Liability for social dependency in Belarus: indicator of problems with budget proceeds
On April 2nd, the president signed decree No 3 “Preventing Social Dependency”. The decree envisages a ‘tax’ for those who do not participate in public spending. Over 1 million Belarusians are not formally engaged in the economy. The authorities are unlikely to raise additional USD 100 million to implement the decree; however, they might spend considerable amounts on identifying those liable to pay the ‘tax’.
As of January 1st, 2015, residents of Belarus, who did not contribute to public spending, or contributed less than 183 days-worth per year would be obliged to pay a 20 basic units fee (USD 245). The fee should be paid no later than November 15th of the year following the reporting period. Penalties for non-payment include a fine from USD 25 to USD 50 or administrative arrest including community service.
The decree is aiming to reach out to 1 million Belarusians who are neither officially employed, nor registered as unemployed. In the authorities’ viewpoint, they do not contribute to public expenditure. According to preliminary estimates, somewhat 400,000 people would be subject to this regulation, while there are not enough jobs in the economy to ensure employment for all of them. In February 2015, Labor and Social Protection bodies reported only 26,500 vacancies.
Belarusian budget is in dire need of additional proceeds. Thanks to this decree, the state budget may raise additional USD 100 million, however that amount may be somewhat inflated. The implementation of the decree will inevitably entail additional administrative expenses, including payroll costs for employees who will be involved in collecting and processing data on social dependents. In addition, the implementation will hardly be efficient – all these employees already have heavy workload. The main success is likely to be achieved through ‘information’ from citizens.
That said, citizens will also make efforts in order to avoid paying the fee. More people will become formally unemployed or working on ad hoc contracts, as well as register as handcrafters.
With this decree, Belarus has de facto introduced a fee for residence in Belarus – regardless of the employment status. Additional budget revenues that the state aspires to raise are inflated as citizens will try to minimize their liabilities to the budget.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.