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LAURENZ CURVE IS EVEN MORE CURVED SINCE 2008
Roza Hovhannisyan
Story from Lragir.am News:
http://www.lragir.am/engsrc/interview27300.html
Published: 17:36:50 - 04/09/2012
Interview with Member of Parliament Hrant Bagratyan, ex-prime minister
of Armenia
Mr. Bagratyan, what is your opinion on the new law on income tax which
will enter into force in 2013? Is the government scenario of charging
consolidated tax on income realistic and what will the impact of the
law on payments by employers and employees be, will they go up or down?
My attitude to those amendments is negative. Taxes grow, business
opportunities are reduced. It brings to one's mind the consolidated
social tax enforced in Russia for 15 years and then eliminated
in 2010. Taxes will grow for two reasons. First, some employers
will sit and talk to their employees, even though the minister
of finance Vacheh Gabrielyan and the minister of labor and social
affairs Artem Asatryan warn them not to disturb their employees not
to have problems with tax bodies. In the long run, employers may
give the money to the employee and take back part of it. Second, new
employees will be hired for a smaller salary to avoid the warnings
of the abovementioned ministers. I think, however, that the idea of
introducing a consolidated tax on income pursues other aims. Losses
or non-losses of salary are nothing compared with this issue.
What do you mean?
I think this step is part of introduction of mandatory funded pension
in 2014. As we all know, the government reckons a nonsensical reform
- introduction of mandatory funded pension. They take 5% of people's
salary, the government contributes another 5% and contributions are
invested somewhere abroad. They can invest that money here but the
minister of finance says they will take them out. A silly, hopeless,
treacherous and harmful scheme. Moreover, they are doing what Russia
did in 2006 upon Putin's order. Meanwhile, Russia is gradually giving
it up and trying to return to the public pension system. Studies of
the Western experience show that introduction of funded pension with
low levels of development and income is meaningless. I would propose
that the government requested an information note from the biggest
pension funds (Norwegian GPF, Japanese GPIF, American CALPERS, Dutch
ABP, etc.) about the way they passed and their evolution. They would
become convinced that introduction of mandatory funded contributions
in a non-developed country is an adventure.
Generally, mandatory pension funds must be preserved at this stage
of development. Meanwhile, by adoption of the consolidated income
tax state and social pensions get the status of benefits. The pension
fund is eliminated, gets a titular nature. Money flows to the public
budget from where benefits will be paid to the citizens directly or
indirectly in the form of pensions. Believe me, we will need the state
and social pension systems. In this case it is impossible to take into
consideration the payments, years of service, work contribution of a
person. Everyone will get equal pensions. There will be no insurance
policies in the state pension fund.
And what is the solution? What should be done?
First voluntary funded pension must be introduced. In addition,
the state pension system with mandatory funding principle is preserved.
Apart from that, upon the employee's voluntary decision the government
has to make a contribution. These payments are counted in production
costs, cost of product. The money is spent on the development of
infrastructures in Armenia, while the guarantor is the state. This
would be a dynamic reform without devastating risks.
Do you think the government does not understand Ñ~BÑ...аÑ~B?
It is possible. But there is something else. The prime minister needs
economic growth and budget growth. He comes from the banking system
and is trying to imitate growth through financial balloons. Mandatory
car insurance was introduced, economic growth is reported. This year
social benefit of insurance was introduced, the GDP grew. Nobody
does anything while the GDP grows. After the introduction of the
consolidated tax on income another 10-12% growth will be reported.
Soon it will blast. Once I said Tigran Sargsyan is the Republican
Party's gravedigger.
Mr. Bagratyan, what are your thoughts on performance of the plan
of boosting tax collections by 101 billion? Does the State Revenue
Committee ensure tax collections and will the government keep its
promise or will tax collections be boosted at the expense of major
companies?
No, it does not succeed. An economy must be there for the tax service
to collect taxes. Hence, according to official statistics, in the
first half of 2012 tax revenues were up by 4.7% over 2011.
In the same period, the economy grew by 7.8%, prices by 2.2%. 7.8
plus 2.2 % equals 10% and the budget grew by 4.7%. Hence, in reality
it declined by 5.3%, to say nothing of the amendments of 2011 which
boosted the tax burden. At the same time, studies by international
financial organizations and private studies show that the weight of
taxes paid by major companies decreases, social polarization grows.
Laurenz curve is even more curved since 2008.
