We plan to abolish the crisis tax in 2020

Although in 2019 there will be no increase in the minimum wage, no additional taxation of luxury, and the crisis taxes on salaries, higher excise duties on fuel and higher VAT will be retained... the Minister of Finance Darko Radunović claims that the positive effects of strong economic growth, which is the result of the overall work of the Government, are also felt at the level of citizens' standards.

"Of course, I am aware that it is far from what we need and what we strive for, but the trend is noticeable, and the goals are undoubtedly achievable. A high standard of citizens must arise from a strong, structural foundation of the market economy in a well-profiled, efficient and stimulating environment. Therefore, the standard of citizens must be the "cream" on the development "cake" of the state. All other settings in which the standard is increased in the short term by unilateral measures, without being grounded in the economic progress of the state, actually represent populist politics, and not sound economic policy", said Radunović in an interview with "Vijesta". For January 1, 2020, Radunović announces the abolition of the crisis tax on wages that was "temporarily" introduced in 2013, and the increase of the minimum wage and the introduction of its non-taxable part at the moment when they are sure that these measures will give a new stimulus to the economy that will result in an increase in the base taxpayers, new added value and increased employment.

The minister said that with the level of the gray economy of about 30 percent of GDP, according to the analyzes of reference international organizations, the state still has a serious problem that is an obstacle to more dynamic economic development and economic growth, and that solving that problem requires a systemic approach by the Government, and not only the work of the inspection service and the Tax Administration.

Even from 2019, there will be no increase in the minimum wage and the introduction of a non-taxable part of the wage, and no additional taxation of luxury... When will the majority of citizens feel the effects of the GDP growth that the Government highlights as a success?

We have to look at your problematic issue within the framework of the Government's overall results, and they are, at least when it comes to key macroeconomic indicators, really good. After GDP growth of 2017 percent in 4,7 and almost five percent in the first three quarters of 2018, we can say that we have a visible and measurable positive economic trend. It was achieved in the circumstances of the fiscal consolidation that we are implementing, which should permanently stabilize state finances while at the same time enabling economic growth. It is an extremely demanding job, and I am very satisfied that we are successfully carrying it out and that, through GDP growth, more and more tangible conditions are being created for bringing the standards of our citizens closer to those of the European Union countries.

Should we remind you that, with a high degree of financial discipline, we had an increase in investments by both the state and the private sector, which tangibly increased employment. We provided new subsidy models in agriculture and entrepreneurship, improved transport infrastructure, raised the level of our health system and preserved the scope of social benefits, with the stability of public sector salary payments and pensions and with improved public service to citizens and business entities.

Although all our previous activities primarily improve the infrastructural economic space, I believe that the positive effects of strong economic growth are also felt at the level of citizens' standards. Of course, I am aware that it is far from what we need and what we strive for, but the trend is noticeable, and the goals are, without a doubt, achievable. A high standard of citizens must arise from a strong, structural foundation of the market economy in a well-profiled, efficient and stimulating environment. Therefore, the standard of citizens must be the "cream" on the development "cake" of the state. All other settings in which the standard is increased in the short term by unilateral measures, without being grounded in the economic progress of the state, actually represent populist politics, and not sound economic policy.

I mention this because there are many segments in which I, as a citizen, would like to see a faster and better result. One such segment is the increase of the minimum wage and the introduction of its non-taxable part. However, from a macroeconomic point of view, such measures will only be possible if they do not threaten the current, hard-to-achieve fiscal balance. In other words, at the moment when we are sure that with such measures we are giving a new stimulus to the economy that will result in an increase in the taxpayer base, new added value and increased employment, these measures will be introduced. Otherwise, their introduction is a threat to financial stability that is justified only in the populist-demagogic sphere. In any case, citizens can be sure that the possibility of increasing the minimum wage and introducing a non-taxable part of income, as well as a number of other options, is the subject of our attention almost on a daily basis, through various models of evaluation, parameterization and analysis. I believe that already in 2019, we will have some concrete steps forward in this regard.

