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The Government of the Republic of Serbia

In the service of citizens

2007 budget bill envisages 5.9% GDP growth

Belgrade, 15 June 2007

Serbian Minister of Finance Mirko Cvetkovic said today that the Bill on the 2007 budget envisages a GDP of RSD 2.381 billion and GDP growth of 5.9%.

Author: Fonet

Speaking at a press conference at which this bill was presented, Cvetkovic said that revenues planned for this year's budget are RSD 582 billion, expenditures of approximately RSD 595.5 billion and a deficit of RSD 13.6 billion.

He said that 2007 budget has certain particularities in relation to other budgets since it has been done in the middle of a year for the entire year and thus it had to incorporate certain flows in the first six months and the planned fiscal policy.

Cvetkovic said that the aims of the budget are securing macro economic stability, as a precondition for creation of an environment suitable for dynamic economic growth, which will lead to a higher employment rate and better living standards.

The expected growth in exports is 26.8%, of imports 23.7%, while the current account deficit will be 11.4%.

The Minister said that according to the bill, real growth in investment will be 21.5% and voiced hope that inflation will not exceed 6.5% by the end of the year.

Also, the estimated increase of the employment rate is 1% and the real growth of average net salary 13.6%.

Speaking about fiscal policy in the second half of 2007, the Minister announced that the threshold for the entry into the value added tax system will be increased from RSD 2 million to RSD 4 million and excises on imported non-alcoholic beverages and fruit juices will be abolished.

According to Cvetkovic, excises on coffee will also be reduced, while excises on tobacco products will be changed in accordance with the Action plan and the excises on auto gas will be introduced.

Speaking about fiscal policy in the field of public expenditures, he said that the budget had to include National Investment Plan (NIP) projects, which were agreed upon earlier, transfers to other levels of government and organisations of obligatory social insurance guaranteed by the Constitution, and agreed percentages of increase of salaries in education, health and culture sectors.

Speaking about capital expenditures, the Minister said that the regular capital expenditures are RSD 26 billion and NIP expenditures some RSD 44.4 billion.

Cvetkovic said that the repayment of public debt in the amount of RSD 42 billion is planned for 2007, of which RSD 21.6 billion will be set aside for the repayment of old foreign currency savings, RSD 2.5 billion for repayment of the Loan for Serbia's recovery and RSD 8.9 billion for premature repayment of debt to pensioners.

He said that the deficit is caused by substantial increase of certain items, first of all of NIP expenditures which have been increased five times over in relation to the last year. Personal income and expenditures related to salaries have been increased in relation to the last year by 22%, transfers to the organisations of obligatory social insurance are higher by 14% and transfers to other levels of government by 54%.

He specified that control of expenditure from the NIP will be twofold as it will be conducted by the Minister without Portfolio for implementation of the NIP Dragan Djilas and the relevant minister through whose ministry the project will be realised.

He said that privatisation proceeds are not considered regular proceeds and are used for extraordinary expenditures and payments.

Serbian State Secretary at the Ministry of Finance Janko Guzijan said that the 2007 budget bill envisages an amount of RSD 59.49 billion for the Serbian Army, while some RSD 41.54 billion will be allocated to the Ministry of Interior.

Guzijan said that according to the bill a sum of RSD 3.202 billion is envisaged for the Security and Intelligence Agency, and RSD 3.202 billion for Serbian parliament.

Serbian Assistant Minister Natasa Kovacevic informed that the government adopted yesterday a set of laws which support the budget, including amendments to the laws on property tax and the Value Added Tax (VAT).

The amendments envisage tax reduction on transfer of absolute rights from 5% to 2.5%, said Kovacevic and added that this measure regards not only purchase of first house but also to all the houses purchased.

She explained that according to the amendments VAT will be abolished for the purchase of first house, depending on whether the property is being bought from the owner or a construction company.

According to Kovacevic, removing the tax on purchase of first house is a social measure undertaken to ensure that those with a housing problem may finally buy a house.

Kovacevic explained that certain criteria exist for defining who can use the tax relief, adding that they apply to households consisting of couples, their children and their parents, where one of them is the buyer and the rest are beneficiaries of this purchase.

She pointed to the fact that it was recommended that the tax relief should apply to the buyer for up to 40 square meters, and to each of the other members of the household for up to 15 square meters and the right to this tax relief can be realised by Serbian citizens of age who do not own a house on the territory of the Republic of Serbia.

Concerning VAT, the investor will have to pay this tax on newly constructed houses at a rate of 8%, while the buyer will have the right to a refund through demand, as long as the buyer fulfills the conditions mentioned, from July 1, 2006 to the moment of verification of the contract.

She said that the demand should be submitted to the relevant tax department, and the Tax Administration will then conduct a procedure of verification to establish whether the member of the household in question owns a house on the territory of Serbia, following which a decision will be brought which will serve as a basis for refund.

She said that regarding relief from tax on transfer of absolute rights, the buyer, when submitting tax returns, should file a statement that he declares with full moral and material responsibility that he does not own a house.

The Tax Administration will then register the buyers who realise their right to refund of VAT or relief from tax on transfer of absolute rights and regarding members of their households, said Kovacevic, and added that the tax relief measures will be implemented from the day the laws mentioned come into force.