By Duško Vuksanović, tax expert
All non-transparent actions by the authorities were accompanied by skilful manipulation regarding the causes, intentions and consequences. This was done so effectively that even economists who do not support the ruling political option uncritically accepted the government’s assessment of the success of the fiscal consolidation measures implemented from 2015 to 2017 as accurate.
Through those measures, pensions and the salary bases of employees in the public sector were reduced by 10 per cent, which produced annual savings of 470 million euros and around 1.4 billion euros over three years.
However, this in fact only covered the expenditure for the costs of people whom the authorities were unlawfully placing on the payroll. In 2015 alone, these unlawful expenditures for employees at the national level exceeded 350 million euros and corresponded to the total of 42,000 average annual salaries in Serbia. Within that amount, around 100 million euros were unlawful expenditures for employees in Elektroprivreda Srbije (EPS).
Hidden blows to state finances
I recently presented in detail the results of research into unlawful expenditures for employees and the loss of revenue from value-added tax in domestic trade, which left serious consequences for the country’s economic, legal and overall institutional order, in the book Hidden Blows to the State Finances of Serbia – Corrupt Rent in the Shadow of Financial Consolidation (Skriveni udari na državne finansije Srbije – Koruptivna renta u senci finansijske konsolidacije).
The increase in the number of employees in the public sector was noticed by the public in individual cases in public enterprises, local governments and local public utility companies, but there was no insight into the overall scale of such actions. The topic was discussed somewhat more at the end of 2013 and during the following year. The authorities manipulated data on the number of employees in the public sector, justifying this by the absence of “accurate data” as a problem of a “technical nature”.
In explanations for the adoption of budget laws, in fiscal strategies, government announcements, reports and other official documents, the reasons for high employee costs are placed in the “previous” period, before 2012, when SNS and SPS came to power. After that, the current regime successfully imposed the topic of fiscal consolidation as a measure that was saving the country from bankruptcy. Its real project was pushed out of public consideration – the unlawful placing of a huge number of people on the payroll, carried out by a large number of office-holders, from the top of the state down to the level of local governments and public enterprises, and which was precisely monitored and supported.
By examining decisions on the final accounts of the budget for 2012, it can be seen that in some local governments expenditure on employees significantly exceeded the initially planned amount for that year. In Užice, for example, by around 75 million dinars, in Novi Sad by 120 million, and in the Belgrade municipality of Rakovica by 30 million. An analysis of data from the Consolidated Balance of the State and the expenditures of the budget of the Republic of Serbia (for employees, according to the Budget Law) showed that the costs of employee expenditure in the last quarter of 2012, when SNS and SPS were already in power, were 10.2 billion dinars higher than the amount permitted by law.
The face and the reverse side of fiscal consolidation
Based on data from decisions on the final accounts of local governments and from the annual financial reports of public enterprises and institutions, it turns out that after 2012 the number of employees in many of them increased by 10 to 20 per cent, and in some cases even more. Thus, the Decision on the Final Account of Belgrade for 2015 shows that instead of the legally required reduction of salary bases by 10 per cent, these expenditures increased by nine per cent compared with the previous year, which corresponds to an increase in the number of employees on the payroll by almost one-fifth.
Financial reports of Elektroprivreda Srbije (the Electric Power Industry of Serbia – EPS) also show that employee expenditures in that public enterprise in 2013 amounted to 53 billion dinars or 468.5 million euros. Instead of the expected reduction, they were increased and exceeded the legally permitted amount by around 110 million euros. As in a number of subsequent years hundreds of millions of euros were directed for the same purposes, it turned out that this was done at the expense of funds for investment maintenance. The consequences were the well-known serious breakdowns at numerous facilities.
The state treasury was being drained on two grounds. The outflow was increased through corruption on the expenditure side by raising employee costs, while at the same time inflow was reduced through various tax frauds. Given that these phenomena are not new, this can be interpreted as evidence that absolutely incompetent personnel are at the top of the most important state systems. This is also an explanation of why EPS was managed by Milorad Grčić until the major breakdown at the beginning of 2021.
Cutting the branch they are sitting on
On the other hand, the sudden weakening of the functions of the Tax Administration, especially control, began in the middle of the last decade, at the beginning of 2015, when the current director Dragana Marković came to its head. At exactly that time, by measures of the Government of Serbia, salaries in the public sector were reduced and the renewal of professional staff was prohibited, while some tax officials naturally retired, and on the other side mass party-based employment of completely unnecessary job profiles was ignored.
An additionally harmful effect came from the Regulation at the end of 2015, triumphantly presented as a savings measure, by which daily allowances for employees in the public sector were reduced to 150 dinars. Those two measures in just a few months drastically affected the finances of field inspection officers, whose salaries, depending on rank, amounted to at most 60,000 dinars.
The outcome was that field inspectors, especially from the Centre for Large Taxpayers (CVPO), dispersed to other jobs within the Tax Administration, retired, or moved to the private sector to better-paid positions. With low salaries and even more meagre daily allowances, they simply could not cover their costs while working in the field. In this way that organisational unit, crucial for the efficiency of the entire tax administration because it performs continuous specialised control of VAT collection, was drastically disabled in terms of staffing. The consequences were quickly felt through a decline in revenue from VAT in domestic trade.
With an unchanged tax rate, a stable exchange rate and without significant market disturbances, revenue from VAT in domestic trade should in principle follow the growth of gross domestic product, with very small deviations. After 2016, when VAT revenues amounted to 112 billion dinars, they fell to 87 billion, and in 2018 to only 63 billion. Revenues on that basis then fluctuated at that low level and in 2022 amounted to 70 billion dinars. Only the introduction of mandatory electronic invoicing led to VAT in domestic trade returning to the equilibrium level, so that in 2023 these revenues increased by as much as 230 per cent compared with the previous year, to 163 billion dinars.
A warning signal to which nobody reacted
Under conditions of normal functioning of the administration, a sudden loss of revenue in just one year would be a warning signal at all levels of the state. The authorities compensated losses of revenue from VAT fraud of around 400 million euros on average per year by borrowing the country. In this period, other expected actions by the Tax Administration were also absent, such as determining the tax gap in the collection of corporate profit tax. Serious questions remain: are the enormous losses of tax revenue only the result of exemplary ignorance and incompetence of the management staff, or is it perhaps a matter of the deliberate creation of circumstances favourable to tax fraud and tax evasion by unknown actors?
In 2015, the Tax Administration had 5,800 employees. Since then, their number has continuously decreased and in 2024 it fell to 4,200. Even ten years ago, the number of employees in the Tax Administration relative to the population and the number of taxpayers was far smaller than in all EU countries and neighbouring states, and the number of inspection officers was half the recommended standard for a country the size of Serbia.
The situation is now many times worse. Without an efficient tax administration, every state loses the ability to provide basic services to citizens, while the economy becomes unstable due to unpredictability and the high risk of tax evasion. For that reason, in the future, after changes, the greatest attention should be devoted to this problem, because it involves the most complex tasks required by the system of public administration.
(Radar, 23.02.2026)