You announced the improvement of all fiscal parameters: When will the crisis tax on wages, which was introduced "temporarily" in 2013, be abolished? Crisis measures included higher VAT, fuel excises... What are you going to do with that?

Although the Government's fiscal strategy refers to the period until 2021, we, in fact, already have an overall better structure in terms of all key fiscal parameters. In order not to enumerate, it is enough to look at the comparative tables, not only our internal ones, but also the analyzes of independent experts and international institutions.

If we look at the strategy focused, we will see that our main goal is accelerated current fiscal sustainability, reaching a surplus in relation to current budget spending, preserving economic growth and bringing the public debt into a downward trend, so that in 2022 it will be below the Maastricht limit of 60 percent. of GDP. With such sublimation of goals, periodic and short-term deviation of individual parameters in relation to strategic planning is not of great importance if it does not disturb the overall goal picture. The fact is that this image has not changed, that is, we are on the right track.

In this sense, if there are no externally induced surprises, we plan to abolish the "crisis tax" as of January 1, 2020, that is, to return to the proportional rate of nine percent for all earnings. In addition, throughout 2019, we will work with all interested parties and social partners on the optimization of tax laws and for the sake of their greater stimulation, and for the sake of harmonization with European legislation. Here I am primarily referring to the Law on Value Added Tax, the Law on Tax Administration and the Law on Profit Tax. However, I emphasize that the starting point in these discussions and analyzes must be further strengthening of fiscal sustainability.

Montenegro's indebtedness is still high, in 2019 the budget lacks about 560 million euros for the repayment of old debts and other obligations. What is the Government doing to solve this problem faster and what are the biggest challenges in public finances?

In 2018, Montenegro issued Eurobonds in the amount of 500 million euros in order to refinance part of the existing public debt. We achieved the lowest interest rate and the best maturity since Montenegro participated in the international securities market. After that, we received a loan of 250 million euros based on the first guarantee of the World Bank. That guarantee was, in fact, a confirmation of the quality of our package of fiscal consolidation measures and our consistency in its implementation.

Thanks to the successful performance on the international market in 2018 and strong economic growth, Montenegro received positive evaluations from international financial institutions and credit agencies that improved the prospects of our credit rating. I mention all this because, with the seriousness and consistency of our financial, and especially fiscal policy, we have gained a solid reputation on the market, which relaxes our future plans in relation to debt management.

Montenegro's new debt in 2019 will amount to 370 million euros. At the same time, slightly more (373 million) will amount to repayment of previous debts to foreign creditors. So, not only is there no increase in the debt, but it will, in truth, decrease to a significant extent (3 million), in the next year. Here, of course, I exclude the tranche of 180 million from the previously concluded arrangement with the Chinese Exim bank, for the realization of the Bar-Boljare highway.

We remain on the principle of borrowing only in the context of repayment of previously incurred obligations or for the purpose of capital development investment. In addition, after a long time, we are entering the process of reducing the external debt, which is the long-term strategy of the Government with the aim of reducing the total public debt below the level of 2022% of GDP by 60.

Last year, you announced the budget as excellently planned, so there were two rebalancings: Are you sure that there will be no need for it in 2019?

Budget rebalancing is not, in itself, a sign of careless or superficial planning. Namely, during the budget period, the ambient circumstances change. Factors appear that were not known and could not be predicted when the initial budget was drawn up. Then, in the case of highly dependent economies, which are, as a rule, the economies of small countries, external, or global, economic flows have a special influence. In no way can the fact that we had two budget rebalances in 2018 be considered evidence of weakness in its planning. We had, as new factors, a disruption of the calendar on the market of excise goods, then the realization of the purchase of shares of Elektroprivreda with a new 35 million in the budget. Naturally, it was necessary to react to that, that is, to adjust the budget to reality by rebalancing. The budget for 2019 is a reflection of the Government's economic policy measures in the medium term, aimed at strengthening fiscal stability and increasing competitiveness, with the aim of improving the quality of life in the country. That budget is planned in accordance with the projected macrofiscal framework, with the aim of contributing to the transition to the budget surplus zone in 2020. Today, I do not see any future reasons for its potential rebalancing, but I will not hesitate to propose a rebalancing, if the need arises.

