President Saakashvili unveiled new plans for tax reforms and Tbilisi’s intention to launch official talks with the Tbilisi-loyal self-imposed leaders of South Ossetia during his third state of the nation address to the Parliament on March 15.

In the hour-and-a-half address Saakashvili mainly spoke about “Georgia’s achievements” in 2006, which he described as a year of “challenges and big victories”. He said that he stands proud at the parliamentary chamber podium because most of his administration’s promises have been kept.
 
Tax Reform

Saakashvili unveiled plans to carry out tax reforms involving a reduction of the number of taxes and the introduction of, as he put it, an independent tax arbitration system.

He said that the government is ready to reduce profit tax from the current 20% to 15% starting from 2008.

The plan also envisages combining the 12% income tax and 20% social tax.

“I have already instructed the government to start working on combining the income tax and social tax – both of them now add up to 32% - and to reduce this combined tax to 25%,” Saakashvili said.

He said the new initiative will be a continuation of a trend launched by his administration two years ago, when new reduced taxes were enforced starting from 2005.

Saakashvili said in the past two years the government reduced taxes by a total of 40%, and decreased customs dues.

“But, because of the eradication of corruption and improvement of administration, tax and customs revenues have increased in the country,” the President says.

He said that tax reform will also envisage the introduction of a new independent body with the involvement of foreign arbiters for carrying out impartial adjudication of tax disputes between the state and taxpayers.
 
“We want to set up a commission that will solve tax disputes. We will invite foreign judges for this purpose. We are already working on this issue with EU-member countries, and this [commission] will have the final say in tax disputes,” the Georgian President said.

Secessionist Conflicts

Tbilisi should launch official relations and talks with the alternative authorities of breakaway South Ossetia, President Saakashvili said for the first time since Tbilisi-loyal authorities led by ex-defense minister of breakaway South Ossetia Dimitri Sanakoev were installed in the Georgian village of Kurta in the conflict zone last November.

He said that 2006 was “very important year” for the residents of South Ossetia because the “free part” of this population demonstrated its “trust towards local Ossetian leaders” during the elections last November.

“Dimitri Sanakoev's movement has been set up. Sanakoev, [Prime Minister of Kurta-based authorities Uruzmag] Karkusov and others are individuals who were in the forefront of local separatism in its fight against the central authorities. But today, as their platform envisages peaceful co-existence within a united Georgia, naturally with full guarantees to protect ethnic Ossetians’ interests, they have managed to find a common language with the local ethnic Georgians, which I think is a unique case in the history of the conflicts; I think we should not lose this chance,” Saakashvili said.
 
“Therefore, I think that we should announce our readiness to launch official relations and negotiations with Sanakoev’s movement; we should show everyone the Ossetian and Georgia peoples’ strong aspiration towards a peaceful and successful future and we will do this in the near future,” he said.

The announcement is expected to trigger angry reactions from Tskhinvali and Moscow.

Saakashvili also said that Tbilisi is ready to talk “with all parties involved in this conflict.”

“But first of all we are talking with our citizens and not to a certain group that has monopolized the right to talk on behalf of every citizen of the region,” Saakashvili added.

In his speech Saakashvili also denounced the terms “Georgian-Abkhazian conflict” and “Georgian-Ossetian conflict” as phrases “created by silly and unaware people.”

“What does the Georgian-Ossetian conflict mean? Who represents the Ossetian side? Does Mr. [Yuri] Morozov [Russian citizen who serves as prime minister of breakaway South Ossetia] represent the Ossetian side? Or does Mr. [Anatoly] Barankevych [also Russian citizen who was defense minister of breakaway South Ossetia] represent the Ossetian side? Or does Dimitri Sanakoev [Tbilisi-loyal self-imposed leader of South Ossetia] represent the Ossetian side? Do the Georgian and Ossetian sides exist at all? Several of the most famous kings of Georgia were ethnic Ossetians. The Georgian-Ossetian conflict does not exist at all. This is one more fabrication by imperial ideologists,” Saakashvili said.

He also said that same refers to the Abkhaz case, because Malkhaz Akishbaia, head of the Tbilisi-loyal Abkhaz government-in-exile, is an ethnic Abkhazian.
  
“The entire population of Abkhazia was about 600 000 [before the armed conflict] and now it is less than 100 000; the rest was expelled from Abkhazia, but are they not the legitimate population of Abkhazia? Of course they are the legitimate population of Abkhazia,” Saakashvili said.

He also criticized the current Russian-led peacekeeping and negotiating arrangements for the conflicts as “discredited and ineffective” and called for “a smooth transformation into more flexible and effective formats.”

“Of course, we seek more active involvement from the European institutions and the United States in it [peace process]… Everybody understands that its [current peacekeeping and negotiating format’s] preservation in its current form is practically impossible,” Saakashvili said.

Saakashvili reiterated that Tbilisi is ready to grant both Abkhazia and South Ossetia “broad autonomy in compliance with European standards.”

He also said that the Georgian side should demonstrate “enough patience and flexibility” to avoid provocations and tensions.

Saakashvili said that 2006 marked “an important stage” in the process of restoring Georgia’s territorial integrity by regaining control over upper Kodori Gorge in breakaway Abkhazia.

“It [Tbilisi’s control over upper Kodori] frightens our enemies… Some people wanted this territory to become a safe haven for bandits; but instead it now has the legitimate Abkhaz government[-in-exile],” he added.

