Low inflation, fiscal surplus and interest rates at the historical minimum and are all undoubtedly good trends that Serbia has not had for many years, which also contribute to maintaining the macroeconomic stability.
“There are other impressive indicators too, but they are impressive only on surface, because when they are analyzed in a little more detail, they turn out to be not so good”, Professor Milojko Arsic said at the presentation of the Faculty of Economics’ publication, the Quarterly Monitor.
Arsic primarily refers to data on the growth of economic activity of 4.6 percent, which is the best result that Serbia has achieved since the beginning of the global economic crisis and the highest growth rate in comparison with the countries in Central and South-Eastern Europe.
However, when we scratch the surface, it turns out that the biggest part of the economy grew at a rate of 3 to 3.5 percent, which is below the CEE average. Namely, the high growth is a one-off occurrence and is the result of the recovery of several sectors that recorded unfavourable results in the first quarter of this year, such as agriculture, electricity and construction. The authors of the Quarterly Monitor say that the final growth estimate is up to 4 percent by the end of the year, which again is below the CEE average.
“There is undoubtedly an increase in the deficit stemming from trading with foreign countries, i.e. the external trade deficit and deficit in the current balance of payments. This hides a more serious problem such as low domestic savings in relation to investments and the consumption rising disproportionately to the growing gross domestic product. I would add to this the lack of progress in structural reforms and the improvement of the economic environment”, said Arsic.
He warned that, with the exception of Romania and Latvia, domestic demand in other CEE countries will fall against production, on average by 4 percent.
“Certain domicile economists are delusional when they claim that demand is a driver of development. This is true for large economies that produce everything they need, such as America, Japan, Germany, but in the case of small, open economies, the main drivers of development are investments, and, in order to be sustainable, they have to be financed from domestic sources. No country in the world has developed in the long run from foreign investments alone. They can help in a shorter period, but they cannot be a permanent source of development, because they also entail a substantial outflow of money through dividends and profit. Last year, for example, we had a cash outflow of EUR 0.9 billion, EUR 0.8 billion on the basis of interest and EUR 1.2 billion on the basis of reinvested profit”, said Arsic.
He also recalled that the structure of foreign investments showed that the investors were mainly focusing on construction, commerce and the financial sector, all of which does not contribute to the decline of the foreign trade deficit, which amounts to 9.8 percent of the GDP, nor the current account deficit, which is 7 percent of the GDP. In addition, although exports are rising, the growth trend has slowed to 8.5 percent, while imports are 12.5 percent higher.
Professor Sasa Randjelovic’s research paper on shadow economy, which covered a period of five years, was also presented. Randjelovic says that around, at the beginning of 2012, which is also the beginning of the observed period, shadow economy made up 30 percent of the GDP, while in the next two years, it recorded a marked growth thanks to the state’s pronounced tolerance and frequent write-off of tax debts. He also pointed out that shadow economy was not equally represented in all sectors of the economy, which is due to new measures, is almost eradicated in the petroleum products sector, but in the tobacco segment, shadow economy continues to grow as a result of the higher excise.
Shadow economy is not declining
Commenting on a poll conducted by NALED among business people, their perception is that the shadow economy has been reduced by as much as 27 percent and now stands at around 15.4 percent of the GDP. Professor Milojko Arsic claims that there is no basis for such claim.
“Perception-based research is not reliable because it can be influenced by propaganda. If television and media are talking about declining shadow economy every day, and if any criticism is undesirable, then it will affect the opinions of those who are participating in the survey. It is also unlikely that they would honestly answer the question of how much tax they have evaded, regardless of the fact that the survey is anonymous. Therefore, in order to assess the true situation, the data related to tax revenues, tax bases and tax rates must also taken into consideration, because if there was a great reduction in the shadow economy, that has to show up in balance sheets “, says Arsic and adds that growth of tax revenue stems from an increase in tax bases and rates, while the volume of the shadow economy has not changed.
Taxes immune to prize competitions
The prize competition “Take a receipt and win” did not result in higher tax revenue to the budget, as the organizers expected, despite the fact that more than two million people participated in it. According to Milojko Arsic, in the first quarter of this year, there was a drop in the collection of value added tax, although it was not very clear why this had happened considering that the tax base was increased.
Photo credits: Media Centar
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