Prime Minister Nikol Pashinyan's speech at the discussion of the report "On the Execution of the State Budget of the Republic of Armenia for 2021" in the NA Standing Committees
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Honorable President of the National Assembly,
Today we start the discussions of the report of 2021 budget execution and I wish us successful and fruitful discussions.
But before moving on to the discussion of budget execution, I would like to congratulate all of us on the successful holding of the European Boxing Championship. Of course, it sounds strange, when I learned about it, to be honest, I was very surprised that, in fact, during our independence, the European or World Championships of Olympic sports were never held in Armenia. I think this is not a good fact, we hope to see more such tournaments in the near future. At least as long as I can recall, the last large-scale event that took place in Armenia before this championship was the Chess Olympiad, which, if my memory serves me correctly, took place in 1995 or 1996. Next year we will host the European Weightlifting Championships, and I am sure we will hold them at high level as well. I would also like to congratulate all our athletes who have won awards and wish them further success.
Returning to the state budget for 2021, I would like to make a few remarks. Although I have to say that, in fact, I will not say anything new, because the budget execution indicators have been discussed several times in different formats, at the Cabinet meetings, in the sittings of the National Assembly, and in the report on the implementation process of the Government Action Plan. But I think there are some important points we need to talk about.
First, the economic growth index in 2021 was more than had been forecasted. We had more than 5%, 5.3% economic growth. I would like to remind you that the initially forecast was 3.1%. I would like to remind you of the environment in which we were in 2021, in this regard it is more important to emphasize that we overperformed the revenue part by 147 billion AMD. By saying overperform, we mean that when the draft budget for 2021 was adopted in 2020, the revenue part was provided, and during the year we collected 147 billion AMD more revenue than had been planned. At the same time, there have been some legislative changes related to the revenue parts, which brought additional revenues. First of all, we are talking about the export duty of copper concentrate, which brought additional revenue of about 24 billion AMD to the budget. But I want to remind you that we also had a reduction in the tax part connected to the income tax, and now I will present the resulted interesting effects.
I would like to draw your attention to the following indicator. In 2021, value added tax of 146 billion AMD was refunded to businesses. You know what indicator I am speaking about. First of all, in case of export, the value added tax is refunded to the economic entities, due to the peculiarities of the value added tax, debit amounts are formed during the internal turnover. In 2021, we refunded 146 billion AMD to the business, that is, we returned it to economic turnover.
In order for the picture to be full, I want to compare the index with 2017. The VAT refund in 2017 amounted to 60 billion AMD, նand compared to 2017, we increased the VAT refund by 140%. At the end of 2021, there was no application from taxpayers for the return of debit money, namely, no application for which the amount was not actually refunded. This means that we have solved the VAT debt problem in the following way. First, we made legislative changes. Previously, there was a law in 2018, when the amount of VAT was refunded every 6 months. We made a legislative change in 2018, making the refund every three months. Now we have made the refund monthly and we return the money once a month. This is important because the VAT debit amount belongs to the economic entity, but, in fact, is not in its hands.
I would also like to remind you of one very important thing: as of January 1, 2018, the Government owed the economic entity VAT debit amounting 125 billion AMD. At the same time, there was about 50 billion AMD of that amount, which was a desperate amount, that is, when the new Tax Code was adopted in 2017, the Government said at that time that we put aside our previous debts, we will not come back to it. In 2019, when we were already overperforming the budget revenues at mid-year, we thought about how to spend that money properly, and we decided to return the overdue VAT debits, which had been accumulated since the first days of independence. In other words, it was, in fact, a desperate debt that we returned to the business. We could not have done it, let's be honest, but why did we do it? Because we considered that the reputation of the state is the most important, that it cannot happen so that the state takes money from someone, and not being the owner of that money, just does not give it back, saying I will not return that money neither now nor later. And at that time we had planned to return 56 billion AMD, but in fact we returned 42 billion AMD. Why? Because there were many companies that had been liquidated during that time, that is, there were no recipients of that debt to be returned, so we returned 42 billion AMD. Now in the Republic of Armenia, I will not exaggerate saying that the problem that had existed for 30 years no longer exists. If there is VAT debit debt, it means that the business has not yet had time to apply to receive it within a month. I am saying this because I want to show that how vigorous we are in collecting money, to the same extent we are vigorous in returning the money to the citizens. Please remember the 146 billion AMD.
