The FINANCIAL — During his conference on 25 October 2016, United National Movement member, Mikheil Machavariani, stated: “The income line of the state budget had a shortfall of GEL 132 million. The largest deficit in tax revenues is from the VAT. It has been implemented by 87.7% and the most interesting is that it did so in the goods and services sold throughout Georgia. There is also a major shortfall as compared to 2015. The budget has received about GEL 704 million less in revenues than it did in 2015. The grants line has also seen a deficit of GEL 84 million whilst the income from privatisation has been GEL 4 million less than initially expected. The plan for the long-term preferential credits from abroad has also seen shortfalls.”
FactCheck took interest in the accuracy of this statement.
Table 1 reflects the state budget’s implementation statistics according to the main budget lines. Whilst assessing the implementation of the budget’s income part, focus is mainly made on major budget lines such as receipts, revenues and tax revenues. Another important part is the growth of obligations.
As the above table reflects, the implementation of the receipts budget line was 98.2% with a GEL 132 million shortfall with regard to the initial plan and a GEL 100.8 million shortfall as compared to the same period of 2015. The revenues and tax revenues budget lines were implemented with excess whilst in absolute numbers the growth equalled GEL 259.7 million and GEL 340.9 million, respectively, as compared to the same period of 2015. The grants budget line was implemented by 62.2% with a deficit amounting to GEL 84 million. The decrease in non-financial assets (privatisation) had a GEL 3.8 million shortfall as compared to the initial plan.
In terms of the implementation of tax revenues, the revenues from income tax, profits tax and excise tax have been implemented with excess. The implementation of the VAT and imports tax is set at 87.7% and 94.3%, respectively. In addition, an additional GEL 316 million has been accumulated in the other taxes budget line which, according to the explanation of the Ministry of Finance of Georgia, is due to the difficulties in the classification of transactions by their purpose after the establishment of a unified treasury code. The sums of money in the aforementioned budget line will ultimately be classified in the other tax revenue categories with the implementation ratio, therefore, increasing. Hence, we can say that the implementation data published at this moment were calculated omitting some of the taxes that have not yet been sorted into categories.
As for the value added tax (VAT), the actual implementation is GEL 337 million less than envisaged in the initial plan. The VAT received from the sales of goods and services on the territory of Georgia is about GEL 688 million and is GEL 709 million less than in the same period of the previous year. This fact can be seen as an indication of the decrease in overall demand which is a negative factor. However, it is more likely that we have a technical flaw caused by the transfer to the unified treasury code as the VAT from imports is GEL 531 million more than in the same period of the previous year.
A particular setback can be observed in terms of external financial obligations. The implementation of this budget line is 59.5% with the setback in absolute numbers at GEL 311.3 million. The shortfall in the growth of these obligations has partly been balanced by increasing the domestic financial obligations which have reached GEL 211 million and equalled 320% of the nine-month plan. It should also be noted that according to the data of the first nine months of the year, the amount of domestic debt has exceeded the annual plan of GEL 200 million; however, this is not in violation of the law as according to the Budget Code of Georgia, the limit stated above concerns the obligations held by the government by the end of the year and not the amounts throughout the year. Hence, if the Ministry of Finance of Georgia covers GEL 11 million more in obligations than it takes in the last quarter of the year, the requirements as set out in the Budget Code will be met. It is also possible to make amendments to the budget law until the end of the year in order to amend the initial budget plan. We can say that the making of amendments is more likely to be utilised as the planned amount of debt to be taken in the last quarter of 2016 is GEL 134 million. It should also be noted that balancing the shortfalls in external debt by taking domestic debts has certain negative economic effects; namely, that the increased demand by the state on the domestic credit decreases funding opportunities for the private sector (the crowding out effect) which negatively influences the economic activities undertaken in the country.
Conclusion
FactCheck concludes that Mikheil Machavariani’s statement is MOSTLY TRUE.
