| In the previous article, we described the various | | | | he can turn it around and make it profitable. The best |
| methods developed in the West to cope with the | | | | way to do this is to increase its sales to a loyal and |
| ever-burgeoning public sector.Yet, economies in | | | | sizeable group of clients.The second condition: the |
| transition everywhere in the world have learned a | | | | de-regulation of prices and the abolition of |
| lesson the hard way: not everything that is Western - | | | | subsidies.The state must exit forgo all levels of |
| necessarily fits their needs. Many Western techniques, | | | | intervention in the finances of the public sector. It must |
| methods, systems and ways of thinking cannot be | | | | not fix the prices of its products and services and it |
| applied in Macedonia, for instance.The public sector is a | | | | must not subsidize it. Subsidies and tax incentives |
| great burden on economies everywhere.It is mostly | | | | thwart and distort the true economic and financial |
| financed by collecting taxes from individuals and | | | | picture. They hinder the proper and correct valuation of |
| businesses.Taxes are re-allocation of economic | | | | the public sector firm by prospective investors.An |
| resources. Taxes are nothing but money transfers | | | | investor must feel certain that he will be allowed to fix |
| from one group of citizens (the taxpayers) to other | | | | any price for the goods and services sold by the public |
| groups: to those who cannot pay taxes (such as | | | | sector firm that he is buying. This is the way to |
| children and the elderly) and to those who would not | | | | profitability and financial health. The government does |
| pay taxes, the tax evaders. Taxes are a penalty paid | | | | not need to worry:If the investor will charge too high a |
| by the more productive and honest segments of | | | | price - his clients will go to his competition.But what if |
| society. Small wonder that taxes have a bad | | | | there is no competition? What if electricity is supplied |
| reputation in the West. They are considered to be | | | | by only one electricity firm (a monopoly)? Who will the |
| both unjust and inefficient.But taxes are both | | | | client revert to if the prices that he is charged are |
| necessary and inevitable. There is no better way to | | | | much too high?This, precisely, is the third condition:The |
| finance the operations of the government and of the | | | | opening of the marketplace to competition, both |
| public sector.The more taxes collected - the heavier | | | | domestic and foreign.To cancel all laws, regulations, |
| the involvement of the state in the economy. This | | | | rules, precedents which inhibit or prohibit competition. To |
| involvement is measured as a percentage of the GDP | | | | eliminate tariffs, quotas, permits, licences and controls |
| - the Gross Domestic Product. As we mentioned in | | | | (barring those which relate to public health and to the |
| our previous article, the figures are frightening: | | | | protection of the environment).Why should Macedonia |
| governments consume from 19% (Singapore, | | | | have only one PTT? Why not six providers?Why not |
| Hong-Kong) to 59% (France) of the products and | | | | allow anyone to produce electricity and sell it to the |
| services produced in the economy!Research shows | | | | electricity company? Why to have only one electricity |
| that public spending of tax money is 6 times less | | | | company?Subject to the right regulations concerning |
| efficient than the same money invested by the private | | | | safety and financial wherewithal - everyone should be |
| sector. The two sectors: the Private and the Public | | | | allowed to do anything. Economic history shows that |
| compete on the same, limited, amount of resources. | | | | competition provides better goods and services at |
| Every Denar paid to the tax collector is one Denar | | | | much lower costs.It also shows that the public sector is |
| less invested in the formation of new businesses and | | | | a potential hub of inefficiency and sometimes blatant |
| one Denar less invested in private consumption.We | | | | corruption."Lean and Mean" is the name of the game in |
| can safely state that taxes inhibit economic growth | | | | today's economic environment.The Public sector is fat |
| and increase unemployment.So the current mood in | | | | and sluggish. It has no right to continue to exist.Even |
| the West is anti big government and anti | | | | private sector enterprises are "downsizing" (cutting |
| taxation.People evade taxes. About 13 - 25% of the | | | | their labour force considerably).But certain functions |
