Armenia: 2012 budget risks

The government of Armenia has ratified the state budget for 2012. According to the budget, its income share will be 910 billion drams and spending share – 1042.5 billion drams, with a deficit of 132.5 billion drams (1000 drams = $2.6).

The project of the state budget involves a significant decrease of the deficit by increasing tax income by 101 billion drams ($273 million) to 874 billion drams. This measure seems to be reasonable, considering the developing debt crisis in Europe.

Armenian economists believe that the country has all the resources to implement the 2012 budget by means of withdrawing huge sums out of the shadow economy. Considering the shadow economy of Armenia is about 30-50% of the whole GDP, this view seems to be objective, as the government of the country has serious reserves. But it’s a shallow approach.

Any decrease of the fiscal plan will influence state employees and small and medium-sized businesses. Tycoons have captured the country, and the government has no courage to put pressure on businessmen, especially monopolist-importers. In their pockets super-revenue is stored, which is hidden from fiscal taxes by the shadow economy. The deputy minister, Vardan Aramyan, stated that increasing taxes will be made possible by means of economic growth and effective tax management.

The government forecasts that 65-70 billion drams out of an expected 101 billion drams will be gathered by means of expected economic growth. The other 25-30 billion drams will be gathered by means of improvement of tax management through implementation of legal reforms.

The government didn’t forget about decreasing the budget deficit in the long-term. According to the minister of finances, Vache Gabrielyan, the deficit of the state budget by 2014 will decrease to 2.4%, in comparison to 7.6% in 2009. GDP growth in 2011 is forecast at 4.6%.

The government initiated a series of amendments to fiscal laws to increase taxes. This has already caused worries among small and medium-sized business. The chairman of the Council of Manufacturers of Armenia, Vazgen Safaryan, expressed anxiety that the budget doesn’t encourage investment and industrial development.

Moreover, having no other ideas, the government suggested an equality of alcohol excise tax rate for local producers and importers, saying the country has to fulfil its WTO duties. It is understandable that the initiative will negatively influence consumers and lead to dissatisfaction of population.

One more measure is the doubling of fines for violation of tax laws. It will also have a negative influence on small and medium-sized business. The republic has many small local shops, which would be bankrupt even after one fine.

The authorities of Armenia are forcing small and medium-sized businesses to tighten their belts. It is not a secret that the growth of taxes can lead to a decrease of taxable space and extension of the shadow economy.

However, today everybody except for the government is talking about the necessity of taxing tycoons. Growth of taxes will influence only small and medium-sized business.

Meanwhile, the authorities continue to make laughable promises to the population about economic growth. The minister of finance, Vache Gabrielyan, spoke at the economic forum of the RPA and promised Armenian economic growth of between 4 and 5% by the end of 2011. The words sound perfect, but ahead of the coming winter, ordinary citizens of Armenia have to tighten their belts, as it is quite understandable how the Armenian economic miracle will influence their capital.

David Stepanyan, Yerevan. Exclusively to VK.