The Fiscal Helplessness Of a Strong State

The end of November is the time when one starts thinking about paying that year's taxes. This awaits both the citizens and the state. Tax forms: The state has hurried to balance all the budgets. It has designated how much it needs until the end of the year. The citizens do not have such a privilege and they cannot increase their income in this way. The uncertain task of filling out tax forms awaits them. So far they have only been paying tax advancements, while the final calculation of tax duties is yet to be made. Under normal circumstances, certain tax-payers would have to make up for the deficiency in paying their taxes at the end of the fiscal year, while others would get back the surplus of paid taxes. However, no one here counts on the latter. The problem does not lie just in the fact that our state is too expensive, so that it wants to keep, at any cost, every dinar it gets from taxes. The essence lies in something else. Hyperinflation has destroyed the fiscal system. One dinar from January was worth 80 dinars in October, with a good chance of exceeding the value of 200 dinars at the end of the year. How is one then, in these circumstances, to determine what the taxes will be in January, October or December? How to determine the citizens' taxes and be sure that this is how much they owe for the entire year? These are only some of the new dilemmas. The old dilemma is about when the citizens would stop doubting their state. Even though we all knew that, at the end of the year, we will all have to fill out tax forms and to write down various deductions on the basis of which taxes are reduced, I don't believe that any of us have saved bills for medicine, schooling or charitable donations. No one trusts the state nor believes that it is ready to respect its own laws. Since, eventually, attempts to carry out laws appear to be to everyone's detriment, laws practically become inapplicable. Without faith in the government there can be no legal state. The Latin American effect: Military coups, constant inflation and a fiscal chaos are the speciality of Latin American countries. I suppose that we do not have to repeat the lesson about military coups, but it would be useful to recall something that has been named the Olivera-Tanzi effect. Here is what it boils down to: the state prints money because it does not get enough tax revenues. This leads to price-hikes which, in return, ensures state revenues. If a tax obligation is created on the first day of the month, and if it is collected on the last day of the month, at a 50 percent inflation rate, the state will be able to buy by one third less goods than at the beginning of the month. Inflation constantly keeps reducing the income in real terms that is gained from taxes, and by printing money, the state can in no way make up for the lost taxes. Our finances are obviously suffering from the same disease as Latin American tax systems. For this reason, the budget is balanced two or three times every year and this is why the mint in Topcider is the most important concern of the Serbian socialist government. It is so important that for its sake, even the most important achievement of the anti-bureaucratic revolution - the abolition of the provinces, has been forgotten. In the council of the governors of the National Bank of Yugoslavia there still comfortably sit the governors of the provincial national banks who also decide on the printing of money. The shortfall of tax revenues: Budgetary revenues of the republic of Serbia are based on two fiscal instruments: income taxes and sales taxes. Other taxes are just boring details. According to the information forwarded by the government to the Serbian National Assembly, in the first seven months of this year, the collection of income taxes this year fell short by only 5 percent compared to the planned level. On the other hand, 25 percent less of sales taxes have been collected. When a new tax system was introduced in Serbia last year, there was much talk about how to act due to the inflation. The proposed solutions took into account precisely the inflation and in this regard it deviated the most from its OECD model. Without a growth in prices, the overall tax obligations in the two systems were to be the same. However, due to the inflation, the new tax system calculated a greater value of taxes than the old system since a large number of tax-payers kept moving towards higher tax groups, where tax rates progressively grew. This is the reason why neither low salaries nor growing unemployment significantly reduced the abundance of income taxes. The reasons for the drop in revenues from sales taxes should not be sought only in the drop in production and in the population's limited purchasing power. In the meantime, apart from this, the black market, at which the state does not collect taxes at all, has considerably expanded. The new tax system has introduced taxes on interests, and due to its recent changes banks are obliged to calculate and collect them. On the other hand, there are no taxes on buying and selling hard currency in the street. This example just illustrates the impermissible conduct by tax collectors. They tacitly tolerate the non-payment of taxes, while taxes are mercilessly drawn out of those who get caught in tax clutches and at constantly growing rates.