How does the wrong fiscal policy affect the individual, businesses and the market?

The main argument is related to the answer for two main directions:

– How does the fiscal policy affect the choices of individuals and businesses regarding labor relations, savings and investments
– How does a change in the law affect relations with other sectors

In the case of the income tax law, due to some contradictory aspects of it, the long-awaited reform is unlikely to increase the size of the economy, as it affects the decision-making to act by creating conditions of inequality.

But what are some of the first symptoms that come from the beginning 10 days of its implementation in 2024?

First, it has brought an increase in uncertainty in the market and chaos in the way of reformatting services as it relates to the new prices expected to be implemented, since taxing work more than other sources of income creates wrong premises for the freedom of the market and the social contract with the state.

Secondly, starting from the conditions when this law is applied unilaterally, small and medium-sized businesses are losing confidence in the government’s initiatives to ease the fiscal burden, as different decisions are being taken by the central and local governments to increase tariffs without having in advance a clear calculation of why more should be paid

Thirdly, based on the information from a surveyed part of the businesses, which make up a part of the services, it is being targeted by those who can also operate online, or are trying to reformat their business model. This trend, together with deregistrations from the commercial register or departures to the surrounding countries, will be analyzed to see the effect of the contraction of that part of services that have a direct impact on domestic production, but also on other sectors, due to the relationship between businesses. These movements mainly increase the cost of their activities and services with an impact on the prices of their services and the future prices of their contractors. This influence has the opposite effect of the measures taken by the Bank of Albania against inflation and shows their lack of coordination even in cases where the public interest requires this cooperation.

Fourthly, fiscal policy violates the principle of equal treatment of taxpayers before the same law, where professions are burdened with fiscal burdens, while commerce is not burdened. On the other hand, leaving out of the scheme a good part of professions in the arts, entertainment, tourism, etc. sector. due to weak administration and caught by corruption and patronage, it creates another loophole in the scheme of distributing the fiscal burden to different segments of businesses and individuals.

Fifthly, the principle of progressive taxation of the current (de facto) government has fallen, that whoever earns more must pay more, since in the conditions of a high informality and which is still not declared by the finances, another pressure is created above the layer that generates income from work and that needs non-discriminatory policies. This wrong approach also creates premises for favoritism between business segments by distributing the fiscal burden unequally (tax justice).

Sixth, the incentive and temptation for the corrupt will be higher in the conditions when a part of the individuals would prefer not to pay more than before, but to pay for uncontrolled corruption and in this case the loss is of the economy and the budget.

However, the actual effectiveness of fiscal policy changes is seen as quite dependent on the general economy and factors that are not only related to internal factors, but also external ones. However, the monetary and fiscal policy is mostly affecting in 2024 the base of the country’s business pyramid, such as small businesses and the self-employed together with the wider economy. A tighter fiscal policy will cause the economy to shrink, with spending and reduced demand, as taxes will begin to reach deeper into the pockets of businesses and individuals who derive income from work than into the pockets of other businesses and capital owners. Every business owner should plan for these periods of tight spending accordingly until the fiscal policy comes to its senses.