Public wage increase, budget resources and big government

Adequate tax revenues are necessary to guarantee the continuation of the country’s reformation, but also to meet the growing social costs. Taxes and taxes should, more than before, enable public authorities to actively contribute to the pursuit of economic, social, and environmental policy goals. An adequate road network, an efficient transport system, an affordable health service, as well as an adequate education system, spending on environmental management and protection, as well as active employment and vocational training policies all require the injection of large public finance funds.

However, this distribution of budget revenues must take into consideration the demands of its voters, who in the role of taxpayers deserve equal treatment before the law. According to this approach, it comes naturally that to fulfill all the budget objectives, additional income is needed, which will either be obtained from debts in the financial markets, or from the expansion of the tax base for each of the taxes with the aim of justifying the expenses according to their destination.

While each government of the Western Balkans (WB6) has increased the crediting rate of budget expenditures with debts from domestic and foreign markets, this policy has less effectiveness than the one that comes directly from tax revenues. But seeing that the fiscal performance is limited, the spending experience of 2022, after a previous year with increased spending, needs to become more related to the quality of spending and the clustering of reform policies.

Based on the fiscal data that expenses are a signal of the level to which revenues should be planned more accurately, it is necessary to make modifications to the budget and fiscal policy with the aim of increasing the efficiency of the use of taxes and other budget revenues.

The highest level of budget expenditures among BP6 countries in 2022 is maintained by Serbia at 46.8% of the country’s GDP with a deficit of 8.1% of GDP. In the same way, Montenegro has a close level of budget expenditures at 44.8% of local GDP, but with a high deficit at the level of 10.5% of GDP. Bosnia-Herzegovina holds the third place for the level of budget expenditures as high as 38.8% of the GDP of the country and with an annual deficit of 1.4% of the GDP.

From all three of these countries, it is observed and argued that a high level of tax revenues also enables their distribution in expenses addressed to different directions of priorities.

The way of addressing budget expenditures is further the approach that also proves the level of transparency in response to government programs and strategies, but also weighing well the effects and consequences.

Regarding the expenses for the government personnel, the first place is held by Montenegro, which has spent 10.3% of the Montenegrin GDP. Serbia holds the second place with the level of 9.7% of the country’s GDP, followed by Bosnia-Herzegovina with expenditures of 8.8% of the GDP. Even Kosovo has a level of spending close to these countries, spending 7.4% of GDP on administration.

This level of spending compared to the EU’s personnel expenditure of 0.9% of GDP[1] classifies this expenditure as above the level of a large or high-spending government.

Meanwhile, the expenses for the administration at the end of 2022, in North Macedonia and Albania, respectively with the levels of 3.9% and 4.3% of the GDP of each country presents a more effective level of expenses and indicator of governments with small dimensions. However, all these expenses carried out by BP6 countries should be seen with the specifications that each government has drawn up for a fairer fulfillment of duties and in accordance with the level of digitization of public services.

The countries that present themselves with greater expenses for the administration are also those that have higher tax revenues than other countries, except for Kosovo. With this level of spending, the Government of Kosovo, after consultations with the IMF, has found it necessary that public spending should achieve a balance between social transfers and the promotion of economic transformation and sustainability, ensuring the maintenance of the necessary expertise within the administration.

But with the recent political decision in Albania[2], this tendency of spending on the administration with a low weight in relation to the revenues that are already collected leads the indicator to the models of governments with large expenses. The level of expenses for the years 2023-2025, according to the statement of the Minister of Finance, will reach close to the level of Montenegro and Serbia.

In the conditions when tax revenues in the years 2023-2025 are predicted to be less than in 2023[3], then it remains very disturbing to make political decisions without considering and correctly referring to the fiscal indicators of the coming years. This comparison is valid because, as explained above, the large expenditures in the history of the last decade have made those countries that also collect income at levels of 35-43% of GDP, i.e. at least 12% of GDP more than Albania.

If the cost of administration is cheap, in addition to the budgetary benefit, the risk of incomplete and quality public services is likely to arise. But the other equally great damage applies to the circumstances when a government has delegated some functions to the private sector, easing the budget, but increasing the cost of services for the citizens, after their delegation and postponement by the public-private partnership.

However, the challenge remains for WB6 countries, as they need to strengthen their administrative capacities to influence more strongly the design and coordination of economic and fiscal policies, as well as to implement structural and regulatory reforms, requiring the cooperation of all the main political and economic factors. technician on site.

Wage increases in the public sector in Albania

According to the draft law approved by the Albanian Government on April 20, 2023[4], the salary level for the public sector will now be determined by law with the aim of “creating a complete and clear regulatory framework not only for the competencies in the field of salaries and rewards, but also other financial treatments and benefits of employees in public administration institutions to make public administration more attractive for specialists, experts and the best managers, as well as to stimulate performance, innovation and competitiveness” [5].

According to the statement of the Minister of Finance, this increase will be divided into two phases. The annual cost of salary increases, which will be in full for the year 2025, is at the level of 38 billion ALL.

