Preliminary calculation of budget effects from the approval of the Social Resistance Package

In the presentation of the Social Resistance Package by the Socialist Prime Minister of Albania, Mr. Rama, which is expected to be approved by the Council of Ministers and some of decision could be approved by Assembly of Albania, it is seen that the 7 measures have some effects and impacts in several directions.

The statement published on social networks still does not explain where and how the budget resources will be allocated, as well as how much the budget loses or gains from all the measures that will be implemented.

But, from the calculations performed, which in total are measures with an impact on consumption, employees subventions, the government budget, as well as subventions for private businesses and the public electricity distribution company, it is understood that they will not all affect their distribution equally. From what is declared by government, budget expenditures will not increase further, but will probably decrease from the items of “Operating and Maintenance” expenditures, which in 2022 are planned in the total amount of 63.2 billion ALL (520 million Euros).
On the other hand, inflation tax revenues will mitigate this government move.
Meanwhile, the contingency fund can be used in case it will be considered a state emergency, this extreme inflationary moment.

Below is a summary of the package of measures presented by the Prime Minister of the Republic of Albania, where in addition to the declared amounts we have calculated some effects that result from the implementation of the measures.

Budget Funds that go to consumption

– 3.6 billion ALL/year, but net addition only with 1 billion ALL more than programmed in the government budget 2022 for indexation of pensions for 673,542 pensioners,
– 5.2 billion ALL/3 months for 576 thousand beneficiaries, will be compensated with ALL in cash for the increase of basket goods prices, but net addition only with 3.2 billion ALL more than programmed in the government budget 2022
From the entry into force of the government decision on the minimum wage 32 thousand ALL from April 2022, where benefit increase of income 220 thousand employees, programmed in the government budget 2022 for July (+ 0.4 billion ALL/year in consumption) *
* calculations by ALTAX

Funds entering / leaving the budget

Entry into force of the government decision on the minimum wage 32 thousand ALL, from April 2022 (+0.4 billion ALL/year enter the budget as insurance)*
From the entry into force of the government decision on the minimum wage 32 thousand ALL, from April 2022 (– 70 million ALL/year can be a negative effect on profit tax) *
Reduction of the tax on salaries up to 40 thousand ALL, halving the tax on salaries up to 50 thousand ALL, as well as the reduction of the tax on salaries from 150 thousand – 200 thousand ALL (– 1.4 billion ALL/year) *
* calculations by ALTAX

Budget Funds going to public companies / private business

– ALL 28 billion financing OSSH sh.a., with an additional plus of 20 billion ALL, because in the government budget 2022 it was programmed a subsidy of 8 billion ALL
– ALL 1.4 billion support fund for tax-free oil farmers, but with an additional plus of 0.5 billion ALL, because it was programmed in the government budget 2022 a subsidy of 0.95 billion ALL
– 0.5 billion ALL to pay the difference of the price of the passenger transport ticket TR

In calculating the fiscal effects, including the allocation amounts presented in the public statement of the Prime Minister of the Republic of Albania, it is seen that they have an effect that will impact the displacement of expenditure items by at least ALL 28.3 billion (EUR 230 million).

The largest item of expenditure is the fund that will go to the Electricity Distribution System Operator with ALL 20 billion (160 million Euros) as a subsidy to maintain the price of energy below cost for households, which goes as a subsidy to keep the price of energy below cost to households, but of course also used as an unaccountable policy, regarding the effectiveness and political accountability of sectoral policy. This government policy may burden the budget perhaps with this additional expenditure from what was approved in the budget law 2022, but this remains to be monitored once it becomes factual as budget action.

Net Effect from Budget changes, Fiscal Year 2022

Effect on budget expenditures …………28.3 billion Lekë *
Negative effect on budget revenues ……0.07 billion Lekë *
Positive effect on budget revenues ……..0.9 billion ALL
* calculations by ALTAX

If we look further at the impact on budget expenditures, it seems that there will be no increase in budget expenditures, but there will be an entry in the insurance fund with 0.9 billion ALL until end of 2022 from the increase of the minimum wage, and it is estimated that there will be an impact on tax profit up to 70 million ALL, as a result of increased wage costs for the purpose of calculating taxable profit.

