The recent government move to stimulate the economy was halving the vehicle tax and VAT for agricultural real estates.
The budget income package reduced with 17 billion ALL, and for the first time the government declared that they have not foreseen how the financial effect will be compensated, but they just hope on an economic growth.
“We believe that the lowered taxes will revive business and will bring more incomes in the budget by reducing the effects”, declared the Deputy Minister of Finances, Alfred Rrushaj.
While the government doesn’t want to reduce the spending, there is only one way to compensate the reduced incomes, and that’s increasing the debt.
As result, the government’s prediction for the loans this year was 48 billion ALL, jumping to 65 billion ALL or 4.6% of the GDP. This number did not take in consideration the shortfalls with the income collection, which could bring a higher deficit.
Secondly, the government’s hope that the reduced taxes will revive the economy cannot be that optimistic. IMF valued yesterday that Albania’s economic growth for this year will be minimal, at a level of 1.8%.
The elections have put the public faces in front of a very strong test. The Ministry of Finances predicted that the public debt would reach 63.8%. But the new tax reduction will make it go to 65%. If the government will not take strong measures before June 23rd by increasing taxes or by lowering spending, there’s a great risk for the public finances to go out of control.
This has been officially warned by the IMF and the WB, who noted the danger when the government promised to launch the tax reduction campaign. They declared on February 15th that the biggest danger for the Albanian economy is the misbalance of public finances.
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