Judiciary System Reform

President Saakashvili said that the first stage of judiciary reforms, aiming for the eradication of corruption in the system, has been successfully completed.

He said that as a result of this reform many corrupt judges have been sacked from their positions.

Saakashvili said the next stage of the reform, the creation of a system where there will be no need for interference in the judiciary’s functioning, is now being launched.
 
“Today criticism of the judiciary is widespread, as if the courts are not independent… However, there is no corruption in the judiciary today and this is our common achievement, this is the first important stage in the judicial reforms… and the next stage envisages the creation of a mechanism of reputation [for the judiciary] and self-regulation wherein a conscience will be established so that no external interference will be necessary for this system to function,” President Saakashvili said.

He said that the judiciary’s independence will be further increased after the introduction of a court jury system next year.

“Society itself will assume civil responsibility and we should believe that it will cope with this task,” Saakashvili stated.

A February 2007 public opinion survey funded by USAID and commissioned by the International Republican Institute (IRI) showed that public confidence in the courts was 23%. The courts rated fourteenth in the list of sixteen most-trusted institutions, with the Orthodox Church leading the list, followed by the army, media and the police.

Anti-Drug Campaign

Saakashvili said that the crime rate has been reduced in the country, because last year “we announced zero tolerance to crime.”

He said that the fight against criminal bosses and the criminal mentality has led to an increase of the number of inmates in Georgia’s prisons, adding that the government should improve conditions in the penitentiary system.

“Instead of a country with a criminal mentality, we now live in new Georgia where the criminal world has been destroyed,” Saakashvili said.  

He said that the fight against drug dealers will now become a major focus.

Saakashvili said he plans to propose a draft law envisaging the confiscation of property from drug dealers.
 
“I offer you to adopt a law through which drug dealers will not only be jailed, but their property acquired through making our citizens unhappy will be fully confiscated,” Saakashvili told lawmakers.

Economic/Trade Growth

Saakashvili said that despite Russia’s economic embargo on Georgia, there was an “impressive 10% economic growth” in 2006.

“Our traditional market [Russia] has been totally closed down for us; but regardless of this fact Georgia’s trade turnover in 2006 has reached USD 5 billion, which is 40% more than in 2005,” Saakashvili said.

He said that Georgia’s exports also increased by 15% in 2006 as a result of the diversification of Georgia’s foreign trade.

Georgia’s trade turnover, according to Saakashvili, with Turkey and the EU increased by 40% and 45%, respectively, and trade has doubled with Ukraine and Kazakhstan.

“We plan to sign a free trade agreement with Turkey, which will give even more opportunities to attract more investments and eradicate trade barriers,” Saakashvili said.

He also said that 2006 was a year of “big investments,” with the attraction of USD 1.12 billion in foreign direct investments.

Saakashvili said that the United States has become the top investor in Georgia’s economy, followed by EU-member countries.

He said that 2006 was a year of the “creation of new jobs.” A total of 40 000 new companies were set up last year, according to the President.
 
Free Economic Zone

President Saakashvili said that the government is now “intensively working” on the creation of free economic zones on its Black Sea coast.
 
“We are launching active work in order to create free economic zones in the Black Sea regions of Guria and Samegrelo. For this purpose we will share the experience of Dubai. This is definitely a brave decision and of course, it will be accompanied by certain risks. Indeed, we need the laws to be strictly observed in order to avoid any inaccuracies there. But we have a chance, due to our position and location, to attract tens of billions of dollars within the next two-three years,” Saakashvili said.
 
He also said that government members are actively studying the experience of various countries in this regard.
 
“I personally visited Dubai. Others [members of the government] visited Singapore, Hong-Kong. We have studied their experience. Georgia has a unique chance for it. It will serve not only Poti [Black Sea port] and this Black Sea region, but it will serve all of Georgia,” he said.

‘Europe First and Foremost’

The President said that moving towards Europe is Georgia’s major foreign policy course.

“Georgia is returning to its European family. We are not simply Europeans, we are ancient Europeans… Europe is our major direction,” Saakashvili said.

“Europe first of all – this is the major slogan of our foreign policy,” he added.

Saakashvili said that Georgia will follow its action plan with the EU in as outlined in the European Neighborhood Policy “and we want to have full coordination [with the EU] in security, politics and economics.”

He also reiterated Georgia’s ambition to join NATO and hailed a memorandum signed by the leading political groups, including those of some opposition parties, calling for Georgia’s NATO-membership.

Army

Saakashvili said that today Georgia is ready for “any kind of challenge,” as it has much stronger army than the country had 4-5 years ago.

“I want everyone to realize difference between the current situation [in the armed forces] and the one that existed 4-5 years ago. Four years ago we only had slingshots [a reference to remarks by Georgia’s ex-defense minister Davit Tevzadze, who said in 2002 after Russia’s air attack on Pankisi Gorge that he has nothing to shoot except slingshots], and now we have air defense systems. At that time we had an undressed, unarmed and unmotivated army, today we have well-trained and well-equipped armed forces,” Saakashvili said.

He said that the Ministry of Defense has recently launched an important program for recruiting highly-qualified professionals in the Georgian army.

“We need 1 000 university graduate officers in the army. We will provide them with social guarantees to create an elite corps of officers in the Georgian army,” Saakashvili said.

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The opposition criticized the presidential address. The opposition lawmakers wanted the President to speak more about problems in the judiciary system, as well as comment on the high-profile murder cases of Sandro Girgvliani and Amiran Robakidze.