Now I want to talk about income tax rates, which I think is one of our strongest and most effective reforms. You remember that in 2018 we had a three-layer income tax - 23, 28 and 36%, depending on the amount of salaries. We decided to set a flat income tax system of 23 percent at first, but then reach 20 percent by reducing it each year. We are now at 21 percent. Last year, in fact, it was 22%. And at that time we were criticized, they said: you reduce the state budget revenues, state money, etc.
Now I want to talk about indicators and results. In 2017, 343 billion 683 million AMD of income tax was collected in Armenia, when all tax rates were incomparably high, we have had over 10% reduction from the peak point. We collected income tax of 459 billion AMD, that is, by 116 billion AMD or 33% more. This is a very interesting effect that we have collected more taxes by reducing the tax rate. Although we recently had a discussion at the Government that, of course, we still need to do an analysis to understand, the Ministry of Finance is concerned about the ratio of income tax we have collected to GDP. But it is a separate topic of discussion.
Now I want to refer to the topic of refund. In 2017, 2 billion 417 million AMD of income tax was refunded. As you know, we return with several programs, the largest and most popular of which is the mortgage program. Now, please pay attention, in 2021 we refunded 32 billion 640 million AMD of income tax, which is by 1250% more than the amount of refund in 2017. 1250 percent. This means that people have bought apartments, and there is such a practice of refunding in several other social areas.
I think these are really very direct results of our reform. It has both fiscal, social and economic significance. Today, when we look at the economic indicators, we see that the sector with the highest indicators of our economy is construction, the activity, compared to the previous year, already reaches 9%, and this is good.
But I also want to present another side effect of that reform, which I have talked about several times.
In April, we had an absolute record of registered jobs in the Republic of Armenia. Here we count the jobs for which salary was paid, income tax was paid. Accordingly, the number of jobs in April was 664,736, which is by 123,308 more than in 2018, ie 123,308 new jobs have appeared in the Republic of Armenia since 2018. Of course, you know that here, unfortunately, we do not have a methodology to clearly distinguish between jobs that have come out of the shadow, and jobs that have been created. But there is the index, it is clear, moreover, it is indisputable. I want to say that if anyone objects, it is an indisputable indicator. Because, I repeat, for some reasons we have two zero-salary jobs, but we do not count them here. We count the jobs for which salaries were paid, income tax was calculated. That is, that figure cannot be wrong. You remember that the last time we recorded a historical index was in December 2021, compared to December, we have 5265 more jobs in April 2022.
I also want to refer to the salary increase. Compared to April 2018, the gross salary, ie the salary paid to all people working in Armenia, increased by 61 billion 319 million AMD or 65%, and the average salary in 2018 was 173,996 AMD, in 2021 it was 233,965 AMD, so we see that the average salary has increased by 60 thousand AMD, the growth is 34.4%.
I want to emphasize another indicator. Since we have inflationary phenomena, which intensified in February-March, in April we had an average salary increase of 15,674 AMD or 7.1% compared to January, which somewhat balances the inflation, which is at about the same level. But I want to make an observation. We had a continuous increase in the average salary in January-February, but in March we had a slight decline in the average salary, which, apparently, is seasonal, and in the future we hope that the salary will continue to grow.
I would like to draw your attention to our programs implemented in Artsakh in 2021. This has been much talked about, but I would like to emphasize from another point of view, which, in my opinion, has not been talked about. You know that after November 2020, we have implemented programs worth 136 billion AMD in Artsakh, 120 billion AMD was allocated for programs in Artsakh in 2021. I want to emphasize the following: what has been done with that money? By the way, part of that money was spent directly, part of it was spent through the Government of Artsakh.
For example, payment of utility expenses of the population of Artsakh. In 2021, all utility expenses of the entire population of Artsakh were paid by the Government of the Republic of Armenia. I want to emphasize here that a certain vital benchmark has been set, above which no payment has been made. I mean, let's assume that someone consumed more electricity than the calculated average. But a certain vital benchmark for the entire population of Artsakh - electricity, water, gas, communication services - has been paid.
The entire salary of Artsakh’s public sector was paid by the Government of the Republic of Armenia. This means that everyone from the deputies of the National Assembly to the government of Artsakh, for example, teachers and other civil servants, all their salaries in 2021 were paid by the government of the Republic of Armenia, the expenses for the healthcare services in Artsakh. That is, the Government of the Republic of Armenia paid at the expense of the taxes paid by the people of the Republic of Armenia.
