What are the ‘New’ measures the Government announced and what are the existing ones, foreseen in the 2022 Budget, or the ‘indexation’ of the 2022 Budget Law.
The Social Resilience Package does not offer new measures, but additional budgetary costs in the existing government policies, as outlined in the 2022 Law on the Budget. The additional costs are nothing but materialized fiscal risks of existing policies and should not be presented as new package of measures.
Yesterday, March 12, 2022, the Government announced the Social Resilience Package to help cope with the financial shortcomings of recent inflation crisis, which citizens are protesting on the last 4 days.
It is not explained how the measures, which are followed by budgetary effects, will be addressed in the State Budget. There is yet to be a legal act amending the 2022 Law on the Budget to include these costs. However, the analysis of the 2022 Budget fiscal indicators concludes that the so-called “social resilience” measures are generally not new, but a continuation of policies planned at the end of last year, with the drafting and approval of the 2022 Budget Plan.
More specifically:
Measure nr0.1 was not a yesterdays’ decision to help cope with the crisis.
‘3.6 billion lek or 36 million dollars will be disbursed immediately to index pensions. This measure will be reflected in the upcoming payment of 673,542 pensioners’
Meanwhile, the 2022 Law on Budget envisages ‘Increasing the level of pensioners’ benefits in line with the increase of consumer goods and services price index, defined in the pensioners’ basket. The increase is calculated with the average index 2.5% per year, starting in April of each year and respecting, thus, also the contingency funds’. For the pension indexation, the level of ALL 2.6 billion is foreseen and another ALL 3.5 billion for the pensioners’ end-of-year bonus. Measure nr0.1 was not taken yesterday in order to cope with the crisis.
Measure nr0.2
‘For 434 thousand beneficiaries, citizens of the country, the government will compensate in cash, the increase in the basket price, which is 7% based on the calculation by INSTAT which converted in the average consumption rate, calculated before the crisis hit, is 25 thousand old lek plus. The government will hand 30 thousand old lek for 3 months in a row, as compensation for the increase in basket prices, for:
-pensions receiving less than half of the minimum wage,
-pensioners living alone, (in the sense individually or in pairs)
-Persons with disabilities, paraplegics, tetraplegics or blind and all families that are currently in the economic assistance scheme.’
In the 2022 Law on the Budget, there were ALL 3.5 billion planned for the pensioners end-of-year bonus. Whereas the financial effects of the measure is estimated at about ALL 3.9 billion. It remains to be seen whether the previously planned bonus for pensioners will be replaced by the recent 3-month allowance.
Measure nr0.3
Support of the farmers, through tax-free oil, will amount to ALL 1.4 billion or USD 14 million, with an additional of USD 5 million, which will be disbursed immediately.
In the 2022 Law on the Budget “Operating and maintenance expenditure for central government” (56.5 billion ALL). Priority is given to existing central government policies such as: purchase of anti-COVID vaccines, farmers’ scheme, national road maintenance, employment promotion programs, economic development support schemes and support for youth and children. So, supporting farmers through the new excise exemption scheme, turnover tax and carbon tax on fuel for agricultural production was planned earlier as a measure. There are 3.2 billion ALL that go for direct support to farmers.
The increase in financial support for farmers is not new, but the materialization of external budgetary risks, such as the price hikes in global fuel markets, and consequently, they are merely additional costs for a measure already taken earlier.
Measure nr0.4
‘The government will support all Albanians who use city and intercity urban lines, immediately disbursing ALL 500 million or USD 5 million, to pay the difference in the ticket price, so that no passenger is affected by the price change, either when boarding the city bus or traveling from one city to another.
Subsidizing public transport is not a sufficient solution. Currently, it is evident that in the capital the market faces excessive demand for public transportation, which is not covered by transportation companies in service. Keeping the ticket price unchanged will further increase the demand for public transportation, when other transport alternatives are becoming relatively more expensive. Control and inspection of the quality of service provided by public transport is required.
Measure nr0.5
We will expediate with 2 months, the entry into force of the law concerning the removal of the payroll tax for salaries up to 400 thousand old lek and the tax reduction for salaries up to 500 thousand old lek and salaries between 1.5 to 2 million old lek, which means that 56% of those who live in Albania through work and are paid a salary, will pay 0 tax on the payroll.
Referring to the 2022 Budget Report, through the proposed amendments to the Law “On the income tax” the non-taxable cap salary increases, from 30 mijë lek to 40 mijë lek a month.
For this salary interval, the tax is 0%, enabling every citizen who provides less income, not to pay tax and have a higher income ‘. In fact, the tax reduction for this band will benefit the employer, as the net salary that the citizen receives is the salary that has been deducted from the TPI bans and others.
The 2022 Budget estimates that 71,500 citizens will benefit from the latter. The amount they’ll benefit is 7,800 ALL on average per year.
The proposed amendment also envisages a reduction of the tax rate by 50% for taxpayers with salary income from 40,001 AL /month to 50,000 ALL/month, which benefits to about 58,000 taxpayers of about 11,700 ALL on average per year.
On the same line, the entire middle class is supported by reviewing the progressive taxation top band. The 23% tax is foreseen for salaries over 200,000 ALL/month, from the current 150,000 ALL/month. The number of citizens benefiting is around 5,900 taxpayers at the amount of 23,000 ALL per taxpayer/year on average, for a total of 135 million ALL per year.
The expedition with 2 months of such measure will cause the loss of 229 million ALL revenues from TPI.
Measure nr0.6
We’ll further expediate with two months the entry into force of the law on the minimum wage, which in April will become 320 thousand old lek.
This measure will increase the costs of the employer by burdening them of additional production costs, further charging the consumer. It will also increase income from social security and health insurance contributions.
Measure nr0.7
The government decides to add, immediately, another ALL 20 billion, $ 200 million, to fund the electricity price shield for households and small businesses.
The 2022 budget foresees a ALL 8 billion guarantee for the situation and will cover the purchase of energy in the foreign market. “Energy prices for consumers and small businesses will not be affected and on the budget normative act, as well as the 2022 budget we have provided that all imports and the value required for imports will be covered by the state budget.” Even in this case, measure 7 additional funding is not a new, but the materialization of an external budgetary risk.