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Fiscal consolidation has saved Serbia’s economy but we need new measures for even better results

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We can safely say that 2018 is the best year for the Serbian economy since pre-crisis 2008. GDP growth is about 4.5 percent, and next year we can expect similar economic growth (about 4-5 percent). Certain employee profiles (such as IT engineers) have become so in demand that the government has also become involved in retraining workers. Competition and an awakened economy are slowly beginning to raise wages for employees, and this creates sweet annoyances as higher wages mean higher costs for firms.

This information, while sounding quite optimistic, should also be used with caution. Effects of measures such as fiscal consolidation, resolution of companies in restructuring, liberalization of labor laws, visa waiver for citizens of China, Turkey and others, have peaked the top this year and are practically ceasing to produce a direct and tangible result. Fiscal consolidation has saved Serbia’s economy, but today we need new measures as bold and important as the consolidation of public finances mentioned.

The first thing that can make a difference is the economic integration of the region or the lifting of the CEFTA agreement to a higher level, or to be completely open to the “removal of borders” (free movement of people and goods) between CEFTA members, tax harmonization and a monetary union in which the future common currency should be tied to the euro. Taxis and protectionism policies are policies of the 19th century and we, in this region. need to act completely united and make our individually small and poor markets bigger and stronger. Political circumstances may be quite complex at the moment, but there is no reason for us not to immediately open such negotiations with BiH, which has proven to be our loyal partner in the problem of fees imposed by the Kosovo government. Our government has made great efforts to respect the particular interests of the Kosovo Albanians, and obviously the representatives of the Albanians have shown a willingness to reach an agreement, however, evidently there is no adequate mood of the key countries to enable us to agree. We must move on and we cannot wait stuck in the mud for the great powers to allow us to compromise on Kosovo. Obviously, even if we and the Albanians are stakeholders, we are not the ones deciding the future status. We have other political and economic interests in the region and we also need to pay proper attention to them.

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Another issue is the issue of tax burdens. This question will test the government’s vision and courage in conducting economic policy. I would remind you that in the first bout of the 2009 economic crisis, when traffic began to fall, the government reacted by raising taxes, leading to huge layoffs in the private sector. Unemployment literally exploded in those years and about 25 percent of working-age citizens were unemployed, and only later were public sector wages and pensions reduced through fiscal consolidation measures. In the meantime, public sector wages and pensions have increased several times, and after the New Year, the law on pension stops to apply, and this is, of course, in line with the country’s strengthened economy, but what about taxes? Should tax rates also go back to pre-crisis levels? Should VAT again be 18 percent instead of the current 20 percent? If the salaries in the public sector were repaid, should tax rates be reimbursed because they are someone’s salaries. If a company puts more money into tax, it has less money to pay their salaries. Certainly the elimination of the 0.75 percent unemployment contribution is a positive step, but it is also far from sufficient and the tax burden in the coming period must be more aggressive and bold.

It is very difficult to do business when you have 20 percent VAT on every product you sell, when you have to pay 67 percent of net salary for taxes and contributions to every employee, when you pay 15 percent tax on your profits, not to mention the rest of fees and taxes. These enormous tax burdens lead to over 50 percent of our companies’ taxes. In the long run, private investors, people who are relentlessly pushing the economy forward, are making people struggling to survive. In the long run, this is devastating for the whole society, and if the government wants to continue the positive effects of fiscal consolidation, it must support the private sector by significantly reducing levies. Personally, I think that employers do not have the right to keep the money from the payroll tax reduction for themselves, or to keep it for the company. It is employee money and that money should be used to increase salaries.

Following years will be very challenging for our country as well as for the whole region, which will face serious problems. Peace, co-operation and unity have to replace the misunderstandings of the 90’s and the issue of crime has to come out of the ether and move urgently to judicial institutions. The things that bind us must be over the things that set us apart because that is the only way for our countries to survive. The EU accession process is increasingly showing the parties that are very problematic, and this is above all a massive outflow of usable personnel into these countries. The question is whether our country, or our budget, funds the education of children to go to Germany, France and other EU countries. Does EU accession mean that 25 percent of the population will leave the country the next day, as is the case with Croatia today?

The question of where we are going and where we will arrive is very delicate and I am glad that it is not my job to lead the country in these difficult times. However, as I do now, I will certainly have a lot of understanding and will be here to support every step that leads to peacekeeping and strengthening stability in the country in the region.

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The president of Mona company

 

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