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Ask the Government

                               Ask the Government

Ministry of Finance's response to groundless criticism regarding the Government's new fiscal consolidation measures

Published date 06.06.2017 22:44 | Author PR Service

Ispis Print

Podgorica, Montenegro (6 June 2017) -- Ministry of Finance issued a response to the groundless criticsm regarding the Government's new fiscal consolidation measures introduced within the Fiscal Strategy, as it was the case in December 2016 when the Government adopted the recovery plan along with the budget for the coming year. 

Namely, the implementation of the fiscal consolidation measures in the first five months gave good and encouraging results. The recovery plan for the budget deficit and the public debt will provide savings amounting to EUR 126,9 million, or 3,2% of the GDP. In the first five months we have recorded an increase in collecting revenues from taxation amounting EUR 39,14 million or 7,7% more than in the same period in 2016, as a year of robust increase of tax revenues. The spending growth was also reduced in the first few months of 2017. Strengthening of the fiscal discipline and rationalisation of the spending is visible, and the implementation of the Law on rescheduling of tax debt gives good results as well having in mind that EUR 172 million will be a subject to rescheduling of the tax debt.

Thanks to the Government’s measures aimed at combating fictive unemployment caused by the adoption of legal solutions by the ad hoc parliamentary majority in a previous convocation of the Parliament, we have a reduction in the number of unemployed to 48 400, or the rate estimated at 20,86%. The Government’s economic policy measures implemented in previous years and also the following year have contributed to increased number of employees for the first four months, namely 7 121 persons more comparing to the same period in 2016, thus making a continuing trend of employment growth based on the economy progress since the country restored its independence. 

The first quarter is followed by an increase of the net influx of foreign direct investments, tourism has recorded a significant growth rate and the coverage of imports by the export of goods has improved. 

Credible international financial organisations and institutions have noted that the Government has made positive step forward in the previous months, thus making our credit rating certified with a perspective for its improvement.
Statements that the Government has to seek “cheap money from the IMF” are absolutely false. On the contrary, the Government didn’t submit a request for any kind of credit arrangement with the IMF. Montenegro is one of the few countries in the region which does not have any arrangement with the IMF, neither it has the intention to seek one. It can be easily checked out at the press conference scheduled for tomorrow, which will be attended by the IMF representatives. There is a possibility that critics made such statements due to ignorance and their lack of information regarding the possible credit support from the World Bank to the Government of Montenegro for development policy.

It is also absolutely false that the Government has to accept recommendations which could block development, or lead to a loss of the economic independence. On the contrary, the Government has to repair devastating policies and solutions made by the opposition in the Parliament, which has also introduced discriminatory solutions into the system, thus negatively affecting the labour market. 

It is a fact that the investments have increased, as well as the number of jobs, which means that neither simulative business environment, nor the development have been endangered. The Government’s critics are the one looking for the higher taxes for entrepreneurs in order to make their business activities more difficult, which could have negative effects on the employees in terms of obstructing the increase of salaries, creating new jobs and pushing people to the grey economy. However, we are spreading the message that fiscal consolidation measures won’t stop the growth and progress of Montenegrin economy. In fact, we will provide a strong macroeconomic stability and better standard of living. 

By implementing abovementioned measures, we didn’t decide to increase the income tax or the payroll tax because it could have a negative effect on both the employers and the employees. We didn’t increase the tax burden on labour income, because we’re trying to increase the salaries of our citizens and improve their quality of life. 

We have to create a favourable business environment in order to valorise the natural resources and potentials, attract new investors willing to invest money in Montenegro, create new jobs and give our employees an opportunity to learn new skills and acquire knowledge. 

When it comes to the criticism related to the luxury tax, we have to say that this kind of tax is not recognised by the European legislation, but only its different categories are subject to a different levels of taxation, which is also the case in Montenegro. For example, Low on Property Tax regulates taxation of immovable property depending on whether it is related to the primary or secondary immovable property which is a subject to different forms of taxation in different municipalities.

Regarding the accusations on the social unrests, the Government takes care of the vulnerable groups and it has envisaged measures for equitable social policy, simulative policies for planning family, higher child allowance by 20% for beneficiaries of social assistance, single fees for the new-born babies, as well as active engagement in employment policy. The Government will also make efforts in preserving the lower VAT rate and tax rates on salaries in order to boost the salary growth. The VAT rate will be increased for 2% in 2018, but it doesn’t mean that the prices will increase for the same percentage. 

In addition to the statement that the Government requested the financial arrangement with the IMF, we could also hear another unprofessional opinion by one of the “economic analysts”, who thinks that the increase of the VAT rate by 2% means that “a price of a product, which now costs EUR 19, will be EUR 21”, pointing out the ignorance of mathematics, or VAT calculation, or maybe the both.

According to the Government’s projections, the increase of VAT rate may cause an increase of inflation rate for approximately 1%. It is important to emphasise that the lower VAT rate on the basic food products won’t be changed as the Government takes care of the living standard of the Montenegrin citizens.

The Government hasn’t made any interventions when it comes to freezing pensions, nor it has intervened in reducing the salaries in education, health and other public administration areas. 

We remind the public that Montenegro has recorded a continuing growth of salaries and pensions since restoring its independence, thus working at the same time on boosting the employment and economic growth.