it reaches 63 for women and 65 for men.

- We will also have to discuss in 2014 penalties for premature retirement – the Minster said.

Profit in budget lower than planned

The Minister, Lazar Krstic. Points out that revenue will be RSD 20 billion lower than planned in the 2013 budget rebalance.

The IMF mission, the Minister mentions, pointed out additional risks in budget revenues.

DACIC: The whole Government supports measures

The President of the Government of Serbia, Ivica Dacic, said that the whole government supports financial and economic measures whose implementation, he warned, is in the best interest for the future of Serbia.

As he explained, the Government was trying to generate measures that would, to the lowest extent, hit the poorest categories but which would also awake the sense for justice within citizens because those who have the most will carry the most difficult burden.

VUCIC: Measures to save Serbia

The First Prime Minster, Aleksandar Vucic, estimated that the suggested measures are essential for saving Serbia and its economy which, otherwise, could not survive.

- It is very important to support what Minister Krstic presented. I personally agree with every word he said. He did not do it in a politically convenient but in the expert manner. Everything he said is important in order to save Serbian economy and survival of Serbian state and we cannot survive in a different way – Vucic said.

He expects suggested measures will be supported by IMF and the Fiscal Council and he pointed out they were essential “because all of us were spending more money than we earned”. Vucic said that, in comparison to Greece and Argentine which received support from the outside in time of debts crisis, Serbia would not have it in case it continued behaving irresponsibly.

He said that it was avoided to place economic measures on the back of the retired.

- They will not pay a single dinar. They earned their pensions – Vucic said.

As he added, the Minister of Finance thought that it would be taken from the pensions as well, as well as from salaries lower than RSD 60.000 because it would additionally strengthen the country but the Government did not allow it.