Entrepreneurs advise politicians - savings and reforms
29.06.2012 Beograd

Entrepreneurs advise politicians - savings and reforms

Entrepreneurs advise politicians - savings and reforms
Business people gathered around the Chamber made a deadly analysis of business environment with unpleasant diagnosis of the disease of Serbian economy, but also proposed not at all popular treatment that Serbian politicians have been escaping for ten years. Although it has no form of dictate, the proposal of Serbian Chamber of Commerce resembles an entrepreneurial ultimatum to politicians in terms of what they must do in the short (and long) term so that Serbia would not fall into even greater economic crisis. Apart from the Chamber, economists and entrepreneurs have spoken about the same topic.

While politicians negotiate about the new government bargaining over ministerial seats, economists continuously insist on the essence - the government program which would begin to draw the country from the crisis by the end of this year and bring the economy with five percent growth in the next decade. The longer the negotiations on the allocation of ministerial seats and the prime minister's chair, the more frequent are the requests from the business community that the new government starts immediately and make serious cuts in the unreformed economic environment, instead of wasting time on populist stories.

One of the most serious requests of this kind came from the Serbian Chamber of Commerce (PKS), amid political and coalitional maneuvering in forming a government. Businessmen gathered around the Chamber, with the consulting help of economists Miodrag Zec, Vladimir Gligorov and Branko Hinic, made a deadly analysis of business environment with unpleasant diagnosis of the disease of Serbian economy, but also proposed not at all popular treatment that Serbian politicians have been escaping for ten years. Although it has no form of dictate, the proposal of PKS resembles an entrepreneurial ultimatum to politicians on what they must do in the short (and long) term so that Serbia would not fall into even greater economic crisis.

Regardless of the parties that would constitute the new government, in the first hundred days the new regime will be required to take urgent measures to stop further economic decline and to create necessary conditions for immediate structural and systemic reforms. Along with these activities, the government has to reduce public spending, maintain macroeconomic stability and start economic recovery. In the long term, economists want conditions in which would be possible to achieve annual economic growth of five percent.

As their priorities, entrepreneurs identify public sector reforms, fiscal reform (with a reduction of taxes and contributions on salaries, and stimulation of production, investment and savings), review and cancellation (or reduction) of some quasi-fiscal burdens, solving the problem of illiquidity and the establishment of financial discipline, elimination of unnecessary administrative procedures to reduce business costs and the reform of labor legislation in order to increase employment.

Vladimir Vuckovic, a member of the Fiscal Council says that a key quality of this document is the fact that it doesn’t have any unrealistic demands: "What the industry is seeking is the regulation of business environment. Entrepreneurs generally believe that the role of the state is to exempt them from excess burden and limits. And, on the other hand, there are no interventionist requests to subsidize the economy and no requests for loans from foreign exchange reserves, which could be heard often in the past. "

The state is expected four things - to improve the environment for business, to regulate the budget and its financing, to drastically reduce expenses and to provide a low inflation and predictable realistic exchange rate of local currency.

When it comes to the environment, entrepreneurs claim that it is currently completely discouraging, and that the biggest negative impact lies in 157 administrative procedures that annually cost the economy 1.3 billion euros (or 4.2 percent of GDP). The next is the process of obtaining building permits which lasts 279 days and costs 6 percent of income per capita. Legal actions take 635 days and cost 31.3 percent of these claims. That is why entrepreneurs demand the introduction of mandatory institutional consulting with business community in the process of making laws and regulations, obligatory assessment of the impact of future regulations on the economy, reduction of administrative procedures and costs of issuance of building permits and lawsuits.

"The Chamber has made specific proposals, it did not just establish the diagnosis, which is both convincing and accurate, but it actually has practical suggestions. Many proposals refer to barriers in the business and point to the regulations that create obstacles to the economy. Different specific issues have been identified, such as the behavior of tax inspections and para-fiscal levies... Thus, they pointed out to the objective problems that arise because state inhibits the economy and they ways in which they can be removed," said Vuckovic.

As for the budget, the Serbian Chamber of Commerce believes that the biggest negative impact on the economy is being caused by para-fiscal levies, taxes and contributions of employees and VAT. In Serbia, there are about 370 non-tax financial obligations that oppress firms, and the financial burden on the basis of only 77 non-tax levies is about 570 euros per year per employee in the corporate sector (total of 730 million euros). Entrepreneurs claim that government and population spending are over the capacities, that public spending must be reduced from 45 to 35 percent of gross domestic product (GDP), that the benefits (social security benefits, pensions and subsidies) need to be transformed into public funds and that the burden to economy needs to be reduced to make it more competitive. Reform of the tax burden should be made according to the economic strength of taxpayers, the priority should be the reform of taxes and contributions and independent determining para-fiscal levies should be abolished.

The public sector has to be reformed in the areas of pension systems, health, education and public administration, and the aim is that these changes reduce three things: the number of public employees, paperwork and remunerations for employees in public administration and public services and public enterprises.

Monetary policy needs to ensure low inflation, predictable (in terms of relative stability) and the realistic exchange rate, as well as to discourage the inflow of speculative capital.

In order to stop the unemployment rate (which is among the highest in Europe), the government is required to propose, and the parliament is expected to pass a new labor law which will enable easier, cheaper and more flexible employment of workers, make rules which will bind the cost of work to sustainable economic strength of companies and unit labor costs and reform the education system according to the market needs.

The entrepreneurs gathered in PKS see the major strategic problem in the insufficient inflow of capital from standard operations to finance investments. Currently, the state is borrowing much money and domestic savings cannot create long-term sources of economy funding. According to the PKS, in order to accelerate the economic growth, it is crucial to achieve an increase in private investments. They suggest that, apart from reindustrialization, it is necessary to establish a development bank, more effectively attract investors through various forms of permissible state aid (lowering of income tax, free use of land and industrial facilities to companies in bankruptcy and liquidation) and to engage the domestic industry in building national and regional infrastructure.

Entrepreneurs suggest that the problem of illiquidity that afflicts the economy can be solved by adoption of the Law on proposed terms for settlement of cash obligations to a maximum of 45 days and completion of the restructuring, that is, the privatization of social enterprises.

All this should raise the competitiveness of Serbian economy in the global market, because without that increase there will be no change in the unfavorable trend of economic growth. Today, a worker in the Czech Republic and Slovakia is almost twice more productive than an average Serbian laborer. And if you compare unit labor costs, they are 68 percent higher in Serbia than in Slovakia and 46 percent higher than in the Czech Republic. For that reason, it is important that the new government establishes the basic development priorities as investment in industrial infrastructure, research and development, technology transfer and building the capacities of economic for application of new technologies and new knowledge.

"As the largest contribution to the proposal that Serbian Chamber of Commerce made for the future government I see the fact that entrepreneurs’’ requirements have no conflicts between declarative support for the smaller state and other suggestions that we can often hear, so it is first declaratively said how the state role should be reduced, and then in the specific proposals we expect it to interfere more in the economy," says Vladimir Vuckovic.

author: Mijat Lakićević/Miša Brkić source: Novi magazin
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