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Budgetary Debate Continues

Following a heated debates between the Georgian cabinet members and parliamentarians over the 2005 draft budget, both executive and legislative authorities agreed on October 22 to continue the discussion of the next year’s budget in “a constructive manner.” A Meeting between the cabinet members, including Prime Minister Zurab Zhvania and representatives from the parliamentary majority was held in an attempt to defuse speculations over the rift in the ruling coalition.

“I am satisfied with the talks with the parliamentary majority,” Prime Minister Zurab Zhvania told reporters. He reiterated a readiness to take into account the Parliament’s remarks over the draft budget.


“We did not discuss the budget alone during the meeting. We also talked about relations between the legislature and the executive authorities in general,” MP Lado Papava told reporters.

All the thirteen Parliamentary Committees, as well as all the parliamentary factions, criticized the draft of the 2005 state budget as “incomplete.” Some parliamentarians were critical because the draft envisages provisions which are not considered by the Georgian legislation; hence, critics say, the draft budget is based on non-existent laws. Parliamentary Chairperson Nino Burjanadze said: “if the draft budget is not amended, the Parliament will find it difficult to support it.”

Prime Minister Zurab Zhvania said in response to the criticism that he is ready to constructively discuss the issue with the parliamentarians, but added that he will “not allow hidden political intrigues over the budget.”

“I am ready to discuss the draft budget with the parliamentarians, including with Chairperson of the Parliament [Nino Burjanadze] openly, and even hold TV debates if necessary, so that the critics can explain what is wrong with the document and what kind of complaints they have. However, I will not allow hidden political intrigues and mentor tone in our [the government’s] address,” Zurab Zhvania said while speaking at the cabinet session on October 19.
 
President Mikheil Saakashvili, who has the right to dissolve either cabinet or the Parliament in case the latter rejects the budget twice, downplayed the budgetary debates and described them as “a usual and normal process.” Saakashvili on October 20 said that “they [cabinet and Parliament] will dispute and finally reach an agreement.”
 
Budgetary Targets
 
The budgetary expenditures for the 2005 are set at the highest level in Georgia’s recent history – 2.01 billion Lari (approximately USD 1.12 billion); while the revenues are planned to increase up to 1.8 billion Lari.  The GDP growth rate is set at 6%, while the Georgian currency’s exchange rate against US dollar is forecasted to stay at 1.8 Lari per USD.
 
Authorities plan to increase revenues mainly through improved collection of tax revenues and better tax administration. Budgetary revenues are set to be increased by 275.7 million Lari compared to 2004. Targets of the 2005 draft budget are set in accordance with the new tax code, which has not even been discussed by the Parliament yet. The draft tax code envisages a reduction in the rates of several taxes, including VAT, income tax and social welfare tax.

“It is rather doubtful whether the Finance Ministry has made realistic calculations over tax revenues, including [the possibility of] mobilization of particular taxes. The government plans to increase tax revenues at the expense of economic legalization and tax administration, however it is rather doubtful that the shadow economy will be legalized so quickly,” says the conclusion over the draft budget, issued by the Association of Young Economists of Georgia (AYEG).

According to the draft budget for 2005, the Interior Ministry’s funding will be reduced from 138.9 million Lari (USD 75.9 million) to 123.6 million (USD 67.5 million). However, an approximately 8000-strong Internal Troops squad, currently under the Interior Ministry’s subordination, is to merge into the Defense Ministry next year.
 
The funding of the Security Ministry will increase by approximately 6 million Lari and amount to 25.6 million Lari (USD 13.9 million) in 2005. The Justice Ministry’s spending will increase as well – from current 22.3 million to 30.8 million Lari.    
 
Next year the Ministries of Foreign Affairs and Energy will receive reduced funding: 30.8 million Lari [USD 16.8 million] and 141.5 million Lari [USD 77.3 million] respectively.

Priorities – Defense, Social Security
 
The authorities claim the draft budget sets defense and social security as the top priorities for the next year. Defense spending, according to the document, will increase by 34% compared to 2004 to 119 million Lari (approximately USD 65 million). While funding of the Ministry of Labor, Public Health and Social Welfare will increase to 493.4 million Lari (approximately USD 269,6 million).  
 
However, Defense Minister Giorgi Baramidze, as well as the Parliamentary Committee for Defense and Security, considers the current 119 million Lari allocated for the Defense Ministry insufficient. They demand an increase in defense spending up to 157 million (USD 85.7 million) to foster reforms in the armed forces. 

“In this case, defense can not be declared as a priority, since, compared with the current budget, defense spending will increase only insignificantly [by approximately GEL 6 million] next year,” opposition MP Ivliane Khaindrava, member of the Parliamentary Committee for Defense and Security says.
 
Moreover, unlike other sectors, the defense budget is the least itemized one and shows no detailed description of spending.

As for the social field, the 2005 budget envisages the complete payment of the country’s pension and salary backlog, the increase of minimum wage for public employees to 115 Lari and implementation of the Poverty Reduction Program.
 
MPs have reservations about increasing the minimum wage to 115 Lari only for public employees, meaning only agencies funded through the central budget. This excludes teachers and doctors, whose salaries are funded from local and municipal budgets.
 
The Poverty Reduction and Economic Growth Program envisages the distribution of 66 million Lari to families below the poverty line. However, the criteria for identifying such families has not yet been clarified.

The government has to take the Parliament’s remarks into account by late October and return a revised version of the draft to the Parliament for further consideration by November 1.

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