The government formed by the Mongolian People’s Party (MPP) has started going hard with the people rather than the billionaires born from the government. It is said that submissive horses are easy to ride. It seems like the government sees the people through the same lens.
Instead of holding those who sank the country into spiraling debt while getting wealthy accountable, the MPP has begun a campaign to take down the middle class, which is only beginning to grow, and put the economy into an even deeper crisis by raising various taxes.
The attitude and behavior of the MPP makes one wonder what changed when they changed the name of their political party. Only in a totalitarian society does the government does not allow people to own properties, and only then does the state centralize everything under its ownership, and ensure that everyone supports a single political party with all their heart. It is all done with extremely close supervision, and the great leader of the party has law enforcement agencies under his control only.
In “1984”, by George Orwell, these traits are clearly described. This kind of society still lives in the memories of many Mongolians.
REALITY OF THE ECONOMIC CRISIS AND ITS CAUSE
Mongolia’s debt is twice its GDP, and has reached 23 billion USD, five billion of which belongs to the government. B.Choijilsuren, the Minister of Finance, reported that the government’s debt was expected to be around 17.3 trillion MNT in 2016, but is now projected to reach 21.3 trillion MNT (equaling 78 percent of GDP) by the end of the year. The government is paying over one billion MNT just for interest payments, which is 20 percent of the state’s actual budget revenue. The interest payments alone have increased 30-fold in the last four years.
A month ago, the Minister of Finance also said, “The interest payments are expected to grow at a rapid rate going forward, because the previous government acquired loans to fund programs that were not included in the public budget. It has increased the debt pressure. Starting from next year, we will start paying back the bonds. However, there will be a lot of difficulties due to insufficient foreign reserves, the fall in commodity prices, Mongolia’s lower credit rating, and an estimated budget deficit of one trillion MNT in 2016.”
The MPP and Democratic Party (DP) have led the country either on their own or together for the past 25 years. However, the outcome is an economy strangled by debt and a government sinking in corruption.
Corruption is the reason why the government cannot estimate its public budget, keeps borrowing, devises projects that are only profitable for them, and spends without control. The MPP and DP shared the government in one half of the past four years. Prime Minister J.Erdenebat was the Minister of Finance during that time, therefore, he was most aware of where the economy was heading.
Why didn’t the MPP demand decisive action then? It is because nothing is more important to them than their political parties retaining seats in government. They have created a system in Mongolia where those who have power can retrieve and increase the vast amount of money spent on elections only when they are assigned senior positions in government.
The MPP and DP spent 25 years to get the economy in debt and the government in corruption. Even though big crimes have been revealed and started a commotion, they have always gone AWOL after some time. This proves that those who hold power in both of these political parties are closely connected and are sharing a wallet.
Since the MPP and DP have made the judicial system completely dependent on them, and are unable to hold each other accountable, their only means of sustaining their power and wealth is to make the people bear the consequences of the economic difficulties politicians have created.
PRIMARY AND SECONDARY CONSEQUENCES OF INCREASING TAXES
Any short term impact of a tax policy on the economy can be referred to as a “primary consequence”, and a long term effect is a “secondary consequence”. Politicians only look to the next elections and make short term decisions with primary consequences.
Civil society – on the other hand – must always view issues over a longer term, take secondary consequences into account, and influence the government’s decisions at the right time. This allows a democracy to have a balance through public governance and can prevent a crisis.
In 2007, Mongol Bank purchased 20 tons of gold a year at global market rates. However, after the windfall tax of 68 percent was introduced, the bank started getting only two tons of gold annually. The rest of the gold started crossing the border illegally. Although tax income from gold sales saw a slight increase in the first year the policy was introduced, Mongolia lost 90 percent of the gold mined in the country. This is an example of the difference between primary and secondary consequences.
The primary consequence of the government proposal to increase income taxes from 10 percent to 25 percent (which was later withdrawn) was to increase budget revenue. However, the income bracket they wanted to tax was 30 million MNT a year, which translates to 1,000 USD a month at today’s rates. This is the salary our middle class is using to pay for mortgages and daily expenses.
Imposing a 25 percent tax on those who have more income will force Mongolia’s younger generation who were educated abroad, foreign experts, and foreign investment out of Mongolia. Visa interviews at the Embassy of the United States are now fully booked, and one has to wait 49 days to get an interview. Two months ago, it was only a seven-day wait.
More positive long term impacts would come from higher taxes being imposed on all organizations and households, instead of only on apartments that have an area of more than 150 square meters. The proposal says that state-owned properties would be exempt from this tax.
SHOULD WE GO BACK TO SOCIALISM TO GET OUT OF THE CRISIS?
The key to overcoming a crisis is to reduce taxes instead of increasing them, and to give tax exemptions to companies that are creating jobs. It would also be a good long term step for state-owned companies that are privatized to allow people to buy their shares on the stock exchange, instead of imposing taxes on savings.
In order to raise capital and pay back the government’s loans, we need to make those who stole public funds pay. However, it has been made clear that the current political balance of power will not allow that to happen.
In the bigger picture, Mongolia will never be able to completely get out of its crisis unless we get rid of corruption and strengthen our political and economic institutions.
It looks like the MPP believes that the way to get our economy out of crisis is by eliminating freedom, where the government owns properties and the people do not. The MPP has just commanded Mongolians to march back to socialism.
Trans. by B.Amar