Recently the dollar dropped and the dram revaluated. What is the
reason and what do you forecast for the upcoming months?
Let's first view the economic aspect. The dropping rate of the
dollar is a strategic tendency and is related with the balance of
payment deficit. This is falling deeper. Some economists speak about
seasonal fluctuations. They simply mislead people. The main line is
depreciation. Certainly, it revaluated in the past 2 months. But
in the past 5 months the dram dropped by 11% and revaluated by
2%. Hence, during the year it depreciated by 9%. These tendencies
of depreciation will continue, while we should not be delighted with
tactical revaluations.
Second, the Armenian peculiarity - the remittances which are mainly
from Russia. Those have increased by about 20%. There is real economic
growth in Russia part of which is exported to Armenia. Now this growth
of remittances is related with a high rate of migration in 2009-2011.
Those who left for Russia two or three years ago can now send
remittances. Here we deal with regular export of people, not
emigration.
"Remittance men" are not emigration but export. Hence, from the point
of view of today's government, if we want to make money, we must
export people. But emigration by way of economic pressure must gather
momentum, people must be poor. This year emigrants were 10% more than
in 2011. Now, the remittances confuse the exchange rate policy. They
are there today, tomorrow they may not be there. Finally, one day
Russia may wonder why its national wealth is being taken away. In this
situation, their sterilization, as I have said for several times,
is urgent. So, the abovementioned economic judgments are true for
Armenia to the extent that the growth of remittances is not a key
factor of covering the balance of payment deficit. My judgment on
strategic decline of the exchange rate of the dram is true if the
amount of remittances does not change significantly in future.
In your opinion, will the growing prices of food in the world affect
the food prices in Armenia? Significant growth of prices is forecast
for autumn.
First, the drought of this year affected grain harvest and meat
production. It has a negative impact on dairy production. In Armenia,
the drought affected grains. Instead, fruit and vegetables and partly
also grapes harvest was good compared with 2011. When I say good, I
compare with 2011. The ministry of agriculture certainly exaggerates
everything by 1.5-2 times. My proposal to Serzh Sargsyan to check the
harvest of grapes is still valid. Now, most probably, after the season
of fruit and vegetables, the demand will focus on grain and meat. And
supply is not high so there is probability that the prices will grow.
Roza Hovhannisyan
Story from Lragir.am News:
http://www.lragir.am/engsrc/interview27300.html
Published: 17:36:50 - 04/09/2012
Interview with Member of Parliament Hrant Bagratyan, ex-prime minister
of Armenia
Mr. Bagratyan, what is your opinion on the new law on income tax which
will enter into force in 2013? Is the government scenario of charging
consolidated tax on income realistic and what will the impact of the
law on payments by employers and employees be, will they go up or down?
My attitude to those amendments is negative. Taxes grow, business
opportunities are reduced. It brings to one's mind the consolidated
social tax enforced in Russia for 15 years and then eliminated
in 2010. Taxes will grow for two reasons. First, some employers
will sit and talk to their employees, even though the minister
of finance Vacheh Gabrielyan and the minister of labor and social
affairs Artem Asatryan warn them not to disturb their employees not
to have problems with tax bodies. In the long run, employers may
give the money to the employee and take back part of it. Second, new
employees will be hired for a smaller salary to avoid the warnings
of the abovementioned ministers. I think, however, that the idea of
introducing a consolidated tax on income pursues other aims. Losses
or non-losses of salary are nothing compared with this issue.
What do you mean?
I think this step is part of introduction of mandatory funded pension
in 2014. As we all know, the government reckons a nonsensical reform
- introduction of mandatory funded pension. They take 5% of people's
salary, the government contributes another 5% and contributions are
invested somewhere abroad. They can invest that money here but the
minister of finance says they will take them out. A silly, hopeless,
treacherous and harmful scheme. Moreover, they are doing what Russia
did in 2006 upon Putin's order. Meanwhile, Russia is gradually giving
it up and trying to return to the public pension system. Studies of
the Western experience show that introduction of funded pension with
low levels of development and income is meaningless. I would propose
that the government requested an information note from the biggest
pension funds (Norwegian GPF, Japanese GPIF, American CALPERS, Dutch
ABP, etc.) about the way they passed and their evolution. They would
become convinced that introduction of mandatory funded contributions
in a non-developed country is an adventure.