These funds will be provided by the increase in revenues in the budget as well as by internal reallocations (redistribution).

“This reform in the salary system will be carried out within the macrofiscal framework, thus maintaining all macrofiscal parameters. So, we will continue to reduce the public debt and the deficit, guaranteeing fiscal sustainability”, she said [6]. For the year 2023, we had predicted salary increase policy and it was worth 2.4 billion lek that affected education, health, and IT. The wage increase also comes because of the inflationary crisis, so there are some items foreseen in the 2023 budget that accommodate the salary increase and the additional cost foreseen for this year“, said Ibrahimaj[7]

“Based on the forecasts of the main macroeconomic indicators, reforms and fiscal changes undertaken and especially those expected to be undertaken in the future, as well as other determining factors in the performance of various items of state budget income, of total budget revenues for the next three years (2024-2026) are expected to increase on average by about 3.7 percent each year. More specifically, 0.7 percent for 2024, 4.9 percent for 2025 and 5.5 percent for 2026. Tax revenues for this period are predicted with an average annual increase of about 4.9 percent”[8].

From the calculations carried out by ALTAX, the 2023-2025 tax revenues are predicted to increase in value by no more than 53.37 billion lek[9].

The cost of the salary increase according to the new draft law is foreseen with an additional fund of 38 billion lek until 2025. This additional amount of the salary fund that overlaps the fund provided for in the Macroeconomic and Fiscal Framework 2024-2026 is 71.2% of the increase of income.

Meanwhile, the remaining part of the revenue increase of 28.8% remains to be used for capital investments, for the payment of the government’s operating expenses, for meeting the increase in the pension bill, for the payment of the public debt, as well as expenses that may are made for risks and crises.

All this clarification is in front of the budget costs, which remain in the internal allocations (redistributions) of the budget, which are “approved by the Council of Ministers and do not exceed 10 percent of the total approved program” [10]. This approach of the organic budget law is the same in the 2023 Budget Law[11], which also details the specifics of the redistribution of expenses during the budget year.

After verifying the legal reference that gives the authorization to carry out budget actions, we see that 10% of the value of budget programs[12] constitutes the sum of up to 39.7 billion ALL that can be used for the redistribution of diverse types of expenses (not only for wages).

From this short comparative analysis, in the conditions where the public consultation has already been closed[13] before the draft law[14] was approved by the Government, as well as before the calculations of the detailed budget bill together with the acts that will be approved are changed, it seems that there is a hasty action in the continuation of the decisions that when they had the same approach they managed to implement the deficiencies, with consequences not analyzed for the effects they produce and in general with the prevalence of the political decision without asking about the economic effects and the interest long-term and sustainable public.

Meanwhile, this draft law does not seem to have consulted the details about the legal determination of the minimum wage level and how it is calculated, who proposes it and who is affected, not considering any of the proposed practices in relation to experiences in European countries[15].

[1] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022B0182&from=EN
[2] https://ata.gov.al/2023/03/30/rama-rritja-e-pagave-per-punonjesit-e-administrates-ne-2-hapa-brenda-1-viti/
[3] https://financa.gov.al/wp-content/uploads/2023/02/Kuadri-Makroekonomik-e-Fiskal-2024-2026.pdf, faqe 17
[4] https://www.kryeministria.al/newsroom/projektligje-te-miratuara-ne-mbledhjen-e-keshillit-te-ministrave-date-20-prill-2023/
[5] https://konsultimipublik.gov.al/documents/RENJK_618_2023-03-21,%20pl%20kompetencat%20e%20pagave,%20teksti%20(1).docx
[6] https://ata.gov.al/2023/04/20/ibrahimaj-kategorite-qe-perfitojne-rritje-page-nga-data-1-prill/
[7] https://www.youtube.com/watch?v=sAg4eyAyNkg
[8] https://financa.gov.al/wp-content/uploads/2023/02/Kuadri-Makroekonomik-e-Fiskal-2024-2026.pdf, faqe 13
[9] while the total revenues of the budget (including non-tax revenues and aid) will increase by 36.57 billion lek, i.e. less than the tax revenues themselves
[10] https://financa.gov.al/wp-content/uploads/2017/11/LOB_i_ri_nr.57_dt_02.06.2016_-_MIRATUAR_ne_KUVEND_version_integral.docx, Neni 44 – 49
[11] https://financa.gov.al/wp-content/uploads/2022/12/ligji-buxhetit-nr-84.2022.docx , Neni 17
[12] “Budget program” is a group of activities of the general government unit that are effectively administered and contribute together to the production of identifiable and measurable outputs that help, directly or indirectly, to achieve the objectives and goals of budgetary policy his
[13] https://konsultimipublik.gov.al/Konsultime/Detaje/618
[14] https://konsultimipublik.gov.al/documents/RENJK_618_2023-03-21,%20pl%20kompetencat%20e%20pagave,%20teksti%20(1).docx
[15] https://wol.iza.org/articles/how-are-minimum-wages-set/long