STATE CARES ABOUT CITIZENS WORTHY SENILITY

By. Sophiko Sichinava

N otion of honourable senility does not, probably, concern citizens of Georgia. Yet, 1/3 of population’s income in the developed countries falls at the share of insurance, health and senility. People reserve costs in the present to provide for careless future in senility.

Inefficiency of pension fund is conditioned by some problems:
– Low level of pension that, in fact, has a symbolic nature (14 GEL);
– Public debt for pensions, i.e. problem of debt service payment totaling 120 million dollars;
– Non-differential pension, principle of unequal equalization, i.e. pensions of citizens who haveworked bona fide all their life will equal those of citizens who have worked lazily or have not worked at all. People lose any stimulus;
– Citizens have no alternative i.e. the possibility to think about the ways of providing for themselves in their senility
If we do not launch a pension reform, pension will at best amount to 30 GEL in 2005-2006. If GDP growth makes up 4%, gross domestic product (GDP) will be 1,8% and inflation will be 6-7%.
On the other hand, we need to do the following before starting pension reform:
– To extinguish past indebtedness;
– To legalize wages;
– To increase legal business by minimum 15%;
– To introduce a single fixed social tax
There has lately been talk in the country about reforms in pension system that is known as social environment reform. The essence of this reform consists in adopting a single social insurance premium for insuring different social risks i.e. there will be single social insurance service for all kinds of social insurance ranging from health insurance to unemployment and senility one. From this point of view, the existing social taxes will constitute one social tax; they will be administered by single insurance service.
Irakli Koplatadze (director of pension fund)
It is necessary to launch a package of measures in short-term, medium-term and long-term perspective. I mean 3-5 yearlong program. As we can see from experience, reform in pension system is a very poignant process both in developing and developed countries. Foundation of pension system on the insurance principle is the main principle of the reform, i.e. people will receive right for pension during their professional career that will be adequate to their salary and work-experience. However, it is important to take some measures before this principle comes in force. Compulsory insurance is considered to be the first stage of reforms. The existing spheres of insurance – health, unemployment, and senility – formed part of single social insurance. At the same time institutions that provide this system with service are to be united. It is necessary to settle an issue of funds collection in the close future. These funds are called social tax. It is not a variety of classic taxes evaded by everybody. The principal difference is that people will be interested in paying this fee to provide for themselves in senility. Social taxes will be changed into industrialized and personified social fees. The next step is package of bills concerning social insurance, pensions and personification. We must see to it that everyone has an individual insurance card containing information on salaries. The card will be used for differentiating pensions. International organizations assist us in these issues. A project of the World Bank is being implemented in the given stage. We consult with IMF, Balzerovich’s group, and foundations of different countries. Preparation works are supposed to be completed by the next year, which implies registration of all employed citizens – pensioners. Receipt of salary must include the existing rules, salary declaration forms must be filled in by everybody.
Nowadays, under the law each citizen is obliged to fill in declaration because he must declare his income to the government. Yet, the society is not well informed on this issue. No one seems to have any wish to fill in the declaration because income of the most part of the employed are “their common secret” shared only by the employers. According to Irakli Koplatadze, motivation of declaring salary leads to conflicts between employer and employees. Yet, today one can hardly imagine that anyone would rise against an employer in the conditions of acute employment problem. It turns out that new system will not work until a conflict arises. Today, neither the employed nor employers would not fix their real incomes. Today, legalization of salary poses a great problem that stands in the way of reforms.
Irakli Koplatadze. “Nowadays people pay taxes only out of call of duty and solidarity principles. If people’s income will depend on their pensions, they will not conceal their income. Since 2004 there will be two kinds of pensions. The first one is a base one; the amount of the pension will be the same for all people. The second pension is a differentiated one that depends on pension formula adding work experience and income record together. Correlation between the employees and pensioners was 10 to 1. In the 70-s this correlation made up 3/1, in 80-s it was 2/1. Today, the correlation is 0,8/1, i.e. there are more pensioners than workers who live at the expense of the latter ones.
This statistics is dangerous, especially, for those who intend to implement social reforms. The reason of 120 million worth indebtedness that “causes everyone a headache” is black economy. Yet, we must start reforms of pension programs from this very point. Irakli Koplatadze: “This indebtedness can not be repaid at the expense of tax levy only because it is too small. Unfortunately, the pension calendar has still 2001 year on it. In case the plan was implemented, debt could be repaid at the expense of these funds. The state must undertake these responsibilities and introduce means for providing internal debts and financial market (securities) with service. There are also other measures called temporary measures that were used by some countries as, f.e., Ukraine. It has turnover tax that is similar to our VAT. Fixed temporary tax is added to the turnover one. It is designed for paying out pension indebtedness. Besides, tax must be imposed on some objects as f.e. mobile phones and imported cars. This indebtedness can be repaid by means of budget transfers. Yet, we can not rely on it in the conditions of budget deficit. Besides, imposition of surcharge might produce negative effects in the conditions of high taxes.
Imposition of single social tax is, certainly, a step forward. Yet, 33% tax is still high even with the salary of 80 GEL. Thus, conflict between employers and employees is still questionable. It is just a matter of relations of culture and conscience, but you can not make man live in poverty for the sake of providing for his senility. Even if the minimal salary rises by 80 GEL, it can hardly be called a luxury. This income equals approximately one dollar a day. There is a very miserable statistics. According to this statistics, annual income of 1/4 of population does not make up even one dollar. We hope that increase of minimal salary to 80 GEL will help us to solve this problem.
Economic growth in Georgia does not imply adequacy with social background. Thus, a state can activate mechanisms and levers for reaching social equality. Apart from single state service, it is necessary to develop private pension system. There can be no talk of reforms without it.