The distribution of the fiscal burden according to the destination of the budget in Albania 2023

Budget expenditures in 2023 were realized in the amount of 674.68 billion ALL or 3.6% more expenditures from 2022 (23.7 billion ALL more in 2023). Total spending is 29.2% of GDP (Table below) with a decrease of -0.3% of GDP from 2022.

The main directions of expenditure, according to the weight they occupy in relation to the GDP, are distributed according to the items in the table, noting that the total social payments are as much as 11.1% of the GDP.

Expenditures for social protection are distributed to all the needy strata that are registered in the government registers and they account for 4.5% of the budget expenditures, being considered a very low level compared to the countries of the region and the EU.

Expenses for contributions (for social and health insurance of budget employees, for pensions, as well as compensation payments for former owners), make up 38% of budget expenses (as much as 11.1% of GDP) with a slight decrease in weight with – 1% from 2021.

Expenditures for social protection (payments for the unemployed, for economic assistance, for the ex-persecuted, for families in need) constitute 4.5% of the budget expenditures (as much as 1.34% of the GDP) with a decrease of -1.8% from 2021.

However, in the conditions that the social expenses are not greater than 38% of the total expenses, it is understood that they are not enough to meet the needs and requirements of the potential beneficiaries of the predetermined funds.

Capital expenditures (for public investments) hold the second place in the distribution of state budget funds with a share of 17.4% in total budget expenditures, with a slight increase of 0.2% of GDP from 2022.

With the decrease in the share of funds for reconstruction as well as the support from foreign funds for the public energy sector, it can be seen that in 2023 the share of capital investments with internal funds has increased. The weight of investments to GDP has decreased from 2021 by – 1.8%.

Expenses for salaries and social and health contributions of the administration of state institutions account for 14.7% of total budget expenses with a significant increase of more than 1.9% of GDP from 2022.

Government expenses occupy the third place in the distribution of state budget funds. In contrast to 2021, they have a decrease in weight by -0.1% of GDP. Expenditures for increasing the salaries of the administration have increased the effect on the budget by 1% of GDP in 2023.

If we include in government expenses the funds for good administration and maintenance of public property, (or operating and maintenance expenses), which constitute 10.3% of the total budget expenses, with a weight of 3% of GDP, then the expenses of governance cost taxpayers as much as 7.3% of GDP (26.97 billion ALL), or as much as ¼ of budget expenditures.

The allocation of funds to local government accounts for 10% of total budget expenditures, which means 1% more from 2022.

If we start from the value of the debt that the local government has towards public institutions and suppliers in 2023 in the amount of 5.7 billion ALL (with an increase of 291 million ALL from 2022), we understand that the performance of the municipal budget has deteriorated in 2023.

But, based on the 25% rule, which is the indicative limit of the long-term debt of a local government that should not be exceeded in relation to the annual budget, then we understand that the municipalities are still within the limit of potential risk, related to the inability to pay debts.

Budget funds provided for government debt payments in 2023 constitute a level of 7% of total budget expenditures, or 0.1% of GDP more than in 2021. The softer than expected impact comes from the exchange rate low exchange rate with an appreciation of the Albanian Lek against Euro, which constitutes 54% of the country’s public debt.

However, the weight of the expenses has also increased in 2023 and this cost is part of the cost of investments and governance, since only 10% of the debts go to help the sectors of the economy, and the main part is distributed for infrastructure, urbanization projects and water supply infrastructure- sewers, for the public energy sector and the strengthening of governance capacities.

If we calculate as additional costs the delays in the completion of the projects with at least an average of 6 months to 1 year, then their value worth mentioning is up to 6 billion lek every year, when projects and uncompleted expenses of the previous year are carried over.

Expenditures for expropriations of public projects, subsidy for AlbControl and loans in 2023 based on government decisions and those carried over from years constitute 1.7% of total budget expenditures. The increase in this amount comes from the subsidy for the air traffic control company, and the expenses for the expropriations of the properties that are taken from the projects that the budget undertakes to pay. But, in this item of expenses, it seems that there are problems with its discipline, since the Supreme State Control makes public companies and their poor management responsible[1].

In 2023, it is calculated that tax and non-tax revenues cover 88.7% of total budget expenditures. The revenues collected from taxpayers and citizens paying for public services cover all the current expenses mentioned above, as well as 43% of investment expenses. The remaining part of the capital expenditures of 53% of them were covered by debts and grants, as additional resources and that have costs to be paid in the future.

If we calculate the sufficiency of covering budget expenses, according to the name of taxes and duties, then it turns out that payments for social funds (as much as 11.1% of GDP), according to different destinations[2] are covered by taxes and contributions for work only 77% of of them, while 23% is taken from taxes collected from consumption and capital.

The local government managed to cover only 46% of local expenses (for administration, for local government expenses and for local investments) with the income it collects from taxes and local fees, with a decrease from 2022 with 1% less of the coverage level. from its own local tax income.

Budgetary funds with their destination for economic development, but also the increase of competitiveness and faster improvement of innovation, new enterprises and research – development are seen to have little space, which is below 0.3% of the budget.

Meanwhile, all the allocations of development and assistance policies for vocational education are as much as 0.4% of budget expenditures, as another approach of budget expenditures through dedicated agencies but with an investment value below the demand of the labor market.

Several budgetary funds are already in operation for the development of the economy, such as: the Albanian Development Fund, the Owners’ Compensation Fund, the Competitiveness Fund, the Innovation Fund, the Start-Up Fund, the Creative Business Support Fund, etc.

When comparing the income with the destination for the expenditure that belongs to that income, as well as its coverage with additional funds, due to the lack of full coverage, it can be seen that the main expenses carried out by the budget cannot be self-financed from the sources of taxes that have the corresponding name. The first signal is the decrease in the level of expenditure in relation to the income for carrying out the expenditure.

The most obvious is for social spending, as well as for debt spending.

Both of these spending groups indicate better performance in the revenue dedicated to them, or not, as well as reducing costs for public services, as in the case of reducing the cost of debt service, through exiting the markets international with Eurobond.

Starting from the coverage of expenses and the effectiveness of their use, the debate on the tax burden should have a different spirit and will.

It must begin to be built as a new culture of public opinion.

In fact, it should be organizations and organized civil society, which, within the global initiative for open government, should aim to receive budget transparency from the government as their right.

This culture must keep open the channel of social dialogue with the government, which on the one hand is accountable for its decisions and on the other hand taxpayers do not feel tied to the government’s will for every step of life.

Because tax revenues are relatively predictable, governments can plan ahead with greater certainty.

[1] https://panel.klsh.org.al/storage/phpXHwktB.pdf

[2] 1. Social Security; 2. Health Insurance; 3. Economic aid; 4. Compensation for former political victims; 5. Compensation for owners; 6. Unemployment payment