The outgoing National Assembly began debating on Tuesday the Armenian government’s draft budget for next year which would increase public spending by over 12 percent but keep public sector salaries and pensions largely unchanged.
The proposed budget calls for 1.64 trillion drams ($3.4 billion) in total expenditures and 1.49 trillion drams in tax and other revenues. This would further cut the budget deficit projected to fall to 2.7 percent of GDP this year.
Much of the extra spending planned by Prime Minister Nikol Pashinian’s cabinet is to be channeled into defense and infrastructure projects.
In particular, Armenia’s military spending would soar by 25 percent, to 309 billion drams ($633 million), in 2019. The defense budget has already increased by 18 percent this year, reflecting a continuing arms race with Azerbaijan.
By comparison, the government is planning to spend 444 billion drams on social programs, 139 billion drams on education and 90 billion drams on healthcare. It envisages pay rises only for 14,000 or so doctors and other medical personnel working in state-run policlinics.
Presenting the spending bill to lawmakers, Pashinian defended the government’s decision not to raise the salaries of other public sector employees as well as pensions and poverty benefits. He attributed it to a lack of state revenue and economic realities inherited from the previous government.
In that regard, Pashinian, whose party is widely expected to win snap general elections scheduled for December 9, promised wide-ranging tax cuts which he said will boost the real incomes of hundreds of thousands of Armenians. He said his government is specifically planning to introduce a flat 23 percent tax rate for all workers.
The promised tax cuts would primarily benefit relative high earners. The income tax rate is currently at 28 percent for monthly wages ranging from 150,000 to 2 million drams ($310-$4,150) and at 36 percent for higher incomes.
For his part, Finance Minister Atom Janjughazian stressed the need to maintain fiscal discipline and prevent a further sharp rise in the Armenian public debt which is approaching the $7 billion mark. The draft budget sets aside as much as $730 million for debt servicing in 2019.
The budgetary targets are based on a GDP growth rate of at least 4.9 percent expected by Pashinian’s government. The Armenian economy grew by 7.5 percent in 2017. According to most recent government projections, economic growth in the country will not exceed 6 percent this year.
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