The Business Association of Georgia (BAG) held a special briefing today announcing the possibility that the government will remove Article 94, known as the “Economic Liberty Act,” from the new constitution, as part of the constitutional reform project.
Irakli Aslanishvili, Executive Director of the Business Association of Georgia, said today that removing this legislation from the constitution would cause a decline in investor confidence and total investment, which would then slow economic growth.
On June 5th, Parliamentary Chairman Irakli Kobakhidze announced that discussions will be held concerning whether to completely abolish the act or include it in the reformed constitution.
In 2010, Parliament passed Article 94 of the Georgian Constitution which requires a referendum in order to increase taxes (excluding excise taxes) or introduce new tax laws. In order to further outline this process, the organic law, the Economic Liberty Act, was created. This legislative standard is a guarantee that the government will not raise taxes without the consent of the population. Georgian President Giorgi Margvelashvili signed the law into power in 2013. With this law,the constitution granted the population a new right - to officially support or not support the increase of taxes.
The law requires the government to maintain a debt to GDP ratio below 60% and a government expenditures to GDP ratio that does not exceed 30%. The required maximum budget deficit to GDP ratio is 3%.
If this act is abolished, the country will face the risk of an increased budget deficit and an increased level of taxes for businesses and citizens.
The Business Association of Georgia addressed the government of Georgia at the special briefing regarding the Economic Liberty Act:
“Strengthening and maintaining Georgia’s uniquely attractive investment environment is crucial. This legislation [Economic Liberty Act] provides for the stability and transparency of fiscal policy which makes Georgia attractive for foreign investment and aids the development of local businesses. Preserving this legislation is extremely important when considering the socio-economic problems and geopolitical challenges of Georgia. This country’s economic growth is greatly determined by foreign investment and the investment activities of local businesses.
Global competition continues to grow as investors have the opportunity to do business in any region or country in the world. In order to attract investment, Georgia needs to offer to investors a unique and stable investing and business environment. In other circumstances, it is not clear what competitive advantage Georgia has in relation to other countries and regions.
Abolishing this legislation will noticeably worsen Georgia’s competitiveness in attracting investment and decrease the overall inflow of investment which will then be reflected negatively in Georgia’s economic growth and hinder the country’s development.
This is why we believe that it is necessary to protect this legislation and its accepted organic law concerning “economic liberty.”
At the same time, we believe that Georgian citizens should have the right to decide for themselves whether or not taxes should be raised.
The vote of citizens via referendum should decide the issue of increased taxes since it is directly related to their rights - to lose income earned from their own labors - and should be brought about through direct democracy.”
The Movement for Liberty - European Georgia party shares the opinion of the Business Association of Georgia regarding the Economic Liberty Act. One of the party leaders, MP Giga Bokeria, said at a special briefing today that changing the law would worsen the lives of all citizens:
“Our government increased the tax on gasoline, which was a painful blow to all citizens. Now it seems they want to raise basic taxes… They want to abolish the limits which forbid them from taking more money from our pockets without asking. Through these means they will worsen the [living] conditions of our citizens and then they will waste this money on their own relatives, friends, and subversive programs which they have in abundance.
Someone from [former Prime Minister] Ivanishvili’s party needs to provide us with an answer - even if just one sentence - about why they are against asking the people when they raise the question of increasing taxes.”