Why this story matters:
politics, economy, finance
The highly unpopular move to raise the excise tax came after months of pressure from several international institutions, most notably the International Monetary Fund and the European Union. Why did they insist on it?
In the case of the IMF -- because raising the tax was one of the conditions to launch the extended credit arrangement between IMF and Bosnia and Herzegovina. As for the EU, European officials made it clear that BiH cannot expect any infrastructure funds or credit arrangements with the European Bank for Reconstruction and Development (EBRD) until the excise tax is increased.
The House of Representatives -- the lower house of BiH’s Parliamentary Assembly -- rejected the new regulations on multiple occasions. The bill was rewritten and altered many times until, three days ago, the final version was adopted. It increases the tax on biofuel and road tolls.
Most of the opposition parties were against the law on the grounds that it will lead to an increase in prices of agricultural and industrial products -- a troubling perspective for a country with already the lowest living standards and employment rate in Europe.
The dominant view of both the public and many prominent economic experts is that the people of BiH barely keep up with the costs of living as they are.
On top of that, inconsistent views of some of the MPs on the subject doesn't build trust that the changes are going in the right direction.
Let’s start with SNSD -- the ruling party in Republika Srpska. For two years prior to the debate, its MPs had boycotted the sessions of the House of Representatives, demanding the dismissal of the HoR speaker, Šefik Džaferović, due to his alleged war crimes. Yet, to adopt the excise tax increase, the MPs from SNSD put their boycott on hold.
The party not only participated in the excise tax sessions, but engaged in a rather amicable interaction with the same HoR speaker they’d been relentlessly attacking since the beginning of his term.
Another party (SBB), whose president announced their withdrawal from the ruling coalition a month ago, also set aside their ongoing disputes with SDA (the most powerful party in BiH) and supported the bill.
It was not clear sailing for SDA either. One of their MPs, Šemsudin Mehmedović, famously declared that he will only back the excise tax laws if they are coupled with “safety measures” to protect citizens from the inevitable increase of prices. But he too had a sudden change of heart. The legistlation adopted on Friday did not mention any the 7 safety measures proposed by Mehmedović, but he voted along the party lines anyway.
Yet the MP whose change of heart met with the biggest backlash from the public was Diana Zelenik. She justified her move by listing the supposed benefits of the bill, which she only realized recently.
One of them was “the possibility that IKEA will open a store in Bosnia, which is very important to us women.” Her attempt to “sell” the tax increase as beneficial to women, who for the most part are struggling to make ends meet, was seen as both sexist and completely detached from the realities of those women’s lives.
Another astounding justification was included in the final draft itself. Addressing the concerns over price increases, the authors of the bill, i.e. the state Council of Ministers, came up with this argument:
“(It) is realistic to expect many new jobs and revenues, as well as infrastructure -- kindergartens, schools, hospitals, retirement homes. When living standards rise, as expected, they may also boost the birth-rate, which is extremely important for the demographics of BiH.”
Needless to say, the quote was endlessly mocked by the public, also in our own "Unbelievable but Truth-o-meter” section on the website, where it ended up together with Zelenika's "women need IKEA" statement.
Details from the story:
- Increasing the excise tax was one of the conditions for the extended credit arrangement between IMF and Bosnia and Herzegovina. Other conditions still remain unfulfilled.
- The increase was required by the EU and European financial institutions.
- The first drafts were adopted by the House of Peoples (the upper house of the Parliamentary Assembly of BiH) but refused by the House of Representatives in April and May and later again in October.
- The law’s long and intense journey through the national parliament ended on December 15, when it was finally adopted.
- The law was backed by most of the ruling parties on the state level and all of the parties who form the governments of the countries’ two entities, Federation of BiH and Republika Srpska.
- The entities’ budgets will be the main beneficiaries of the increased tax revenue. They will also benefit directly from the credit arrangements expected to follow the bills’ adoption. At the moment both of them are struggling to meet its financial obligations in the public sector.
- The public is at best skeptical about the move, while economic experts openly criticize it.