The Parliament passed draft law on June 17 known as Economic Liberty Act with its first reading providing escape clause to a constitutional amendment subjecting tax increase to a referendum.

In December, 2010 the Parliament passed the constitutional amendment requiring a referendum in case the government decides to increase taxes (except of excise and local taxes). But unlike initial draft, the final version contained a reservation according to which a separate, organic law should define those cases in which the government will still be able to increase taxes without calling a referendum.

The draft of organic law endorsed by MPs on June 17 regulates that constitutional amendment by saying that the government will have the right “to temporarily increase” taxes without calling a referendum, but in that case increased tax should be in force for no more than three years.

According to the same draft, government spending is not permitted to exceed 30% of GDP, while the budget deficit is capped at 3% and public debt at 60%.

However, escape clause is envisaged here too. In particular, the draft reserves a scenario wherein figures in proposed state budget may not be in line with 30% limit on expenditure to GDP ratio and 3% budget deficit ceiling; but in that case the government should propose budgetary parameters envisaging return to set limitations within two years.

The draft does not envisage some of the provisions, which originally were part of the Liberty Act. In October, 2009, when President Saakashvili first voiced the initiative of Liberty Act, it also involved proposal to ban setting up of additional new regulatory agencies. It also was proposing ban on introduction of additional new licenses and permits. None of these provisions are part of the draft law passed with the first reading by the Parliament on June 17.

The draft, after it is passed with second and third readings, will go into force from late 2013.