Serbian Finance Minister Says 2011 Budget Draft Sees Deficit at 4% of GDP

Serbia’s government is preparing a 2011 budget draft that foresees a deficit at 4 percent of economic output after raising alcohol, cigarette and property taxes to boost revenue, Finance Minister Diana Dragutinovic said.

The shortfall target is 115 billion dinars ($1.5 billion) to 120 billion dinars, based on growth of 3 percent, she said in an interview today at a Euromoney conference in Belgrade. That compares with a 150 billion-dinar gap this year, equivalent to 4.8 percent of gross domestic product.

The Serbian government is struggling to find ways to reduce spending and boost tax collection without cutting too many popular social benefits as it brings the economy into line with European Union norms. Dragutinovic said there is room for some higher taxes that won’t be considered too draconian.

“Considering that the European Union has raised excise duties from around 64 to 90 euros per 1,000 cigarettes, giving countries in our region until 2017 to adjust, it’s a great opportunity for us to adjust too, because Serbia has the lowest cigarette prices and taxes in Europe,” Dragutinovic said.

According to proposed property tax changes, Serbian homeowners will be paying 0.4 percent of the value of their property based on “more-realistic valuations,” she said.

“For 70 percent of homeowners, there will be no practical change,” while the owners of more expensive property will be paying more, adding funds to the country’s budget, she said.

Changes to excise duties on alcoholic beverages are based on taxing the percentage of alcohol, rather than the quantity, while higher excise duties on cigarettes were expected to bring Serbian cigarette price and taxation policy more in line with the EU, Dragutinovic said.

Dragutinovic’s comments come days before an IMF mission arrives in Belgrade, for the next review of Serbia’s progress under its 3 billion-euro loan.

The talks with the lender will focus on government plans to revise the 2010 budget to allow a one-time payment of 5,000 dinars to low-income pensioners, as well as on the budget for 2011, a year before elections.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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