Tax on ‘social parasitism’: inefficient, but necessary
After President Lukashenka said that the Decree No 3 envisaging the tax on social dependents would be amended, not abolished, the tax authorities released the decree implementation report. According to the report, the tax authorities failed to administer the tax, moreover, its economic impact was negligible. The decree was meant to be used as an additional tool to regulate labour market and official unemployment.
The tax authorities sent 73 000 notices to potential payers of the tax on ‘social parasitism’, of which 15 000 were able to prove their right not to pay the tax. Only about 10800 people paid the tax, from whom the state budget raised circa USD 1.2 million. Initially, the authorities assumed that in 2016 there would be circa 160000 taxpayers, who would raise circa USD 40 million for the state budget. In addition, they calculated that in the future the taxpayers number would rise up to 400 000, contributing circa USD 300-400 million to the state budget annually.
Independent analysts doubted the efficiency of such a system and pointed at its high costs. In addition, as the tax authorities mailed their notices to tax payers, major shortcomings in the taxpayers’ database were revealed - it listed citizens exempt from tax and the deceased. The authorities failed to respond to requests by ‘Tell the Truth’ campaign and independent media about administrative costs of such a tax. However, indirect evidence shows they were rather high: 27 government agencies and 82 000 organisations were involved in compiling the taxpayers’ database.
Amid growing unemployment and falling wages, despite sharp criticism by independent analysts, some government members and discontent among the population, the Belarusian authorities will not repeal the decree. Instead, they plan to improve the system by exempting some categories of unemployed from the taxpayers’ list.
In addition, as Belarusians get used to the idea, the state may introduce additional systemic measures to raise additional proceeds from the population and expand the list of those liable to pay the tax. So far, people showed their discontent with the authorities’ action by refusing to pay the tax, with some local initiatives collecting signatures to abolish the decree and with some appeals by the opposition.
The Belarusian economy was shrinking for the second year in a row, in 2016, by 2.6%. Before 2015, the Belarusian economy was growing for 18 consecutive years. In order to stop the economic slump, Belarus needs a favourable international market situation and to settle all trade disputes with Russia. The Belarusian economy is unlikely to recover before 2018.
According to the preliminary reports, in 2016, Belarus had a 2.6% GDP decline. The Belarusian economy was shrinking for the second year in a row – a 3.8% decline in 2015. Most economic indicators in 2016, except in agriculture, had negative values. Wholesale trade had the most negative impact on GDP due to falling exports of potash fertilizers and petrochemicals, as well as construction, due to reduced investment in fixed assets by enterprises and decreased housing construction volumes.
In 1996-2011, the Belarusian economy was growing most rapidly, average GDP growth rate was 6.9% per year. In 2011, amid emission injections in the economy, disproportionate growth of wages against the background of low productivity and significant financial aid for loss-making agricultural, construction and industrial enterprises, the Belarusian rouble depreciated by three times. The absence of economic reforms and significant relative weight of state in the economy amid deteriorating external economic environment led to a sharp economic slowdown – circa 1% per year in 2012-2014; the slowdown was followed by the recession, caused by a slump in the prices for basic exports from Belarus and cuts in soft loans issued to maintain production volumes.
Belarus’ budget for 2017 is based on anticipated 0.2% growth. The expected decrease in the construction volume is circa 17% in 2017, which is unlikely to allow industrial growth with the renewal of fixed assets by legal entities. Even if wages grow, they will be offset by the 15% increase in utility tariffs by late 2017. Wholesale trade is largely dependent on the potash market situation and the oil processing volume at the Belarusian refineries. In view of the planned reduction in Russian oil supply in Q1 2017 to 4 million tons, wholesale growth is only possible provided the potash market situation improves. In late 2016, engineering output increased significantly, but amid the trade conflict with Russia, she may prioritise purchases from domestic manufacturers. In the given circumstances, Belarus’ GDP would only grow in 2017, provided the Russo-Belarusian dispute over energy supplies was fully resolved, Russia removed barriers for Belarusian exports and the potash market situation improved. That said, Belarus’ GDP in 2017 is likely to decrease by 0.5% - 1% and is likely to be followed by an attempt to overcome the recession in 2018.
The Belarusian economy has been in recession for two consecutive years. Amid anticipated decline in retail trade, construction and unresolved dispute over energy supplies from Russia, economic recession is likely to persist in 2017 and the economic recovery may be postponed until 2018.