Republic of Serbia Draft 2007 Budget Law

June 2007

www.mfin.sr.gov.yu

Republic of Serbia budget: present situation and objectives

Present situation• Real macroeconomic trends and projection till the end of 2007• Execution of the Republic budget in January – May 2007• Planned fiscal policy in the second half of 2007

Objectives• Macroeconomic stability • Dynamic economic growth• Higher employment levels and standard of living

Macroeconomic projections for 2007

Gross Domestic Product, bln RSD2,381.70

Real GDP growth, in %5.9

Exports growth in USD, in % 26.8

Imports growth in USD, in %23.7

Current account deficit, as % of GDP-11.4

Real investment growth, in %21.5

Inflation, end of the year, in %6.5

Employment, in %1

Real average net income growth, in %13.6

Labor productivity growth, in %5

Fiscal policy in the second half of 2007 - tax reforms -

• Reducing transfer tax rate from 5% to 2.5%• Transfer tax exemption for acquisition of first apartment• VAT refund for a person acquiring his/her first apartment• Reducing VAT rate for computers from 18% to 8%• Increasing VAT registration threshold from 2 to 4 million dinars• Revoking excise duties for imported soft drinks and fruit juices• Reducing excise duty for coffee• Changing excise and customs duties for tobacco products, in line

with the Action Plan• Introducing excise duty for autogas

Fiscal policy in the second half of 2007 - public expenditure -

• Projects agreed within the National Investment Plan • Constitutionally guaranteed transfers to other level of government

and mandatory social insurance organizations• Agreed pay rise percentages – education, health, culture

Public revenues and expenditure in 2007

mln RSD

Revenues Expenditure Deficit - SurplusRepublic budget 581,842 595,518 -13,676Autonomous Province Vojvodina 40,646 40,902 -256Local self-governments 153,096 152,919 178Funds total 482,922 478,513 4,410 General Pension and Disability Insurance 276,004 276,004 0 Pension and Disability Insurance for Small Businesses 16,333 11,997 4,337 Pension and Disability Insurance for Farmers 20,344 20,327 17 Republic Health Insurance Bureau143,782 143,870 -88 National Employment Service26,459 26,315 144TOTAL -9,345

Gross revenues and expenditure by levels of government

Revenues Expenditure DeficitConsolidated balance, % of GDP 41.4 41.8 -0.4

Republic of Serbia budget in 2006 and 2007(mln RSD)

2006 Structure in % 2007 Structure in %

Index 2007 / 2006

А) TOTAL REVENUES 499,098 100.0 581,842 100.0 116.6

1. Current revenues 499,098 100.0 581,842 100.0 116.6

1.1 Tax revenues 436,792 87.5 517,298 88.9 118.4

1.1.1. Income tax 80,503 16.1 88,707 15.2 110.2

1.1.2. Value Added Tax 225,137 45.1 270,359 46.5 120.1

1.1.3. Excise 81,619 16.4 98,849 17.0 121.1

1.1.4. Customs duties 45,267 9.1 54,264 9.3 119.9

1.1.5. Other tax revenues 4,266 0.9 5,119 0.9 120.0

1.2. Non-tax revenues 62,306 12.5 64,543 11.1 103.6

Б) TOTAL EXPENDITURE 467,622 100.0 595,518 100.0 127.4

1. Current expenditure 434,503 92.9 524,840 88.1 120.8

1.1. Payroll expenses 125,172 26.8 152,904 25.7 122.2

1.2. Acquisition of goods and services 34,397 7.4 42,885 7.2 124.7

1.3. Repayment of interests 19,284 4.1 17,411 2.9 90.3

1.4. Subsidies 30,852 6.6 35,509 6.0 115.1

1.5. Transfers to other levels of government 36,002 7.7 55,757 9.4 154.9 1.6. Transfers to mandatory social insurance organizations 128,627 27.5 147,468 24.8 114.6

1.7. Social payments from the budget 52,988 11.3 61,644 10.4 116.3

1.8. Other current expenditure 7,181 1.5 11,262 1.9 156.8

2. Capital expenditure 33,119 7.1 70,678 11.9 213.4

2.1. Common capital expenditure 23,980 5.1 26,286 4.4 109.6

2.2. National Investment Plan 9,139 2.0 44,391 7.5 485.7

В) Budget surplus / deficit 31,476 -13,676 -43.4

Repayment of public debt (mln RSD)

Repayment of principal 42,161 of which repayment of principal to national creditors 36,889 Old foreign currency savings 21,664 Serbia's Economic Recovery Loan 2,500 Early repayment of debt to pensioners (General Pension and Disability Insurance, Pension and Disability Insurance for Farmers) 8,910 Other (National Bank of Serbia and others) 3,816

Comparative overview of realized deficit – surplus in consolidated state sector (as % of GDP)

2006Serbiа (Proposed 2007) -0.4

EU 27 -1.7

EU 15 -1.6

EU 12 -1.8

Bulgaria 3.3

Romania -1.9

Hungary -9.2

Slovenia -1.4Croatia -3.0Montenegro -0.1Albania -4.1