I would like to remind you that the population of Artsakh has been provided with assistance through various programs in case of real estate damage, the citizens registered in Artsakh have been provided with one-time assistance for several months in a row - 68 thousand AMD + 15 thousand AMD for 108,000 people. This program lasted for several months.
I want to draw an interesting concluding parallel. In 2019, Artsakh's budget amounted to 117.9 billion AMD, which was the highest budget ever, of which 57.8 billion AMD was paid from Armenia. In 2021, the budget of Artsakh, the revenue part, was 174 billion AMD, of which 128 billion AMD was the amount paid by the Republic of Armenia. In other words, in the post-war period, Artsakh's budget was the highest in history, Artsakh never had a bigger budget, and the Republic of Armenia had never provided more assistance to Artsakh. That is, the support of the Republic of Armenia to Artsakh in 2021 has increased by 122% or 70 billion AMD, and the budget of Artsakh in general increased by 48% or 45 billion AMD. 73% of Artsakh's 2021 budget was paid by the Government of the Republic of Armenia. These programs continue in Artsakh, I want to emphasize that in 2022 it is planned that the Republic of Armenia will pay 144 billion AMD to Artsakh. This means that again we continue to pay the salary of the whole state sector, and we allocate additional 20 billion AMD. You remember, we promised to allocate 50 billion AMD for housing construction, of which 20 billion AMD will be allocated in 2022. In addition to the expenses we have made, thanks to the support we have provided, pensions and benefits have increased by 20% in Artsakh in 2022, and this is also an important record.
I also want to refer to our current affairs, because I said that we have talked a lot about 2022 state budget, a natural question should arise: what are our budget affairs for the current year, especially in terms of revenues? I want to start with the May indexes - we had planned to have tax revenues of 119.1 billion AMD in May, but we can say with confidence that we will have tax revenues of 128.2 billion AMD, that is, we are talking only about May, 9.1 billion AMD more. And for January-May 2022 we had planned to have an income of 715 billion AMD, but we are sure that for the first 5 months we will overperform the index by 45 billion AMD. Moreover, compared to the first 5 months of the previous year, we will collect by 141 billion AMD more money to the state budget. I want to say that I consider the current economic situation to be optimistic, these indicators also show that, which for some may seem surprising for a number of objective or subjective reasons. But our economy is also showing resilience. You already know that according to the data of the first quarter we have 8.6% economic growth, real growth, and according to the data of the first 4 months - 9.4% economic activity, which is a very optimistic index. Of course, we are looking forward to the May data, which will be published after June 20.
But I want to also emphasize that the background of this optimism is significantly improved by the passenger flows that we have today. We see that the passenger flows to Armenia are significantly increasing, there are already quite optimistic indicators, when the balance of Armenia’s arrivals and departures is positive in favor of those arriving. For example, this morning, when I was looking at the numbers, a day before, the number of people who came to the Republic of Armenia was by 1000 more than the number that left the Republic of Armenia. And that was yesterday, when most of the participants in the European Boxing Championship were already leaving or had left. So, economically, I think we have a really optimistic situation.
I would like to emphasize again that it is very important to understand why, in spite of certain military-political, geopolitical and domestic issues, we did not have an economic collapse, although that was predicted and might even seem logical. I and we have only one explanation, which I had the opportunity to talk about at the previous session of the National Assembly. We are a government that, in fact, does not extort money from the economy, but, on the contrary, returns as much money as possible. I want to emphasize the reduction of the shadow economy in terms of our certain economic resilience, which in turn is the result of overcoming systemic corruption.
Yes, we are encouraging more and more money to enter the economy today. Look, I highlighted the process of returning those desperate debits in 2019. You know, for example, there were businesses in Armenia that during that process got back to their companies about $ 1 million, $ 2 million, $ 4 million. And we have encouraged them to reinvest that money in the economy, and it might be as a result of such decisions, that we have been able to provide a positive economic background.
Of course, I do not want our optimistic forecasts to be exaggerated, because, nevertheless, we see that the global economic situation is very tense, in this sense, only pessimistic forecasts are made. Armenia, of course, is not isolated from the world, moreover, Armenia cannot be isolated from the world. Nevertheless, my instruction and mood is that we need to focus on the execution of our budget, especially on capital expenditures, in order to achieve our 7% economic growth rate.
