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March 18, 2000
. Vreme News Digest Agency No 430
A New Invention of the Serbian Government

State With Two Budgets

by Vladimir Milovanovic

By the end of each year, Serbian Prime Minister, Mirko Marjanovic gathers all the members of his office; the ministers declare how much money each ministry needs in the coming year; everything is calculated and that is how the Serbian budget gains its shape. To that are also added the needs of the retirement, health and other state funds. In the end, Marjanovic and his colleagues determine, on the basis of the resulting number, the social product for that year. Incorrectly, but even that way functions no more - there is always a shortage of money.

CONCEALED ADVANCE IN THE COST OF LIVING: Since Marjanovic is well aware that it is far from politically opportune to stand up in the Parliament and admit that his office had spent more than it was predicted, the Government of Serbia remembered to open a number of accounts, via which the citizens and the state itself pay their dues to the state, and create a parallel budget which has nothing to do with the Parliament. It is not adopted by the members of the Parliament, nor is it controlled where and how is money on these accounts spent. Dr. Mirosinka Dinkic, an associate of the Institute of Economics in Belgrade, estimated that the number of such accounts exceeds one hundred and that, each year, they are 'filled with' approximately the same amount of money as that of the official and adopted budget. She became tired of counting, so she did not even try to investigate where that money actually disappears.

'That was one of the major aims. If all that money were amassed on a single account, the whole thing would be much more transparent. Therefore, the Government avoided that', says Dinkic for VREME. To make everything look more paradoxical, those accounts are filled with the means of the so-called common citizens, to which the Government, as in any normal country, would have to give an accounting of how their money was spent.

According to our interviewee's words, someone from the Government figured out that it is hardly possible to reduce public consumption in the present circumstances. About one third of the public consumption goes to the salaries of those employed in the sector of education, health, judiciary, the state apparatus and for retirement incomes. 'Since those incomes are already quite low, it is impossible to reduced them. The only alternative was to opt for the overthrow of the social infrastructure, i.e. for closing down the schools and hospitals, which is not a very smart move whatsoever. Therefore, the government decided to cover the budget expenses by collecting the additional means which are formally not a budget and which do not prompt public expenses officially', explains Dr. Dinkic.

When Marjanovic and the Socialists revealed their idea that the Government should introduce a number of taxes (apart from those on petrol, alcohol and cigarettes, by the end of 1998, taxes, such as those on payment operations, vehicle registration, personal weapons, mobile phones, were introduced), there was also another one, suggested by the Radicals - to literally equate all the salaries which come from the budget, as well as the retirement incomes. 'It is good that such a plan was rejected, since it would demoralise the already underpaid educated employees', comments Dr. Dinkic.

Officially, all that money went towards financing the social programs, which practically means - it covered the deficit in the retirement income fund. Still, the calculation shows that the fund amassed much more money than it was necessary, so our conversationalist wonders where all that money disappeared.

A NEW LESSON: As Dr. Dinkic calculated, in 1999 the retirement income fund needed slightly less than 18 billion dinars to pay retirement incomes to about 2,255,000 pensioners. Taxes on employers and employees brought about 15 billion dinars to the fund, which means that the deficit was three billion dinars. Any further calculation shows that that deficit could be covered by taxes on petrol and cigarettes, or rather that the retirement income fund practically did not need money acquired by means of other taxes. However, they accumulated about 12 billion dinars. If we assume that even less was amassed due to the bombardment - 10 billion dinars, and suppose that the fund's deficit was covered with that money, the question is where have those 7 billion dinars gone. One of the options is that all that money was spent on covering the 'irregular expenditures', on something that appeared two years ago as a constituent element of the fund's annual reports, the meaning of which is unknown. The second option is that the money, intended for social programs, which did not exist in reality, was actually used for financing the increased expenses of the army and police in Kosovo. All in all, the problem with retirement incomes should not exist, at least not to this extent, especially if we have in mind that the mortality rate among the pensioners is pretty high and that their number annually increases for less than 1%.

According to the account of the republic budget, which is supposed to be on the agenda of the Serbian Parliament until March 31st, last year the budget managed to pile up the amount of 15.4 billion dinars. On the other side, owing to some taxes, more than 10 billion dinars have been collected, plus 1.3 billion from daily allowances, so that we basically have another budget. The latter is, however, based on about one hundred accounts, many of which have the title of being 'transit', which means that money simply 'slips' as during a trip and settles on those accounts.

With the expansion of the Kosovo crisis and the possible outbreak of violence in Montenegro, the expenditure of the truncated Serbia will be higher and higher, and therefore, analogous to the previous practice of Marjanovic's office, new taxes can be expected. Dr. Dinkic says that it leads nowhere, since there is no such money that the state can still appropriate from both the citizens and the economy. The experts would say that the time has come for Marjanovic to learn a new lesson in economics. The Serbian authorities have learned, thanks to the unheard-of mega inflation, that after some time it starts eating the budget and is of no use. Now it is time to learn a lesson about the Lafer's curve, and it shows that the state has the same incomes with the tax rates of 25 % and 75%. Simply because in the case of the latter, the majority of taxpayers seek the way how to outwit the state.

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