If we take as an example a private business with a turnover of 10 million ALL per year and 10 employees with a minimum wage, then it will have an increase in monthly expenditures of 2.4% only from this fiscal measure, without including the effects of rising prices for products, raw materials and the services it will purchase.

From these budgetary movements will go directly to consumption 4.6 billion ALL (38 million Euros). This amount will be from (a) the immediate indexation of pensions, (b) compensations for the poor and disable people, (c) the benefit of 2,000 ALL more per month for employees with the minimum wage, and (d) from the tax break. on personal income.

Net Effects on annually consumption and business subsidy from change

Impact on consumption ……………..4.6 billion Lekë *
Private business subsidies …………..1 billion ALL
Subsidies to public companies …..20 billion ALL
* calculations by ALTAX

The amount of ALL 4.6 billion will have a monthly effect (a) for pensioners in the amount of 0.3 billion ALL from April 2022, and (b) for the poor and disable people 1 billion ALL for 3 consecutive months.
Regarding the amount of 1.4 billion ALL that will go directly to employees, whose tax is reduced for salaries below 40 thousand ALL/month, halving the tax for salary between 40 – 50 thousand ALL/month and reducing the tax for salary 150-200 thousand ALL/month is included as a negative effect on the budget revenues. Although this amount was estimated to occur as a negative effect on the budget in mid-2022, the impact can be considered to affect the state budget 2 months earlier in terms of revenue, but without changing the fiscal indicators approved by the Assembly of Albania in December 2021[1].

Meanwhile, an budget addition amount of ALL 1 billion goes as a subsidy for private business in the agricultural sector and in the public passenger transport sector.

All the effects of the 7-measure package have a weight of 4.4% of the total budget expenditures approved by the Albanian Parliament to be spent by the government.
In this view of the effects of the package of anti-inflation measures it is worth mentioning that the current budget expenditures (salaries, insurance, maintenance, debt interest, social protection, local transfers) are 507.3 billion ALL (4.1 billion Euros). Expenditures for capital investments (including payments for investments with PPP) are 119.4 billion ALL (980 million Euros). The reserve fund is projected at 2.9 billion ALL (24 million Euros).

In the fiscal calculation of the Prime Minister’s statement [2], that “… for the part of public administration and government, only 50% of the price of fuel will be paid from the budget, while the rest will be paid from the pocket (note: from personal income, beyond the negative effects on the personal income of tens of thousands of public employees, as well as the decline in consumption from the reduction of personal income that will go to the payment of fuel, this is expected to affect negatively the full fulfillment of public duties.
Meanwhile, it is not clear how they operate in the conditions of the formal economy and the budget rules of the public sector treasury system.
However, to evaluate how much positive impact this public initiative of the Prime Minister has on the state budget, it seems that from a calculation based on the public procurement data conducted in 2019 from the Ministry of Interior Affairs for the purchase (supply) of fuel for the entire government for the years 2020 – 2022, it turns out that it will be halved an average annual supply of up to 5.000 – 5.100 tons per year is included, for an annual value of 880 million ALL per year (7.2 million Euros)[3], according to the average price of fuel in 2019 (177.1 ALL / liter).
In calculating the effects from the public statement of the Prime Minister, it seems that the cost that will facilitate the state budget for operating expenses will be up to 440 million ALL per year (3.5 million Euro / year), and a fuel saving of up to half the this amount.

[1] https://www.parlament.al/LibrariaAkteve/LibrariaAkteDetails/7560
[2] https://abcnews.al/duke-filluar-nga-une-rama-shteti-do-paguaje-vetem-50-te-naftes-per-ministrat-dhe-administraten-pjesen-tjeter-nga-xhepi/
[3] Kursi mesatar i këmbimit në 2019 ishte 1 Euro = 123 Lekë