Of course, the focus of our attention should be on overcoming social problems, but I want to say again that the approach of our Government is the following. The solution of the social problem taken separately, as such, is not a properly formulated problem, because the money spent on the solution of the social problem should have the positive side-effects. I want to bring two such examples.
The first, I think, is again one of our most successful reforms, in fact, the doubling of teachers' salaries in schools, more than doubling, which now our critics have formulated as a slogan, saying, what have they done, raising teachers' salaries by several hundred thousand drams? Is that a big deal?
Secondly, I would like to remind you that we a) passed the first stage of the non-cash pension payment system. In fact, now the majority of pensioners in the country receive non-cash pensions, and now we are introducing another program. 10% will be refunded back to the cards of the pensioners from the trade done via cards. This means that a decision has been made to increase the de facto pension by 10%, which must be implemented in cooperation with our citizens and our banks. This will help us to mitigate the impact of inflation to some extent, on the other hand, to significantly reduce the shadow economy again, because the reduction of cash circulation is both an economic, anti-corruption, and fiscal effect.
Because look, we say numbers, but those numbers should also be recorded. In the first 5 months of this year, from January 1 to May 20, currency in circulation was by 1 billion and 200 million USD more in the Republic of Armenia compared to the previous year. Can you imagine what that number is for Armenia? That is, shops, restaurants, any other transaction, for example, buying building materials. Here, by the way, we calculate the impact of inflation, let $ 200 million be the inflation.
Next, there is some inflow, which is positive. But this number does not consist of one indicator, but several indicators, where the reduction of the shadow economy is very important. For shadow reduction, cash reduction is very important.
I want to draw our attention to the fact that the law on cash reduction will come into force on July 1, we are implementing very serious restrictions. At the same time, I want to emphasize that now we are adopting legislative regulations, for example, it will not be possible to buy or sell an apartment in cash, or it will be possible to do it, but in case of further dispute, the transaction will not have legal force. And, consequently, I want to draw our attention to the fact that it will not be possible to buy an apartment or a car in cash. All transactions must be non-cash, which in turn will have additional fiscal effects.
I also want to emphasize our political determination to introduce a universal declaration system. That is, all citizens of the Republic of Armenia must declare their income, which will come into force in 2024 for 2023 income. It also has a very important economic, political and civilizational significance, and in this respect I attach great importance to it.
I would like to emphasize that the new property tax system came into force this year, which will significantly, first of all, strengthen the local self-government bodies, because their tax revenues will increase. On the other hand, of course, this law will also have a civilizational significance, because I think that economic calculation will take more and more important place in our lives, which in turn will lead to civilizational consequences. I want to bring one such example. We see what a neat urban look many countries have, starting from villages.
I am convinced that the property tax system has very important place here, because people not just build a house, but try to calculate how much property tax they will pay if they choose this project in the next 50 years, and how much for the other.
I would also like to emphasize our recently adopted program, which we call the renovation program, which aims to encourage citizens to rebuild their homes. At the same time, it is a mandatory condition that 30% of the received loan must be spent for energy saving solutions. This is also a very important indicator, because energy prices are very sensitive in social terms, in all respects, but we never calculate how much energy we use to heat our apartment, how much we use it, sorry to say, to heat the area around our apartment. Of course, efficiency is the most important issue that we must try to solve at every step, our Government will go this way.
I have always considered that the state budget is more a political than a financial document, and I still think so today. I just touched upon some financial and economic indicators today, taking into account that we had a very detailed discussion in the report on the implementation of the Government Action Plan. Although, to be honest, it was a great temptation for me to address political issues in this context as well. But I think we need to stick to this logic today. I say again, because, nevertheless, we have had and will still have opportunities to discuss the political areas in more detail.
Thank you. This much. I wish good luck again in the discussions of the budget report, of course, we, the Government and I personally, are waiting for some feedback, because we do not think that everything is perfect, ideal, only optimistic. But I think it is very important to emphasize the results that we have been able to record, despite all the difficulties. Because, to be honest, it happens, the shortcomings are always easier to notice, they always cause more interest, we are not afraid that the shortcomings will not be voiced. In the sidelines of these discussions it’s important to record the results we have had.