On 24 July 2015, the Prime Minister of Georgia, Irakli Gharibashvili, stated: "During the last three years, we have demonstrated by our deeds that we are a socially oriented government. There has been an unprecedented rise in social expenditures under our watch. We managed to categorise budget expenditures in a very rational and sound manner and, therefore, redistributed those expenditures for our population’s socially oriented issues." The Prime Minister named the increase in the amount of pensions, living allowances and allowances for Internally Displaced Persons together with universal healthcare, the free school textbooks programme and other social programmes as examples.

FactCheck

took interest in the amount of annual funding for social security and how social security funding has been altered in the course of the last several years.

According to the state budget data, social security expenditures have been on the rise annually (2008-2015). However, in order to ascertain the extent to which the state budget has become more socially oriented in the last three years (after the change of government) we calculated the percentage share of social security funding in the total current budget expenditures (see Graph 1). According to the statistics of 2008-2015, the share of social expenditures is quite high within the amount of current expenses. However, this indicator has been especially high during the last three years. Approximately one-third of total expenses were allocated for social expenditures in 2013-2015 which means that the state budget has been more socially oriented since 2013 than it was in previous years.

It must be noted that the previous government also planned to substantially increase social spending. According to the draft budget of 2013 presented by the previous government, GEL 2.272 million was allocated for social expenditures which is GEL 189 million more than the 2013 budget fulfilment number. Additionally, the share of social expenditures in the total expenses was 31.9% which is identical to the 2013 fulfilment number.

Graph 1:

Social Expenditures

Of particular mention is that social security priorities were altered after the change of government. The previous government preferred targeted assistance whilst the current government prioritises universal programmes (for instance, the universal healthcare programme, the free school textbooks programme, etc.).

If we take the 2015 budget as an example, we will see that the largest chunk of social expenditures in the amount of GEL 1.390 million has been allocated for pensions. This category includes pensions for retired individuals and state compensations. In 2012, pensions for retired pensioners fluctuated between GEL 110-125 depending upon their respective years of employment. In 2013, pensions for retired pensioners increased to GEL 150. The budget plan presented by the former government had also envisaged an analogous increase in pensions in the 2013 budget. There was no rise in pensions in 2014 although they are set to increase by GEL 10 in 2015. Additionally, if we take the level of inflation into consideration, pensions, in fact, do not really increase (see FactCheck’s article).

In the course of the last three years there was a significant increase in social allowance as well. According to the 2015 budget, GEL 631 million has been allocated for social allowance whilst the amount of total funding for social allowance was GEL 276 million in 2012.

Since 1 July 2013, social assistance has been doubled for the population living below the poverty line. Before that, the first member of a family entitled to receive social allowance received GEL 30 and every family member after him was given GEL 24. Since 1 July 2013, the amount of social allowance for the first member of a socially vulnerable family has been GEL 60 whilst every other member receives GEL 48. This year a new methodology for the assessment of the socio-economic conditions of socially vulnerable families was launched. According to the new formula, the ranking points are now gradated. Each member of the family whose ranking points do not exceed 30,000 will receive GEL 60. Additionally, members of families whose ranking points are in the margin of 30,000-57,000 will receive GEL 50, family members with ranking points of 57,000-60,000 will receive GEL 40 and family members with ranking points of 60,000-65,000 will receive GEL 30. Further additionally, each and every socially vulnerable family whose ranking points do not exceed 100,000 will receive an extra GEL 10 per child. The previous methodology for targeted social allowance did not include the aforementioned clause about children (see FactCheck’s article). However, after the new formula was launched, a large portion of socially vulnerable individuals, including single pensioners, lost their living allowances. FactCheck

is working on this issue and will publish an article shortly.

According to the 2015 budget, GEL 656 million has been allocated for healthcare programmes. Of this amount, the largest portion – GEL 470 million – is intended to be spent for the universal healthcare programme.

Georgia’s universal healthcare programme was launched in 2013 and covered those citizens who were without any health insurance package. According to the state budget data, the expenditure for the universal healthcare programme increases considerably every year. In 2013, GEL 70 million was allocated for this programme. In 2014, the programme’s budget was GEL 200 million although GEL 338 million was in fact spent. Experts assume that the budget for the universal healthcare programme will be insufficient this year as well. According to the first six months of 2015, the universal healthcare programme is already lacking funding with its budget having been amended respectively. According to operative data of the State Treasury Service of Georgia, the total amount of expenditures for the universal healthcare programme for the first six months reached GEL 268.7 million as of 1 July 2015 whilst the programme’s initial budget was set at GEL 231.5 million. Therefore, as illustrated by the initial plan, the six-month budget for the universal healthcare programme has increased by GEL 37.2 million. The biggest challenge for universal healthcare is the financial risk. Those individuals who covered their healthcare costs from their own pockets are now gradually being covered by the universal healthcare system which adds to the amount of state expenditures.

The free school textbooks programme was launched in 2013. This is a universal programme and covers each and every public school pupil (see FactCheck’s article).

Socially oriented agricultural programmes have also been launched under the new government (support to farmers with limited land plots, preferential agro-credits, etc.).

The budget is indeed socially oriented. However, the topic of whether or not having a socially oriented budget is beneficial for a developing country such as Georgia is a matter of separate discussion. Against the background of a sluggish economic growth rate, increased social expenditures have resulted in high budget deficits and an increased state debt. Once a country decides to take a social obligation, it is subsequently difficult to revoke the decision and the state is obliged to work to this end. Additionally, of note is that social spending is generally on the increase and together with the rise in inflation, the population demands an increase in social expenditures on the part of the government.

Of particular emphasis is that social programmes are often an obstacle for developing business in Georgia. The universal healthcare programme and the free school textbooks example serve to illustrate this point. The largest share of the health insurance market is within the state healthcare programme and the universal healthcare programme is being carried out by the Social Service Agency without the involvement of any private insurance companies. This in turn has a negative impact upon the development and the existence of the health insurance market. The fact that the number of people who used private health insurance dropped considerably after the universal healthcare programme was launched is yet another indicator of this negative impact. Additionally, the free school textbooks programme significantly hurt the publishing industry (see FactCheck’s article).

Socially oriented countries usually fall into the trap of social expenditures which is then followed by an inevitable crisis. Examples can be found among EU member countries as well and this is further proven by the latest developments in Greece.

Conclusion FactCheck

agrees that both the government and the budget are indeed socially oriented. However, we clarify that a socially oriented approach envisages targeted (aimed at a specific group of the population) specific programmes instead of universal programmes. Additionally, financial risks are usually associated with social programmes. Social programmes should be planned according to economic growth in order to prevent a country from meeting its social obligations through borrowing. Further additionally, social programmes should be planned in a way so as to avoid harming the business sector. If not, then a crisis becomes inevitable.

FactCheck concludes that the Prime Minister’s statement, "We are a socially oriented government. There has been an unprecedented rise in social expenditures under our watch," is MOSTLY TRUE.