Why were the goals from the fiscal strategy and rehabilitation plan violated (current expenditures, deficit, borrowing amounts increased)? Whose responsibility is it, the Ministry of Finance or some other departments?

If we treat any strategic document, including the fiscal strategy, as the Bible, and each of its items as an entity in itself, and not as a part of the whole, we can talk about a segmental violation. However, this is wrong. Strategic documents represent a framework in which you move along a path that is optimal in a specific unit of time, in order to reach the formulated main goal or several of them. In such an understanding, there is no question of violating the commitments defined by the fiscal strategy. Following the strategy, we are still on the path to full fiscal consolidation, reaching a budget surplus and creating the preconditions for bringing the public debt down.

The slight deviations of the budget deficit and the slower transition to a surplus compared to the dynamics foreseen by the strategy do not change that picture, because the reasons are of a rational nature. I am referring to the increase in investment in healthcare and the costs of strengthening the administrative capacities of the public sector. Some measures that are not described in the strategy, such as the optimization of the number of employees in the public sector and the effects of the introduction of economic citizenship, will contribute to the acceleration of the projected consolidation direction. When it comes to public debt, the amount of missing funds provided by the Budget Law for 2019 is the same as in the fiscal strategy until 2020 and there are no deviations in this regard. Even the official projection of the Government from December 2018 regarding the trend of the public debt is more favorable than the one predicted by the strategy. At the end of 2019, the public debt will amount to about 67,8 percent of GDP, and the fiscal strategy "targets" 74 percent of GDP. This is a de facto acceleration of the reduction of the public debt.

Maybe offer bonds to citizens and the economy

You were in the banking sector. Do you think that there are too many banks for a small market like Montenegro? You announced that the state will borrow mostly from domestic banks: what is their advantage now compared to the international market?

It would be unprofessional to give a simplified assessment regarding whether the number of banks operating in a certain territory is optimal. That must be determined and regulated by the market itself. So, based on the interest of our banks, I conclude that there is enough space for this number. From the aspect of the Montenegrin economy, a larger number of banks also means greater competition, and that is certainly desirable.

When it comes to state debt, we will classify creditors only according to the quality of the offer, that is, primarily according to the maturity and price of money. In other words, the creditor's domicile will not be a decisive factor for us. Moreover, we do not believe that banks should be the only option for our debts. The experience with the successful issue of Eurobonds points us to the possibility of issuing bonds for domestic individuals and legal entities, with multiple maturity options and with a mutually favorable interest rate. This would activate the current passive capital that is not in economic flows. On the other hand, we would introduce a new financial instrument to the domestic securities market. This possibility is in line with the public debt management strategy and we will devote full analytical attention to it in the coming period.

Gray economy is a serious problem

What do you plan to do in 2019 regarding the further reduction of the shadow economy?

With the level of the gray economy of about 30 percent of GDP, according to the analyzes of reference international organizations, we still have a serious problem and, I would say, a serious obstacle to more dynamic economic development and economic growth. True, some of the results of the Commission for Suppression of the Gray Economy are very good and visible, but they are still far from the goals we want to achieve.

The gray economy is not only a problem from the aspect of circumventing fiscal obligations to the state, but also in the context of disloyal violation of the principle of equality as the basis of competition on the market. We must not consider the problem of the gray economy as a fragmentary task of this or that body or institution. It is a parallel quasi-economic system that has a high degree of flexibility, i.e. "infiltration" into all pores that are not covered by the legal framework and efficiency of the state. Therefore, we cannot reduce the fight against the gray economy only to the work of inspection bodies and the Tax Administration, that is, to repressive actions. A systemic approach is needed, which the Government is trying to implement precisely through the multilateral approach of the aforementioned Commission.