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The State Audit Office conducted a review of the compliance of the Basic Budget of Macedonia for 2023 in terms of planning, preparation, adoption, and execution of the Budget for 2023. The Basic Budget for 2023, amounting to 261,552,000 thousand denars, shows an increase of 33.4% compared to 2022. Total revenues and inflows in 2023 of 260,125,128 thousand denars have increased by 29% compared to the previous year, due to an increase in domestic borrowing (146%) and foreign borrowing (104%).
2023 Budget Allocation Increases by 29.76%
The total expenses and revenues for the year 2023 amount to 249,364,054 thousand denars, which is 29.76% higher than the previous year. The approved (planned) 261,552,000 thousand denars in the Main Budget for 2023 are increased by 52% compared to the maximum approved funding/expenditure amounts.
Changes in Fiscal Projections
Additionally, two decisions to reallocate funds among budget users of the central government and funds have led to changes in the initial fiscal projections. As a result, the Budget for 2023 has increased by 0.3% and amounts to 262,551,901 thousand denars.
Analysis of Budget Requests Reveals Lack of Strategic Plans
Today’s report from auditors highlights the importance of proper documentation in budgeting. An analysis of documentation from 26% of budget users shows that 20% of them had budget proposals prepared by the Ministry of Finance due to missing strategic plans. This indicates a recurring issue with the Ministry failing to provide a Report on the reasons for budget discrepancies to the Government, leaving them without complete information on the discrepancies and reasons for differences in budget requests.
Differences between approved and requested funds in the budget
The discrepancies between the maximum approved expenditures by the Government, the funds requested by budget users, and the approved funds in the Budget indicate the risk that the budget adopted by the Ministry of Finance may not fully reflect the actual needs of budget users for achieving the set goals – emphasize auditors.
They add that the largest deviation between the maximum approved expenditure amount and the approved funds is found in the Government section. The approved budget is five times larger than the planned maximum amount.
Strengthening Budget Proposal Coordination
The majority of these funds are allocated towards implementing program P1, which includes measures to address the crisis caused by Covid-19 and other anti-crisis measures. We have highlighted the need to strengthen the process of coordinating budget proposals between the Ministry of Finance (MF) and budget users. This is crucial to minimize the risk of planned funds not reflecting the real needs of budget users. Additionally, it is necessary for the Government to be informed of the reasons.
Ensuring Compliance with Budget Regulations
Discrepancies between the requested and approved funds for budget users have been brought to light. The Laws on the Judicial Budget, Public Prosecution, and Balanced Regional Development clearly regulate the amount of funds that should be provided each year through the budget for the unimpeded functioning of the judicial authority, public prosecution, and to promote balanced regional development. This was stated in the announcement.
It has been noted that in the analysis for the year 2023, it was found that the approved budget does not comply with the legally established requirements and regulations.
The Importance of Adequate Funding for Justice System
According to recent reports, the allocated budget for the judiciary in our country falls short of the legally established percentage of 0.8% of the GDP. Only 0.3% of the GDP has been approved for the judiciary, which is 58% less than the legal limit.
Furthermore, the Public Prosecution Office should receive at least 0.4% of the total state budget to ensure fair distribution of funds. However, the approved funds for the Public Prosecution Office of 741,477 denars make up only 0.2% of the budget for the year 2023.
It is crucial that a minimum of 1% of the GDP is secured for the implementation of the subprogram for balanced regional development. The current approved funds through the Ministry need to be reevaluated to ensure proper funding for this essential program.
Local Government and Regional Development Office Funding
In 2023, the funding for local government and the Bureau for Regional Development amounts to only 0.09% of GDP, which is the same level as in 2022.
VAT Revenue Increase
In 2023, VAT revenues account for a significant 45.36% of total income, totaling 70,035,889 thousand denars, an 8% increase compared to 2022. Of the total VAT collected in the gross amount of 108,783,489 thousand denars, 67% comes from imports, while 32% is generated from domestic sales. The VAT refund to taxpayers in the amount of 38,733,585 thousand denars represents 36% of the total gross amount of collected VAT.
