The Cabinet submitted amendments to the 2016 state budget to Parliament on Wednesday that include cuts to welfare spending and increased taxes on income and imports. The proposed amendments set budget income at 5.3 billion MNT and spending at 9.7 billion MNT, with a deficit of 4.4 billion MNT.
Eight months have already passed since the former parliament approved a projected income of seven trillion MNT and spending of 7.9 trillion MNT in 2016. The nation’s net loss has reached two billion MNT. The Finance Minister made a troubling but objective report that this amount is expected to reach five billion MNT by the end of this year.
The new Cabinet’s amendments are expected to have a significant impact on civic life. Under the 2016 budget amendments, welfare allocations for university students will be suspended, and only 60 percent of Mongolian children under 18 will receive monthly state welfare allowance. Also, personal income and business income taxes will be increased.
Retirement age to be increased in phases
In correlation with the increased lifespan of the average Mongolian, the retirement age and pension payments need to be raised under the proposed amendments. The government plans to set income tax at 9.5 percent, increasing it by one percent in 2017, and 0.5 percent the following year.
By increasing social insurance payments, lawmakers anticipate a decrease in financing for the Social Insurance Fund.
Joint pension allowance to be suspended, doctor bonuses postponed
The former Parliament adopted a law on joint pensions, but it was not implemented. Under the law, financing for the Pension Fund was to increase by 53.3 to 75.6 billion MNT annually. The new parliament has submitted a bill to nullify the law.
In addition, according to the Law on Medical Service and Assistance, healthcare facilities are obliged to issue a bonus equivalent to six months’ basic salary to its staff once every five years. Under the law, a total of 1.5 billion MNT was allocated for bonuses from the 2017 state budget. It has been estimated that some 1.3 billion MNT is to be issued annually to the board members of province hospitals under the bonus program. The government believes that these incentives will put pressure on the already strained budget and have developed a proposal to postpone the enactment of the law.
Only 60 percent children’s money to be issued
The state’s welfare of 20,000 MNT for children, which has not been distributed since last June, is to be issued only to targeted groups of children under the 2016 budget amendments. Only 60 percent of all Mongolian children under the age of 18 will continue receiving 20,000 MNT each month based on their household living standards.
The remaining 40 percent of Mongolian children will begin receiving state welfare again in 2019 along with outstanding welfare allowances.
The government also plans to reduce expenses for childcare. The 2016 state budget allotted 10.6 billion MNT for childcare. Only 6,175 children were enrolled in the childcare program and 746.1 million MNT has been spent so far by the state. Therefore, the government believes the allotted amount for 2016 childcare service can be lowered by four billion MNT.
Student welfare suspended
Monthly welfare of 70,200 MNT issued to students with a GPA above 3.0 is to be suspended. By suspending the allowance, the government will save 11.7 billion MNT in 2016 and 33.7 billion MNT in 2017. They have also decided to temporarily postpone allowances for vocational training school students adjusting the allowance to the state’s budget potential, and will focus on taking measures to promote employment after graduation. With these changes, lawmakers expect to save 9.6 billion MNT.
The state proposes covering only 50 percent of public transportation fees for students to save 12.5 billion MNT annually. The state will also be postponing its scholarship program for Mongolian students studying at the world’s top universities for the next three years.
In 2016, a total of 33.1 billion MNT was approved for the state’s scholarship program, with 7.3 billion MNT to be spent on carrying out intergovernmental scholarship programs, 11.5 billion MNT spent on tuition for students admitted to the top 100 universities in the world, and 4.5 billion MNT budgeted for other activities.
Individuals with annual income above 30 million MNT to pay 25 percent tax
The benchmark for increases to personal income tax was set at 30 million MNT under the proposed budget amendments. Under the amendments, an individual with an annual income above 30 million MNT is to pay a 25 percent income tax.
In addition, the authorities plan to introduce a system to withdraw taxes from savings interest at commercial banks. In 2007, when Mongolia’s economic growth began slowing down and savings were low, interest on savings was made exempt from taxes in order to promote savings among the public. However, with the exemption from taxes, commercial banks started offering higher interest rates on savings. Economists believe that this is one of the primary reasons why loan interest rates at commercial banks are high.
If these amendments to the 2016 state budget are approved, some 60.1 billion MNT will be generated for the state budget.
Royalties for gold to be increased
According to the existing royalty law, when gold is deposited at Mongol Bank, 2.5 percent of its value is withdrawn as payment for exploiting mineral resources and up to five percent value is collected for additional minerals payments. The law is effective until 2019.
The amendments aim to impose a five percent tax on mineral resource exploitation with minerals submission, as well as the 0-5 percent payment for additional minerals payments, depending on the mineral’s value and processing, increasing taxes for gold miners. The proposed amendment aims to make the law effective in 2017.
The Finance Ministry expects to collect 38.7 billion MNT in 2017 taxes with the changes in place.
Import taxes for alcohol, cigarettes, and cars to increase
Lawmakers plan to accumulate nearly 100 billion MNT by increasing taxes on alcoholic beverages, cigarettes, and cars. According to the proposed amendments, some 411,400 vehicles are now registered in Ulaanbaatar, becoming a source of air pollution and drastically increased traffic congestion. Government officials want to increase special taxes on imported cars by three to 15 percent depending on the vehicle’s year of manufacture. Furthermore, they want to set taxes on imported alcoholic beverages and tobacco at 20 percent.
Salaries for high ranking officials to be reduced
In addition to proposed budget cuts, lawmakers aim to make cuts on spending on salaries for high ranking state officials. Salaries state servants who rank higher than province governors, their deputies, and chairmen of civic councils, will be cut by 30 percent starting on September 1. The salary cuts will impact 256 state servants, saving 557.9 billion MNT from state budget spending.
The government also expects to save 1.6 billion MNT by reducing the salaries of 1,977 state administrative officials by 20 percent. In addition, the salaries of 519 judges will be also reduced.
Luxury spending by directors to be cut
Under the proposed amendments to the 2016 state budget, officials plan to save 90 billion to 100 billion MNT annually by eliminating spending for luxuries high ranking state officials. The State will no longer pay for cell phone bills, will not carry out maintenance work at state institutions (except for schools and hospitals), and will not purchase new vehicles for state use.