The government has submitted to Parliament a comprehensive economic package, which, it says, is aimed at turning Georgia into “a global financial center” and eventually eradicating poverty.
The package incorporates three new draft laws and 22 draft amendments. It aims at the creation of a liberal financial system, further liberalization of the tax code, liberalization of customs regulations for the planned free economic zone in Poti and the establishment of two new funds for budgetary surpluses and privatization proceeds.
Kakha Bendukidze, the acting state minister for coordination of reforms, and soon-to-be head of the government’s administration, co-authored the package and presented it at a hearing of the parliamentary committee for social and healthcare issues on January 28.
He said that Georgia had “a real possibility” of becoming a Singapore-type financial center if his proposals for a liberal financial system were implemented. Such a financial center, he said, could potentially attract about USD 10-12 billion in the next five years. Bendukidze added that Cyprus would be the competitor in the region in this respect.
The package also proposes to gradually reduce income tax - currently at 25% - to 15% over the next five years. Last year Parliament approved a controversial government measure, which went into force on January 1, 2008, to replace the 12% income tax and 20% social tax with a flat 25% income tax.
The proposals unveiled by Bendukidze also set a binding target of at least 0.1% of GDP to be set aside from annual budget surpluses and the proceeds of privatization. The money should go into two funds - for future generations and for stable development.
An estimated GEL 3 billion will be accumulated in the fund for future generations in the next five years, according to the proposal. Rehabilitation costs following the hypothetical re-unification of Georgia would be covered by this fund.
The fund for stable development will, according to the proposal, accumulate an estimated GEL 2 billion in the next five years. The fund will be used to deal with unexpected economic challenges.
The package also involves a proposal to increase the National Bank’s accountability in respect of monetary policy. If annual inflation reacheds12%, the president of the National Bank would have to resign.
PM-nominee Gurgenidze recently described the package as “revolutionary.”