| total capital in the world is "black" capital, upon which | | | | can scarcely be transferred to the private sector. |
| taxes were not paid. It is estimated that Macedonian | | | | These functions are inherently non-profitable and |
| firms and individuals hold more than 1 billion USD in | | | | non-profit motivated. They are usually performed by |
| undeclared cash - against an official figure of 200 | | | | municipal, local and regional authorities.The municipal |
| million USD in circulation in the whole Macedonian | | | | (local) and regional part of the public sector has five |
| economy.People openly refuse to pay taxes and they | | | | sources of income at its disposal:It is empowered to |
| take their governments to court on these | | | | collect taxes from individuals and from businesses - |
| issues.Governments are doing their best to simplify | | | | the size of which is normally linked to the (residential or |
| procedures and tax returns (=the forms on which | | | | office) space that they occupy.It is allowed to collect |
| income is reported).In fiscal theory, we differentiate | | | | fees and charges which are fixed and relate to the |
| between progressive and regressive taxes.A | | | | provision of services such as: water supply, sewage, |
| progressive tax is one which is larger - the larger the | | | | sanitation, posting commercial signs, parking and toll |
| income is. A millionaire in a progressive tax system will | | | | roads).It is authorized to levy fines on transgressors |
| pay much more (as a percentage of his income) than | | | | against municipal rules and regulations. The best known |
| his driver.A regressive tax is one that totally unrelated | | | | form of this kind of financing is the parking ticket.Mainly |
| to the level of income. Both the millionaire and his driver | | | | in the USA, local authorities are permitted to sell |
| will pay the same percentage of tax if they buy a car, | | | | municipal bonds ("Munis") to the public - through the |
| for instance.Governments have become desperate. | | | | Stock Exchange - and directly to institutional investors, |
| They introduce one rate income tax systems: all | | | | such as pension funds.The local authority which issued |
| incomes are taxed at the same rate, regardless of | | | | the bonds pays the bondholders from current income |
| their size. They are switching from taxes on income | | | | generated by tax revenues and from specific incomes |
| (which are socially progressive in nature) to taxes on | | | | generated to it by specific projects.An example: a local |
| consumption (such as VAT - Value Added Taxes) | | | | authority wants to establish a water treatment facility.It |
| which are socially regressive in nature.The overall goal | | | | costs 100,000,000 USD. The Authority receives |
| is commendable: to lower the burden of taxation to | | | | 60,000,000 from the government and sells 40,000,000 |
| less than 20% of the GDP.But obtaining this goal | | | | USD worth of bonds to the public via the stock |
| means that Governments will have to reduce their | | | | exchanges.Once the facility is built, it begins to supply |
| involvement in the economy and cut back on services | | | | water to the residents and to businesses. They pay |
| and on the public sector.This is not a very clever idea | | | | for the water that they consume - and the income |
| for economies in transition.The public sector in | | | | from the sale of the water goes to the bondholders. |
| economies in transition could and should be privatized | | | | This income covers both the interest payable on the |
| only after three conditions have been met:First, the | | | | bond (=its coupon) and the money that the |
| establishment of a strong private sector. Individuals and | | | | bondholders invested in the bonds themselves and |
| firms in the private sectors are the consumers of | | | | which they have to recover.* Lately, a new fashion is |
| electricity, water and phone services. Without a strong | | | | developing in public administration, called devolution.It is |
| customer base, it would be very difficult to sell the | | | | the transfer of parts of the national budget directly to |
| PTT, the electricity company or the water companies | | | | the local authorities or granting them the right to |
| to any private investor in reasonable prices. The public | | | | regulate their own fiscal (=tax) systems.Devolution is a |
| sector must become profitable to be sold to the | | | | prime example of a mega-trend in human societies: |
| private sector (=to be privatized). A losing company is | | | | that of the dismantling of Big Government. But this is |
| not worth anything to an investor, unless he thinks that | | | | subject for yet another article. |