Generally, mandatory pension funds must be preserved at this stage
of development. Meanwhile, by adoption of the consolidated income
tax state and social pensions get the status of benefits. The pension
fund is eliminated, gets a titular nature. Money flows to the public
budget from where benefits will be paid to the citizens directly or
indirectly in the form of pensions. Believe me, we will need the state
and social pension systems. In this case it is impossible to take into
consideration the payments, years of service, work contribution of a
person. Everyone will get equal pensions. There will be no insurance
policies in the state pension fund.
And what is the solution? What should be done?
First voluntary funded pension must be introduced. In addition,
the state pension system with mandatory funding principle is preserved.
Apart from that, upon the employee's voluntary decision the government
has to make a contribution. These payments are counted in production
costs, cost of product. The money is spent on the development of
infrastructures in Armenia, while the guarantor is the state. This
would be a dynamic reform without devastating risks.
Do you think the government does not understand Ñ~BÑ...аÑ~B?
It is possible. But there is something else. The prime minister needs
economic growth and budget growth. He comes from the banking system
and is trying to imitate growth through financial balloons. Mandatory
car insurance was introduced, economic growth is reported. This year
social benefit of insurance was introduced, the GDP grew. Nobody
does anything while the GDP grows. After the introduction of the
consolidated tax on income another 10-12% growth will be reported.
Soon it will blast. Once I said Tigran Sargsyan is the Republican
Party's gravedigger.
Mr. Bagratyan, what are your thoughts on performance of the plan
of boosting tax collections by 101 billion? Does the State Revenue
Committee ensure tax collections and will the government keep its
promise or will tax collections be boosted at the expense of major
companies?
No, it does not succeed. An economy must be there for the tax service
to collect taxes. Hence, according to official statistics, in the
first half of 2012 tax revenues were up by 4.7% over 2011.
In the same period, the economy grew by 7.8%, prices by 2.2%. 7.8
plus 2.2 % equals 10% and the budget grew by 4.7%. Hence, in reality
it declined by 5.3%, to say nothing of the amendments of 2011 which
boosted the tax burden. At the same time, studies by international
financial organizations and private studies show that the weight of
taxes paid by major companies decreases, social polarization grows.
Laurenz curve is even more curved since 2008.
Recently the dollar dropped and the dram revaluated. What is the
reason and what do you forecast for the upcoming months?
Let's first view the economic aspect. The dropping rate of the
dollar is a strategic tendency and is related with the balance of
payment deficit. This is falling deeper. Some economists speak about
seasonal fluctuations. They simply mislead people. The main line is
depreciation. Certainly, it revaluated in the past 2 months. But
in the past 5 months the dram dropped by 11% and revaluated by
2%. Hence, during the year it depreciated by 9%. These tendencies
of depreciation will continue, while we should not be delighted with
tactical revaluations.
Second, the Armenian peculiarity - the remittances which are mainly
from Russia. Those have increased by about 20%. There is real economic
growth in Russia part of which is exported to Armenia. Now this growth
of remittances is related with a high rate of migration in 2009-2011.
Those who left for Russia two or three years ago can now send
remittances. Here we deal with regular export of people, not
emigration.
"Remittance men" are not emigration but export. Hence, from the point
of view of today's government, if we want to make money, we must
export people. But emigration by way of economic pressure must gather
momentum, people must be poor. This year emigrants were 10% more than
in 2011. Now, the remittances confuse the exchange rate policy. They
are there today, tomorrow they may not be there. Finally, one day
Russia may wonder why its national wealth is being taken away. In this
situation, their sterilization, as I have said for several times,
is urgent. So, the abovementioned economic judgments are true for
Armenia to the extent that the growth of remittances is not a key
factor of covering the balance of payment deficit. My judgment on
strategic decline of the exchange rate of the dram is true if the
amount of remittances does not change significantly in future.
In your opinion, will the growing prices of food in the world affect
the food prices in Armenia? Significant growth of prices is forecast
for autumn.
First, the drought of this year affected grain harvest and meat
production. It has a negative impact on dairy production. In Armenia,
the drought affected grains. Instead, fruit and vegetables and partly
also grapes harvest was good compared with 2011. When I say good, I
compare with 2011. The ministry of agriculture certainly exaggerates
everything by 1.5-2 times. My proposal to Serzh Sargsyan to check the
harvest of grapes is still valid. Now, most probably, after the season
of fruit and vegetables, the demand will focus on grain and meat. And
supply is not high so there is probability that the prices will grow.