talk show, a member of the New Political Centre – Girchi, Vakhtang Megrelishvili, stated that Georgia takes GEL 35 per GEL 100 from every citizen which hinders the country’s economic growth. In addition, he also pointed out that it will only be possible to effectively eradicate social problems with the current budget if the budget targets those individuals with particular needs.

verified the accuracy of this statement.

Vakhtang Megrelishvili compares the size of the state budget to the size of the Georgian economy. The budget envisages a consolidated budget (which includes the state budget as well as the budgets of the Autonomous Republic of Ajara and local governments) whilst the economy means the country’s overall gross domestic product (GDP – the overall income of the Georgian population which has been earned on the territory of Georgia within a year). The income part of the 2015 consolidated budget is about GEL 11 billion whilst the 2015 GDP reaches GEL 31.5 billion. Hence, the state budget constitutes 35% of the GDP.

The phrase "the state takes GEL 35 per GEL 100 from every citizen" signifies the money paid by individuals to the consolidated budget in the form of taxes on their earnings or other payments. About GEL 8.7 billion is planned to enter the consolidated budget in the form of taxes and other payments in 2015 which is 28%, and not 35%, of the 2015 forecast GDP. However, 28% is an average indicator and this does not mean that each citizen precisely pays this much. For example, if an individual is hired to do a job and receives a standard wage, about 20% of his income is deducted in the form of income tax. If the assigned wage is GEL 1,000, the actual amount received will be GEL 800. When the individual in our example begins spending this GEL 800, it is subjected to further taxation. In this case, this comprises the so-called indirect taxes (value added tax [VAT], excise tax and customs duties). If the individual does not buy imported or excise goods, he pays only VAT (the VAT rate is 18%). This means that GEL 15.25 is paid in VAT per GEL 100 spent. Hence, the total amount paid in VAT, if spending amounts to GEL 800 as in our example, will be GEL 122. Ultimately, this means that out of a GEL 1,000 wage, GEL 322 (GEL 200 + GEL 122) is directed towards taxes which constitute 32.3% of the wage. If we consider that most Georgians use imported and excise goods as well (fuel, cigarettes, alcoholic beverages, mobile telephone network fees and so on) it is definitely possible to say that 35% is paid to the budget in taxes or in other payments (fines, fees, license payments, loan services and so on).

If 35% of the income of most of the population goes to the budget, then why is the average indicator lower at 28%? The reason for this is that certain groups have been exempted from taxes. For example, if an individual lives in the countryside and consumes foodstuffs produced by himself or produces export production, he does not pay VAT. The supply of natural gas to thermal electric stations, the work of tour operators and other goods and services are also free from VAT. Those who have income in the form of certain assistance (for example, money sent by a family member from abroad) do not pay VAT or income tax on this amount. In addition, those who receive income by renting or selling real estate pay a 5% income tax instead of 20% from May 2015.

In 2014, only 16.8% of the GDP was paid to the budget in the form of indirect taxes whilst the rate of VAT alone was 18%. This was due to the fact that certain groups and fields of work are exempted from taxation.

The percentage of income that the state should be taking from its citizens is one of the major reasons for disagreement between political ideologies. The leftists believe that it is better for the state to take a high share of citizen income as it will be compensated by numerous programmes designed by the state and that it has more of an ability for the fair distribution of this income. Right wing political movements, on the other hand, think that the less money a citizen pays to the budget, the better it is for everyone as it means low tax rates and a better environment for businesses which will facilitate a country’s economic growth.

The budgets of EU member states and some other developed countries are more than 35% of the GDP. This is due to the fact that the main focus in these countries is upon the fair distribution of already accumulated wealth and a levelling of the social environment and not upon fast economic growth. In addition, almost no one argues against the fact that a state’s high level of intervention in its economy decrease’s the country’s economic growth rate. This is further confirmed by an authoritative research work conducted by Professors James Gwartney (University of Florida), Robert Lawson (Ohio University) and Randall Holcomb (University of Florida) who studied the member states of the Organisation for Economic Co-operation and Development (OECD). According to their research, a stark negative correlation was revealed between a country’s economic growth and the growth of the state (budget size) based upon a study of data from 1960 to 1996.

 Interconnection between State Size (Horizontal) and Economic Growth Rate (Vertical) in OECD Member States from 1960 to 1996

As for the statement that poverty will further decrease with a more targeted spending of budget money, this is absolutely correct. Targeted spending means that only those below the poverty line receive assistance as opposed to everyone as it is today under universal programmes (Universal Healthcare Programme, vouchers, farmer subsidisation for spring ploughing and sowing, other subsidies and so on). It will be possible to mobilise more money to help socially vulnerable citizens in the case of targeted spending.

The income part of Georgia’s consolidated budget is 35% of the country’s GDP. However, if we separate the amount the population contributes directly to the budget, this will constitute 28% of the GDP. However, those who receive their income in the form of a wage and then fully spend their earnings pay about 35% of their income to the budget. The phrase “state takes” does not mean that the money is taken by members of the government. Administrative spending constitutes 9% of the economy. The rest of the money is returned to the population in the form of pensions, social aid, infrastructural development, subsidies and other expenses.

The percentage of income that the state should be taking from its citizens is one of the major reasons for disagreement between political ideologies (determining the state’s utmost priority – the redistribution of the existing income more or less equally or accelerating the economic growth rate).

According to Vakhtang Megrelishvili’s assessment, the current budget enables the government to address social problems more effectively, provided that the budget only assists poor people and not every citizen as it is today.