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Laurenz Curve Is Even More Curved Since 2008

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  • Laurenz Curve Is Even More Curved Since 2008

    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.

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