President Saakashvili announced on August 4 that the country’s major economic goal will be a twofold reduction of unemployment by 2009 through the creation of a more business-friendly climate.

In his late-night televised address to the nation the Georgian leader unveiled plans to reform tax administration and to re-introduce a tax arbitration system. Saakashvili also announced the intention to launch a new government-sponsored program involving three-month internships in private businesses for at least 50 000 citizens, which will cost about GEL 22,5 million (roughly USD 12,7 million).

Fragile Achievements

Saakashvili said that Georgia has achieved much since the Rose Revolution, but “these achievements are still fragile.”

“Now it is time to move on the next stage of economic development,” he added.

The President noted that the major challenge for Georgia is unemployment.

“Our major goal now is to reduce unemployment at least by two-fold before the expiration of my first presidential term [by 2009] by giving impetus to the economy,” Saakashvili stated. 

He stressed that new jobs should be created not only in Tbilisi, but in all regions of Georgia, “even in the most remote places of the country.”

“Firstly the improvement of the business climate, and secondly the increase of qualifications and re-training of human resources, are essential for giving impetus to the economy,” he said.

“We have done much that is positive, but of course all these positive [economic] trends should be of a more irreversible nature. Of course Georgia needs much more foreign investments. Foreign investments are coming into our economy, but it needs a much more transparent, much more forecasted [environment], as well as guarantees for long-term stability,” Saakashvili said.

Reforming Tax Administration

Saakashvili said that  the first thing the country needs in order to give the economy new impetus is “modern and efficient” tax administration and the “decriminalization of financial relations” between the state and entrepreneurs.

“During the first years of the drastic fight against corruption, which still continues, of course the major part of relations with an entrepreneur was carried out [by the state] through the tax police. As soon as the tax police enter into a business entity [for a probe], this business entity is automatically criminalized because it immediately enters into a relations based on a criminal code, which means moving into a very unpleasant relationship,” Saakashvili said.

“We should carry out a reform of the tax service, envisaging the unification of the tax [department] and customs [service], where the tax police will be only one of the units and where [the tax police] will be the last resort and last point of relationship with business, and it should only be used in extremely rare cases. All the rest should be solved based on civil relations between the state and business.”

By “tax police,” Saakashvili was referring to the Financial Police – although he did not mention this term. However, when the text of his speech (in Georgian) was posted on the President's official web-site, the term "tax police" was changed to "Financial Police." 

The Financial Police was set up in February, 2004 to fight economic and financial crimes and to probe into tax evasion cases. The unit, which is currently part of the Finance Ministry and is under the direct subordination of the President, has turned into an extremely influential institution and has often been the target of fierce criticism for its high-handed tactics.

Saakashvili said that this reform “will need many months” to come into effect.

“It will not be just a mechanical unification… This will include the creation of a unified digital data base, and no professional will be sacked,” he added.

“A businessman should know that he has relations with a civilized state, and business should have a feeling that the state is not only a tool for punishment. Punishment should be the last resort used by the state,” Saakashvili said.

Re-Introducing Tax Arbitration

President Saakashvili admitted that Georgia needs a “much better judiciary system” and the re-introduction of tax arbitration, which was abolished in April, 2005 – less than five months after it was introduced. But Saakashvili added that new tax arbitration system will be “much better” and that the state and businesses will be in equal positions.

He said the new arbitration system should be introduced by the beginning of 2007.

“We need to create a [tax] arbitration system, but not like the one we established a year ago. That [previous arbitration system] was the government’s mistake, as some people were businessmen and arbiters at the same time, which gave no chance for the state to win [disputed cases]. The state will no longer be a fool,” Saakashvili said.

“We are ready to invite foreign arbiters and pay them high salaries, and we will let them, together with local real arbiters – not like those false arbiters we had previously - solve disputed cases,” he added. 

Microcredits

He said that the state is ready to start a microcredit program from January 2007 for those willing to launch private businesses, especially in the agricultural sector. 

“Every person should be able to receive credit. But we should prepare people for entrepreneurship. I instruct the government to launch the re-qualification of our citizens to prepare them for entrepreneurship. The government should assist these re-trained people in launching their businesses. We are ready to allocate funds for this program.
 
Lack of Human Resources

Saakashvili said that although there is unemployment, the country lacks qualified cadre in various sectors, especially in the fields of construction and services.

“This is a very serious issue, because we had an absolutely dismantled education system… The Education Ministry is now working on the creation of new re-training centers. Seven centers of this kind will be opened in September, including in Kobuleti [Adjara] to train tourism service staff; in Tbilisi we are going to open [a training center] for the construction business. But we will need much more, we might need thirty, forty, or even fifty [re-training centers] of this kind, and it will take time,” Saakashvili said. 

State-Funded Internships

The Georgian leader announced that starting from September the government will finance a three-month internship program in private businesses for at least 50 000 citizens.

“I know there are many people in Georgia who not only can not find a job, but they are not even looking for jobs… I want to tell you, my dear compatriots, that the state can no longer serve as an employer… So we urge both citizens and businesses to show initiative,” Saakashvili said.

He said that the government will pay GEL 450 (roughly USD 254) to each participant of the program during the three-month internships in various businesses.  

“This is important because we will make people come out of their homes, while the business will be able to meet many skillful people. Of course businesses will not be obliged to hire these people after three months, but I am sure after these three months many [participants of the program] will be able to find jobs, at least in other businesses. We should inspire willingness and work skills, and we should let them [citizens] get a taste of a modern economy,” Saakashvili said.

“I want to tell our businessmen that you will not lose anything as a result of this program; you will have an unpaid employee for three months without any obligation to recruit them after three months. But through participation in this program you [businessmen] will take a huge patriotic step,” Saakashvili added.

He said that the government will fund internships for an additional 100 000 citizens for next year “and if there is more interest we will allocate even more funds for this program.”

“In addition, we are ready to consider a further reduction of taxes after these 150 000 citizens undergo this program. And also here I want to remind our businessmen that starting from this September, we will have zero percent custom dues for almost 90% of products. And I also want to remind you that we have one of the lowest taxes among the Eastern European states,” Saakashvili added.