The Former Soviet Republic of Georgia is debating a law to enshrine economic liberty to its citizens and placing constitutional limits to government spending and taxation. This is interesting because we always hear politicians bleat about restraining spending but invariably once they are in a position of power, renege on their promises.  By enshrining it in a constitutional form means that it is harder to back away from (although not impossible, if parliamentarians/citizens vote for change).  From the Government of Georgia’s press release of the draft :

Fiscal Responsibility

  1. Budget expenditure capped at 30% of GDP (FY 2012)
  2. Budget deficit capped at 3% of GDP (FY 2012)
  3. Public debt capped at 60% of GDP (FY 2012)
  4. Extrabudgetary funds are limited
  5. Budget earmarks are limited

1. Budget expenditure capped at 30% of GDP (FY 2012): 30% budget expenditure cap is a little high (the US government spending is currently at 40% of GDP!). There is contention as to the optimum level of government expenditure, but below is a chart of reference by a Heritage Foundation report, that shows the optimum level is between 18 and 20% of GDP:

8533393

However, having a cap means that it can’t get any worse.

2. Budget deficit capped at 3% of GDP (FY 2012): deficits generally occur when there is a downturn in the economy. Having a cap of 3% of GDP means that politicians will be not be tempted to “bailout” and provide special deals to inefficient industries.

3. Public debt capped at 60% of GDP (FY 2012): This seems high, but Georgia is a newly democratised, fast growing economy in an military unstable region (eg. Russia’s recent invasion). It is understandable that public debt may be higher than OECD countries at this time.

4. Extrabudgetary funds are limited and 5. Budget earmarks are limited: Placing spending limits on special deals for a politicians constituents is a positive measure.

Empowering Citizens by Ensuring Choice in Social Programs
The Liberty Act advances the long-standing policy of delivering targeted social assistance by funding citizens through vouchers and cash benefits (healthcare coverage, education, poverty benefits, etc) rather than funding directly the institutions engaged in the provision of healthcare, education and other services. It provides for the freedom of choice of the beneficiaries to select the service providers

This is an good way to execute government spending programs, but a better way would be to let the free market provide these services. However, vouchers and tax/cash benefits is the least bad way of government providing such services. Citizens having the power to pick and choose their service provider, should mean that service providers must compete for their survival.

Returning the Power to Tax to the People
No new taxes or increase in the tax rates may be imposed other than following an affirmative vote in a nationwide referendum

This is an excellent idea. The public generally hate paying more tax. Politicians running on a campaign of increased taxes, has a very short lived political career.

Will be interesting to monitor its passage into law.

(via Cato)

SocialTwist Tell-a-Friend

Related posts:

  1. Joe Hockey On Liberty
  2. Australian Government Spending and The Rahn Curve
  3. Localised Government Gaining Popularity