Former finance minister Lazar Krstić was hard-hearted: he demanded a 20 percent cut in salaries and pensions in the public sector. The calculation of the Fiscal Council showed that for fiscal consolidation, along with other measures, it is necessary to reduce wages and pensions by 15 percent each. Minister Vujović was clear: the reduction must not be more than ten percent. Last Tuesday, the day after the meeting of the prime minister, ministers and governors with representatives of the IMF, the contents of which the public was not informed about, the media used figures of six to eight percent, but the lowest incomes were not touched. So this "painful and unpopular" decision by the government and a key factor in the upcoming budget rebalancing has been postponed for a week and left to be feared and worried about by budget users, until the Prime Minister returns from the World Economic Forum in Tianjin, People's Republic of China.
At least three things stand out here: what effects will the announced reduction bring, what is the time that government representatives are delaying or not fulfilling their promises, and why fiscal consolidation has not already started, but is waiting for the prime minister?
POV, THE COURSE AND THE GRAY ZONE: Anything below 15 percent of the linear reduction of wages and pensions is not enough, the Fiscal Council says. "Reducing salaries and pensions without solving the problems of public and state enterprises is meaningless, and solving the problems of public enterprises without reducing salaries and pensions is insufficient," says the study of the Fiscal Council on fiscal trends and recommendations for rebalancing the budget for 2014. Therefore, the released "balloon A six to eight percent cut would not solve anything without further tax increases.
Any reduction in wages and pensions will reduce aggregate demand, economists warn, and thus the state's income from VAT, which, according to the planned budget, should make up almost half of all income. Let us remind you that in the last year and a half, the state has already raised VAT rates twice, and the result was a catastrophic shortfall in tax revenues in 2013. According to the current inflow into the budget, the collection of VAT in the current year, instead of the planned 430 billion dinars, will be for almost 300 million euros less, at the exchange rate of 119 dinars to the euro. This is nicely followed by the statement of the former director of the Tax Administration, Ivan Simič, in the last issue of "Vremena", that the Tax Administration is never consulted when planning the budget.
On the other hand, if after salary and pension reductions, new tax increases are needed, the outflow of business into the gray zone will continue. According to the data of the Republic Institute of Statistics, the unemployment rate fell by 3,8 percent from April of last year to June of this year and is about a fifth of the workforce. Happiness is spoiled by the fact that the rate of informal employment, i.e. "persons working without a formal employment contract", or in the gray zone, increased by three percent in the same period.
By the way, the dinar is close to the "historical minimum" from the summer of 2012, when Dejan Šoškić was the governor of the NBS. Then the governor unsuccessfully defended the dinar by selling more than one billion euros on the foreign exchange market. After that (and after the election), Jorgovanka Tabaković became the head of the NBS, and the exchange rate began to be defended by the reference interest rate, which in eight months increased by 1,5 percentage points to 11,75 percent, and the value of the dinar stabilized. Such "defense" of the exchange rate was abandoned in 2014 - the reference rate stands at 8,5 percent, and the NBS sold more than 600 million euros in the first half of the year alone in order to soften the sudden fall of the dinar. There are opinions that the dinar is being let down the drain a little bit, in order to iron out a big deficit through VAT - about two-thirds of VAT is charged on imported goods: the weaker the dinar, the income from import VAT will be nominally higher.
GOVERNMENT OUT OF BALANCE: The answers to the second and third questions from the beginning of this text are connected: the unbearable ease of making promises that are not fulfilled in large numbers can be endured by those who are too strong, and those who are too weak, who have too little responsibility. This is exactly a good description of the Prime Minister of Serbia and his ministers. That is why it is possible that Ministers Sertić and Vujović firmly promise that fiscal consolidation measures will be announced "on Monday at the latest" - three days ago - and the rebalancing "on September 15 at the latest". Before that, the rebalancing was announced for the end of June, then for July, and it is certain that even the latest deadline will be missed.
Similarly, the prime minister can be told, for example, that Siniša Mali will not be the mayor of Belgrade, that by the end of August he will change 70 percent of the management in public companies, or that he will reveal the contract with Etihad in February, and nothing to anyone. The too long line of ministers that have passed through the government in the last two years has meant that they are little more than consumables; the prime minister, on the other hand, is "Katica for everything". He brings investors, his personal friendships save Serbia from bankruptcy, every "attack" on the country is actually an attack on him ("and his family"), he saves victims from garbage and floods, he commands the army, he does not go to annual vacation... In the end, he is also the spokesperson of his own government: at numerous press conferences, relevant ministers and expert civil servants stand in the background, remain silent, do not move and successfully imitate a ficus.
