Our parliament had an irregular session start last week. The authorities concluded that the social, economic, and fiscal state of the country are difficult and in crisis mode. Key economic indicators have worsened over the last four years. The budget deficit went out of control, and our trade deficit kept rising. We saw a decline in purchasing power, foreign investment, and tugrug exchange rates. M.Enkhbold, Speaker of Parliament, said that the cut in Mongolia’s credit rating and the absence of foreign direct investment show how much faith investors have lost in Mongolia.
During the session, Members of Parliament discussed a proposal to increase taxes, which is supposed to get the nation out of this difficult situation. They are about to increase taxes without determining the cause of the economic crisis. It looks like pouring water into a bucket without patching the holes in it first. People also say that attempting to impose higher taxes on the private sector, which is already under huge pressure due to the weakened tugrug, is like getting kicked by a cow after trying to milk its empty teats. We – the people – should see beyond the debates of politicians who keep blaming each other, determine the cause of the crisis, and demand that the government fix the problem.
MAIN CAUSE OF MONGOLIA’S CRISIS
The crisis our country faces today is not an economic one, but one of governance. What caused the crisis is corruption. Stealing from public funds, the misuse of power, and serving personal interests while holding public offices have flourished in Mongolia since the 1990s. Although the voices became louder as corruption expanded, we were never able to reduce corruption, but we have been seeing it develop in different forms, the negative consequences of which have now put our economy in a dire state.
The biggest cases of corruption started with the privatization of state properties, continued with the trading of land in Ulaanbaatar, reached a high through mining licenses, and continue today with the distribution of bond funds. The political institutions that allowed corruption to reach this stage are the Mongolian People’s Party (MPP, formerly known as the Mongolian People’s Revolutionary Party) and the Democratic Party (DP). Under the names of these political parties, only a handful of politicians have assumed senior positions in the government over many generations of corruption.
Democracy does not exist in these two institutions. These political parties are a collection of different factions varying in their wealth and power, and the people of Mongolia have been paying for the costs of corruption each faction has created. Instead of making the true culprits of corruption pay for economic damages, the MPP has decided to continue milking the people.
INCREASED TAXES WILL DEEPEN THE CRISIS
Instead of patching up the biggest hole in the bucket by getting rid of corruption, the MPP is trying to fill the broken bucket by increasing taxes. It is a step backwards, but the short-lived ministers and officials in the government do not care. During an economic crisis, taxes should remain the same, and even lower taxes should be offered to companies that have increased employment. The MPP government is trying to increase the social insurance tax by five percent and receive 26 percent of people’s salaries. Our social insurance rates are already considered to be some of the highest in Asia. If the rates are increased now, it will lead to large companies making cuts to their workforce. This will push up the unemployment rate, which is already at 17 percent today. Studies suggest that when the unemployment rate is 20 percent, crime rates increase.
On the other hand, Mongolians currently spend 21 percent of their salaries on social insurance. We need to think about what quality of service we receive in return, and what a small portion of our taxes cover the payment. Raising personal income tax to 25 percent is not targeting the rich, but destroying the middle class, which is a capable workforce that lives on their salaries. Also, if you decrease the salaries of everyone who is earning more than 1,000 USD a month, it will shrink the base of people paying social insurance fees. Compared to countries with a similar cost of living, Mongolia is an expensive place.
These proposed policies for taxes will chase the skilled workforce away from the country and shut the door on foreign investment. In other Asian countries, a progressive tax of 25 percent is imposed on people with an annual income equivalent to 160 million MNT in Japan, 220 million MNT in Malaysia, and 500 million MNT in Singapore. A major cause of the current crisis is our budget policy. Our nation is strangled by debt because we have acquired a lot of foreign loans, but have failed to use them wisely. In order to pay for the interest on these loans, domestic loans with even higher interest rates were raised. This triggered the value of the tugrug to fall sharply and disrupted the balance of payments.
The political parties that have had ruling power have repeatedly made populist promises and successfully put the nation in a debt crisis by trying to deliver populist policies. When they distributed the money that came from government bonds, they did not forget about their own interests.
The fact that the MPP does not want to talk about this is because many of the companies they own have not paid up for the interest on these bonds. Sinking companies that are already struggling to operate in a corrupt environment, rather than holding corrupt officials accountable, is a truly dishonest move. People who eat and drink as much as others but disappear when the bill arrives are often referred to as “fake” people. A nation where government officials eat and drink but make the people, who did not join in their extravagant parties, pay for everything can be called “Fakestan”.
Please visit D.Jargalsaikhan’s website, www.jargaldefacto.com.