Speculation about economic freedom act

The ruling administration is pinning high hopes on the Economic Freedom Act which will come into force from December 2013 and will facilitate very substantial development of the economy in the country. PM Nika Gilauri and newly appointed Minister for Finance Dimitri Gvindadze arranged a meeting with journalists concerning this topic where they emphasized the importance of the legislation. The Georgian leadership considers this document as further confirmation of a liberal economy policy which is being established by the Georgian government. This act signifies Georgia’s move towards a Singapore model, however some independent analysts suggest that it essentially contradicts the policy of becoming closer with the EU. This of course has been one of the main aims of the Georgian leadership but the new legislation could hinder the free trade agreement which is expected to be concluded between Georgia and the EU.

President Saakashvili submitted to the parliament the Economic Freedom Act on October 6, 2009. According to him this document prevents the executive power from deviating from the direction towards liberal economic development. This movement cannot change, neither during the existing nor future governments, claims the president. Thus Georgia should become a flag bearer for world liberal economic policy, he added. In the same speech he criticized the socialist moves made by certain countries during the world economic crisis which was manifested in the increasing role of the state in local economies.

Some independent analysts are very cautiously assessing the document. They ask questions. What is the main target of the legislation? Is it a real guarantee of liberal policy? The analysts are trying to make certain conclusions. The first is that if one assesses the Georgian constitution the answers to above questions are negative. It could be explained very simply. If the current authorities lose its constitutional majority in the parliament the ultra liberal development will be changed immediately in the parliament through the pressure from other forces. The ultra liberal development promoted by the current administration has a considerable number of opponents throughout the country.

The Economic Freedom act considers an increase of taxes (apart from excise tax) in the country subject to a referendum. This fact does not necessarily mean that people ultimately will not support an increase of certain taxes. For instance if there is a proposal to introduce extra taxes for a certain category of rich people among the population, it will be supported. Accordingly, a plan to increase the taxes on those who own strategically important assets would probably also receive public support. There is one very serious obstacle in the way of the referendum issue though as it is known that recently the state leadership declared publicly that the decision of the referendum of 2003 about the decrease of number the members of parliament from 235 to 150 was illegal, because a referendum is only valid when it is held on the entire territory of the country. According to this official statement any kind of referendum in the foreseeable future in Georgia will be invalid, because it is unlikely that Georgia will regain the Russian occupied territories in any time soon. So, the taxes should be frozen until this point.

There are some other economic details which require a very careful approach such as the return of anti monopoly service in the country. Economic freedom is easier said than done.