IS IT IMPOSSIBLE TO CUT WELFARE?
Parliament has always approved state budgets with a deficit in recent years and the Government of Mongolia had two choices for addressing the deficit. The first was to reduce state spending and the second was to take out foreign loans.
The government has chosen the second choice this time and its debt has reached 78 percent of GDP (nearly 20 trillion MNT). The budget deficit reached 15 percent of GDP and long-term deficits led Mongolia to face currency reserve shortages, and Mongolia asked for the International Monetary Fund (IMF) to help.
After six months of negotiation between Mongolia and the IMF, the sides agreed to implement the extended fund facility for three years. Through the facility, Mongolia will receive financing of 5.5 billion USD with two to three percent interests.
Politicians put their political careers first and the nation and economy takes a backseat. They always approve a budget with a deficit and then Mongolians face the economic challenges that come afterwards.
They had the opportunity to reduce deficit and address debt many times before. Should they keep doing what they have always done?
The state should stop providing students stipends and free public transportation. Nearly 150 billion MNT for students’ stipends and 50 billion MNT for their bus fares have been paid by the state every year. Each year, the state spends 240 billion MNT to distribute the monthly state welfare of 20,000 MNT to children under 18 years of age.
440 billion MNT goes to finance these three state welfares alone, but there are other welfares for mothers with four or more children, and pensions. Welfares are used as campaign tools to gain votes.
If the state stops providing the public excessive welfares, 600 billion MNT could be saved, but politicians have no interest in cutting state spending on welfare.
The Government of Mongolia has decided to take eight measures after its negotiations with the IMF.
50 billion MNT will be raised by revoking a section of the law on military officers’ legal status which states that the state will help provide military officers accommodations.
The government decided to turn back on their promise to provide the Children’s Money to all Mongolian children by 2019, and decided to only grant welfare to target groups.
The government also decided to announce all tenders related to medical equipment and supplies in one batch, which is expected to save 10 percent of the current cost, according to the government.
Pension age will be raised gradually every two years so that the pension age for men is increased to 65 by 2026, and women’s pension age will be increased to 65 by 2036. The government also promised that salaries of state employees will not be increased in 2017 and 2018.
The IMF told Mongolia to increase seven taxes and fees, which is expected to increase state revenue by 203 billion MNT this year and by nearly 500 billion MNT next year.
1. Personal income taxes will be increased and divided into three brackets - 10, 15, and 20 percents. People with higher incomes will pay more in taxes.
2. Social insurance fees will be raised by one percent in 2018. Employees will pay 11 percent of their salaries and employers will pay 12 percent. Social insurance fees go to the state pension fund.
3. Vehicle taxes will be raised by three to 15 percent depending on their age. Taxes on vehicles with engine capacities over 4501 cc will be increased by 40 to 250 percent.
4. Taxes on alcoholic beverages and cigarettes will increase by 10 percent in 2018 and by five percent in 2019 and 2020.
5. The effective date of the legislation which will charge a 10 percent tax from the interest rate of savings accounts has been brought forward to April 1, 2017 from January next year.
6. Taxes on gasoline and diesel fuel, which was lowered in late 2016 and in the early 2017, will rise starting July. The government lowered fuel import taxes to support fuel importers, who were reportedly faced financial challenges due to the depreciation of the MNT, but the fuel facility was revoked.
After taking these measures of strengthening financial discipline, analysts speculate that it will put more pressure on the people of Mongolia. Especially the increase of taxes on fuel might bring about higher prices and cause inflation.
Victims of politicians’ personal gains that allocate money and create social welfare legislations to win favor in elections are the public.
One of the decisions to deal with economic challenges without putting pressure on the people was to cut the number of state welfares, state-funded projects, and state spending, but politicians chose to evader responsibility and burden the nation yet again.