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Saakashvili Lays Out ‘Act on Economic Freedom’
Civil Georgia, Tbilisi / 6 Oct.'09 / 17:22

  • Referendum on tax increase;
  • Ban of setting new regulatory agencies;
  • No more new licenses or permits;  
  • Expenditures-to-GDP ratio - 30%;
  • Debt-to-GDP ratio - 60%;
  • Budget deficit no more than 3% of GDP;
  • ‘Georgia should be flagship of world liberal economy’

In his speech to lawmakers on October 6, President Saakashvili presented Act on Economic Freedom, which, he said, would now constitutionally guarantee already existing Georgia’s commitment to liberal economy.

The package of proposals, he told the Parliament, would “restrict the executive branch of the government to turn away from the course of liberal economy” and had “an ambition to turn Georgia into a real flagship of the world liberal economic ideology.”

The package involves setting in the constitution the maximum ratio of budgetary expenditures to GDP at 30%; budget deficit – at maximum 3% of GDP; and maximum of 60% of debt-to-GDP ratio.

Saakashvili said that the package also involves stipulating holding of a referendum if some day the government decides to increase taxes or to introduce new taxes.

“The government should not be able to use the right of increasing a tax or introducing a new one without public consent,” he said, calling this proposal “the most important principle” of the package.

“Low and simple taxes are our greatest achievement that attracts investments to the country, creates new jobs and gives more money to people and business. Therefore, it is our obligation to provide that this policy is secured no matter of political changes,” Saakashvili said.

According to the package, setting up of additional new regulatory agencies – apart of already existing in the spheres of financial services, communications and energy - would be banned by the law.

Saakashvili said that the same proposal would also ban introduction of additional new licenses and permits.

“It is our principle that the only way out is tightening of belts by the government, instead of choking off people and businessmen through introducing additional controllers and regulators,” he said.

According to the package the state will be banned from having an ownership in bank shares (the government holds no shares in any bank) and prohibit any government involvement with the purpose to control prices. 

“As a result, freedom of price formation will be secured in Georgia forever,” Saakashvili said. 

He said that although the proposed package would not have an immediate effect on wellbeing of the population, these proposals “will turn Georgia into a country, where the irreversibility of the liberal economic course is protected by the superior law [constitution].”

“At the same time, this Act is very ambitious, because after its adoption Georgia will become the world’s leading country in terms of observance of economic liberalism,” he added.

“Achieving of this goal is of special importance and also possible and needed now, when the ambiguous, disorientated and populist socialist trends are waving around the world shaken by the global economic crisis,” Saakashvili said.

“Sometimes socialist ideology - like only the state can save, the state should regulate, the state should interfere - is heard in such countries that I am totally taken aback.”

“Our experience is that nothing good is happening where there is a state,” he added.

He also linked Georgia’s aspiration to more liberalism to Tbilisi’s drive of “final liberation from Russia.”

“One of the major reasons that explain our aspiration towards independence from Russia is not only physical independence… but also freedom from the uncivilized way of living and way of thinking on which Russian empire is based,” he said.

In his speech Saakashvili also spoke much about the right decision of his government to choose the liberal economic course right after the Rose Revolution.

“When we told the International Monetary Fund about our plans to decrease taxes, ease and liberalize tax code, abolish regulatory agencies, IMF told me: ‘you do not know what foolishness you are doing’ and they were predicting that we would have total budgetary collapse with this policy. But with this policy we have succeeded and year later the state budget was increased in two-fold and after that IMF officially announced that it was wrong and that the Georgian government was right,” Saakashvili said.

Citing the Forbes 2009 Tax Misery & Reform Index, Saakashvili said Georgia was fourth in the list of the most tax friendly countries, after Qatar, United Arab Emirates and Hong Kong, leaving behind Japan, Finland, Switzerland, Germany, Holland and Sweden.

After making these remarks he said referring to a group of foreign diplomats attending the address in the Parliament chamber: “Respected ambassadors are often giving us recommendations on how to manage the economy. We are ready to send to some of them our experts so that to enable them to at least slightly move forward, if they can’t catch up to us.”

“For example I would have sent with great pleasure experts to Holland,” Saakashvili said.

He also said that Georgia had yet to go a long way before catching up with those countries in respect of “living standards” and the liberal economy was the best way of achieving those standards.

In his address, Saakashvili also said that some of the government’s critics were wrongly viewing liberalism as something “non-Georgian.”

“Some say that liberalism is too strange word for Georgian,” he said. “In some areas we really have to take something, which was created for success by other cultures, but when it comes to the economic liberties, here we do not need to take anything from other cultures, at least as far as theories are concerned.

He said that liberal economic views were not at all something strange and added that Ilia Chavchavadze, a 19th century Georgian public figure, who is one of the most respected figures among Georgians, was “the first Georgian libertarian with his economic philosophy.”

“He is the first Georgian, who was preaching free trade. So by choosing liberalism, we are choosing Ilia’s way,” Saakashvili said.

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