By Ljubomir Filipovic, CdM observer
Good morning. You’re reading a daily contextual review of the news that marked the previous day.
Did Spajic make a miscalculation? – are we going to face collapse of public finances, private sector and labor market distortions
As I’m not an economist, in the past few days, I consulted and talked to people and came across a critical analysis of the Twitter user @tatanadete, which seemed very realistic to me, so I’ll try to retell it:
A plan based on the abolition of healthcare taxes and contributions on salaries of up to €700, so that the burden of health expenditures would be transferred to direct costs from the budget. This is a transfer from one budget account to another and does not represent any reform, but a mere deception.
So, 65-70 percent of the salaries below €700 will not be taxed, which according to the government’s calculations amounts to nearly 17 percent less income on this basis, compared to this year. Therefore, the amount for this year is €736.8 million, which means that we’ll have a budget gap of as much as €125 million approx. This is done in order to raise the average salary from €530 to €700, which means that only for salaries, the Montenegrin economy will lack a few hundred million euros. The government counts on getting this from progressive taxation.
Another calculation is that the mentioned €125 million of tax reduction will be spent by employers on employees, which usually doesn’t happen because employers have other costs, as stated by the mentioned Twitter user: “investments, interests, working capital, yachts, mistresses …” .
The idea to ensure that employers spend that money on employees is to raise the minimum wage to €450, which, as the same Twitter user says, is a “brave but also crazy idea”, because 75 percent of people in Montenegro receive that salary (and less). It remains unclear how €240 million from progressive taxation will spill over to employers who should then transfer the funds to their employees. Where is the market?
The question arises as to where the employers get the money to increase the minimum wage to €450, which is an increase in the wage by some 35 percent. In money, that is €150 million that employers need to “soak” somewhere. So, when everything is added up and underlined, the economy lacks another €400 million, and no huge economic growth is planned for next year. Our analyst from Twitter predicts that all legal salaries will be nominally set at €450, and that a good part is a cash-in-hand payment from now on.
A good part of salaries over €700 will now be reduced to avoid progressive taxation, and the rest will be cash in hand. Going back to the 240 million gap from the beginning of the story, plus some 50 million new public sector spending due to the increased minimum, we have a deficit of nine percent of GDP, which could cause a budget deficit of 13 percent. Meanwhile, a reminder that public debt is already close to 100% with no productivity growth. What our Twitter analyst predicts are the collapse of public finances and the economy and labor market distortions as well as the migration of 5-10 percent of GDP to the gray economy.
The Social Council supported Spajic’s plan, but some regular government defenders were still afraid of their salaries.
Coalition turmoil
I received a lot of messages asking “Is Dritan negotiating with SDP and SD and minority parties about forming a transitional, minority government?”. I don’t know, but as I know how the brain of an average Dritan-type politician works, he now plays all possible games on his own in order to listen to the echoes and make an assessment of his next move. I don’t think he personally has the courage for such a somersault, but it’s possible that such a move, if successful, would be accompanied by support from Western addresses.
Judging by the reactions of the Front, they are preparing for such a scenario. Yesterday, a bunch of statements came out of them with the aim of putting pressure on Abazovic: First, MP Bozovic, known for calling for the formation of paramilitary units, called on URA to make a decision, then Strahinja Bulajic gave clear personnel solutions for the reshuffled government. Medojevic mentioned Vijesti again, referring to URA or vice versa, and Milan Knezevic and Maksim Vucinic took pictures and repeated what their colleague from NOVA had said.
Arrests with no limitations
Due to Belvedere, the police are arresting people in their ninth decade of life. 83-year-old Milorad Milo Jabucanin from Cetinje was invited for an informative talk and they took a phone from him. For now, there is no additional information as to why and on what grounds the man was detained.
Will prices of electricity go up?
Instead of an answer and a concrete strategy of avoiding risks due to a difficult electricity situation, the party staff running the EPCG, Nikola Rovcanin writes a 1000-character sheet in which he literally says that he hopes for rain, that TPP Pljevlja “won’t betray” and that everything will be fine. If not, they will borrow and pay what they need to pay. I’ll deal with this matter today, but from somewhat different perspective.
That’s all for today. Until tomorrow.