All this - an omnipresent prime minister, a weak government, frequent changes of ministers, indecision and non-implementation of reforms - means considerable political instability. In the eyes of investors, this means a bad business environment and distrust in the market, which is reflected in the sale of government bonds. At the end of August, only one fifth of the offered five-year bonds in the value of 75 million euros, with an interest rate of five percent per year, were sold.
The government of Prime Minister Ivica Dačić, elected at the end of July 2012, had 17 ministries and 19 members. The Serbian Progressive Party had ten portfolios, including that of Velimir Ilić and Rasim Ljajić, whose parties were in coalition with the SNS. Socialists and PUPS had five, while Mlađan Dinkić's United Regions of Serbia had three ministries (one without a portfolio).
A year and a month later, the government of Ivica Dačić underwent a reconstruction. The United Regions of Serbia were expelled from the Government. Department of Mlađan Dinkić - Ministry of Finance and Economy - split into two parts. Both ministries were headed by non-party figures, and at the suggestion of the SNS: Lazar Krstić became the Minister of Finance, and Saša Radulović became the Minister of Economy. Instead of Verica Kalanović, SNS staff member Igor Mirović came to head the Ministry of Regional Development and Local Self-Government. Aleksandar Vučić remained in the (unknown to the Constitution of Serbia) position of "first deputy prime minister", and Nebojša Rodić, a non-party figure, took the post of Minister of Defense instead.
After his ministry was marked by a scandal with a tenfold increase in the permitted limit of alphatoxin in milk, Goran Knežević's (SNS) Department of Agriculture was taken over by Dragan Glamočić, a non-party figure. Transport Minister Milutin Mrkonjić (SPS) was replaced by his party colleague Aleksandar Antic, Bratislava Petković (SNS) was replaced as Minister of Culture and Information by Ivan Tasovac, and Vanja Udovicič became Minister of Sports (then a non-party figure, later became a member of SNS). Two and a half months after the junior high school graduation tests were "hacked", Žarko Obradović (SPS) left the post of Minister of Education, Science and Technological Development, and Tomislav Jovanović took the ministerial chair. Finally, Branko Ružić (SPS, in charge of European integration) and Aleksandar Vulin (Movement of Socialists, in charge of Kosovo and Metohija) entered the reformed government of Ivica Dačić as ministers without portfolio.
Only five months later, the Assembly was dissolved and new parliamentary elections were called. Although the Government elected on April 27th was again made up of the same parties, a large number of ministers were changed once again. Vučić and Dacić switched places - the prime minister became the president of the SNS, and the Socialist leader assumed the "phantom" position of the first vice-president, along with the Ministry of Foreign Affairs. Zorana Mihajlović and Aleksandar Antić also "joked" for positions in the government - the vice-president of the SNS became the minister of transport, and Antić became the minister of energy, into whose department the Ministry of Mining of Milan Bačević (SNS) was "drowned". The Minister of Internal Affairs was occupied by the former President of the Assembly Dr. Nebojša Stefanović, and the Minister of Defense became Bratislav Gašić. Instead of Saša Radulović, who resigned before the fall of the Government (SNS appointed Igor Mirović as technical minister), Dušan Vujović (a non-party person) took the post of Minister of Economy.
Instead of SPS cadres, Zlatibor Lončar and Srđan Verbić (both non-party figures) came to head the Department of Health and Education. Former Minister of Energy and Governor Cori Udovicki became Minister of State Administration and Local Self-Government, agriculture came under the control of SPS and their minister Snežana Bogosavljević Bošković. Aleksandar Vulin advanced to the position of Minister of Labour, Rasim Ljajić expanded the Ministry of Trade and Telecommunications to include the tourism sector, and Jadranka Joksimović (SNS) and Velimir Ilić received ministerial posts without portfolio.
Only Minister of Justice Nikola Selaković and Minister of Trade and Telecommunications (and Tourism) Rasim Ljajić remained in their positions from the original government of Ivica Dačić; eleven ministers "flowed" from the reconstructed government to the new government, of which only ministers Krstić, Tasovac and Udovicic returned to their previous positions. However, that was not the end either: due to the "soft heart" of the prime minister, Lazar Krstić resigned in mid-July. He was replaced by Dušan Vujović, and at the beginning of September the Assembly accepted the Prime Minister's proposal that the President of the Serbian Chamber of Commerce Željko Sertić (SNS) become the new Minister of Economy.
