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Starting from 1 July 2016, old age pensions will increase from GEL 160 to GEL 180. On 27 November 2015, the Minister of Finance of Georgia, Nodar Khaduri, talked about the sources of income which will be used to fund the expenditures related to the planned pensions increase. Mr Khaduri stated that the funds allocated for old age pensions will be increased by GEL 90 million with this accomplished by means of money mobilised from taxation and privatisation of state property.

FactCheck

took interest in the accuracy of the statement.

At the second presentation of the 2016 state budget of Georgia, tax income was determined to be GEL 7,780 million and income received from privatisation of state property was determined to be GEL 200 million. At the third presentation of the budget, however, the tax income amount was increased to GEL 7,980 million (by GEL 200 million) whilst income from selling non-financial actives (privatisation) was increased to GEL 225 million (by 25 million). Obviously, the 2.6% increase in tax income in a short period of time raises some questions but FactCheck

will refrain from discussing this particular issue for the present moment.

At the second presentation of the 2016 state budget of Georgia, pensions expenditures were GEL 1,480 million and an increase in pensions was not envisaged. However, the final draft of the budget includes an increase in old age pensions by GEL 20 starting from 1 July 2016. Therefore, the expenditures allocated for pensions reached GEL 1,570 million which is GEL 90 million more as compared to the pensions expenditures allocated in the previous drafts of the 2016 budget. The 2016 state budget allocates GEL 180 million more for pensions as compared to 2015 pensions expenditures. The amount of money allocated in the state budget for pensions includes both state pensions and state compensations[1]

for different categories of civil servants.

Pensions expenditures in the budget have been rising annually due to the growing number of pensioners and the increased amount of pensions.

Graph 1:

 Dynamics of Pensions Expenditures and the Number of Pensioners in the Period of 2012-2016

image001 Source: Ministry of Finance, Social Service Agency[2]

According to the data of the Social Service Agency, there are 706,695 pensioners in Georgia. According to the statistics of 2013-2015, the number of pensioners increases by 0.11%-0.13% per month on average with the annual increase constituting 1.5%. If that pace of growth remains unaltered,the number of pensioners will become 719,000 by the end of 2016. Taking the increasing number of pensioners into account, GEL 86 million will be necessary to increase pensions by GEL 20 from July 2016 and a total of GEL 1,460 million will be required for pensions expenditures throughout 2016.

As we have already mentioned, pensions expenditures together with funds allocated for pensions include the expenditures for state compensation. According to the information of the Social Service Agency, as of November 2015, GEL 88 million is spent for state compensation. If the pace of the expenditure of state compensation does not change, GEL 98-100 million will be sufficient to fund state compensation in 2016. Therefore, GEL 1,570 million which is allocated for pensions and state compensations for 2016 will be sufficient to fund the GEL 20 increase in pensions from July 2016.

In September 2015, pensions were increased by GEL 10 (6.7%) and reached GEL 160. According to the National Statistics Office of Georgia, the annual inflation rate was 6.3% in November 2015. Prices for foodstuffs increased by 5.2%, for communal services by 9.2% and for healthcare by 11.5%. As food and medicine constitute the principal part of a pensioner’s consumption, we can conclude that in spite of the nominal increase in the amount of pensions, their amount does not really increase if we take purchasing power into consideration. FactCheck has already written about this topic (see article).

In the period of the last two years, from September 2013 (when pensions became GEL 150) to November 2015, prices have increased by 10% whilst the inflation prognosis for the next year is 5.5% according to the draft state budget of 2016. Considering this level of inflation, in real terms, the purchasing power of GEL 180 at the end of 2016 will be the same as the purchasing power of GEL 151 in 2013. Therefore, even though pensions will increase by GEL 30 in 2015-2016, they in fact remain the same according to purchasing power.

Conclusion

In September 2012, Georgia’s pensions package was in the margin of GEL 110-125. In September 2013, pensions increased to GEL 150 and reached GEL 160 in September 2015. From July 2016, pensions are planned for anincrease to GEL 180.

According to the last draft of the 2016 state budget, pensions expenditures are to be raised by GEL 180 million which is sufficient to fund the foreseen pensions increase to GEL 180. The state will use money received from taxation and privatisation to fund the increased pensions. The 2.6% increase in tax income in a short period of time raises some questions but FactCheck

refrains from discussing this particular issue for the present moment and will continue further research.

If we compare the purchasing power of the GEL 150 pension in 2013 to the purchasing power of the GEL 180 pension in 2016, we will see that GEL 180 will have the same purchasing power in 2016 as GEL 151 used to have in 2013 owing to rising inflation.

FactCheck concludes that Nodar Khaduri’s statement is TRUE.

_________________________________ [1]

 State compensation includes money given as compensation to those employees who were dismissed from the ranks of military service, organs of the Ministry of Internal Affairs, Georgia’s Intelligence Service and the Special State Protection Service. Additionally, this includes compensation for employees who were dismissed from the Prosecutor’s Office, individuals with highest diplomatic ranks, judges and other categories of civil servants.

[2] The estimated number of pensioners in 2016 is calculated upon the basis of the average monthly growth rate registered in the previous years.