Analysis of Tax Revenues in 2023
In 2023, tax revenues have decreased by 13% compared to the previous year. Personal income tax accounts for 17.65% of total tax revenues, amounting to 27,257,341 denars, which is an increase of 14% from the previous year. Profit tax accounts for 10.96% of total tax revenues, totaling 16,927,941 denars, an increase of 7% from the previous year. This increase is attributed to the higher profits generated by legal entities, as highlighted by auditors.
Furthermore, auditors suggest that in the course of 2023, through the implementation of inspections and audits, tax evasion and non-compliance will be closely monitored to ensure fair and accurate tax collection.
Increased Tax Revenue in 2023
During tax audits and inspections, irregularities amounting to 3,407,997 Macedonian denars were identified, representing an 89% increase compared to the previous year. Additionally, newly identified taxes and other public dues to be collected in the future amount to 3,319,439 Macedonian denars. Of the taxes uncovered during the inspection in 2023, 899,655 Macedonian denars have already been collected, with 75% or 674,743 Macedonian denars going to the state budget, and the remaining 25% to the tax administration itself.
In September 2023, a new one-time Tax for Solidarity was introduced, as a measure to increase revenue and support public services. This tax is expected to contribute significantly to the government’s efforts to enhance public welfare and address financial challenges.
The Solidarity Tax Law: A New Approach to Addressing Economic Challenges
Recently, the government has introduced a new law called the Solidarity Tax Law, aimed at generating additional revenue to tackle the ongoing economic challenges, particularly in light of the Covid-19 crisis. This law has already generated revenues amounting to 2,942,980 thousand denars, which will be used to fund various anti-crisis measures outlined in the government’s program P1.
The main goal of this tax is to ensure that everyone contributes towards public expenditure based on their economic capabilities, especially during unpredictable and adverse economic conditions. As part of this initiative, a portion of these funds, totaling 962,913 thousand denars, has been allocated by the government in November 2023 to increase the basic budget.
Transportation and Energy Production in North Macedonia
In a recent report on the North Macedonian Railway Transport, it was highlighted that the funds used for meeting the obligations towards the electricity production company were also utilized. According to decisions made by the government, the state of emergency in electricity supply is set to end on April 30, 2023.
Regarding the demands and obligations related to unpaid VAT, profit tax, and personal income tax of legal and physical entities under the jurisdiction of the Public Revenue Office, there is no legal obligation for disclosure in their financial statements.
Challenges in Budget Transparency
Issues have been raised regarding the lack of transparency in financial reports of the Main Budget, which hinders the visibility of demands and obligations in the State Budget. However, the tax records of the Public Revenue Office indicate significant unpaid amounts of demands totaling 31,555,400 denars, showing a continuous increase compared to 2021 and 2022 – as noted by auditors.
Furthermore, there is a noticeable increase in inflows from both domestic and external borrowing in 2023. The 104% increase in external borrowing compared to 2022 is attributed to…
State Eurobond Issuance Leads to Capital Market Influx in 2023
In 2023, the state experienced a significant influx of funds from the issuance of a Eurobond on the international capital market. The total inflow and outflow of the Main Budget for 2023 amounted to 249,364,054 thousand denars, representing a 29.76% increase compared to 2022.
Expenditures for salaries, rents, and compensations in 2023 totaled 34,632,167 thousand denars, accounting for 13.89% of the total Budget expenditures and marking a 14.38% increase from 2022.
Goods and services expenses in 2023 amounted to 14,612,660 thousand denars, representing 5.86% of the total Main Budget expenditures for 2023.
Financial Situation of the Pension Fund in 2023
In 2023, there was an increase of 4.5% in the funds allocated to the Pension and Disability Insurance Fund compared to 2022. However, the structure of funding sources for the payment of pensions did not show any improvement in 2023 compared to the previous year.
Deficit Coverage and Budget Allocation
To cover the deficit of the pension fund, an amount of 16,515,500 thousand denars was paid from the General Budget. This amount represents 21% of the total funds allocated for pension payments, which is an increase of 11.21% compared to 2022. Together with the legally designated funds from the Budget, these payments now constitute 51% of the total funds available for pension payments.
Pension Fund in North Macedonia
The Pension Fund in North Macedonia is responsible for managing and distributing pensions that are provided by the state budget. It plays a crucial role in ensuring financial security for retirees in the country.
