Serbian President Vucic spoke recently about the domestic average wage rising from 500 euros in 2020 to 900 euros in 2025. The statement which was met with both enthusiasm and skepticism lit up a fervent discussion, which still lasts. How to attain the 80% growth of salaries if the 2025 GDP would be increased by only 51%? Our famous economist Stamenkovic also expressed his opinion on the feasibility of the idea.
He mentioned four main ways of reaching the above-mentioned objective. First, by diminishing the part of the GDP intended for investments. Second, by decreasing the deduction (contributions and taxes) from the gross salary (from current 38.25 to 15.9% – which would seriously damage the public Pension fund). Third, by increasing import and foreign trade deficit. Fourth, by increasing the GDP itself (by an annual 10.2% growth). Of course, these four methods can always be combined in order to find the best solution.
Some economists quote the example of Romania that managed to increase the average wage from 357 euros in 2013 to 641 euros in 2019, which is exactly the same (79%) increase Vucic intends to realise in Serbia. (Curiously, the Romanian GDP growth was also identical with the one planned in Serbia i.e. 51%). All this was done in Romania without disturbing considerably the equilibrium of macro-economic indexes: the investments decreased from 22.9% to 21% and foreign trade deficit grew from 42.1% to 44.6% – the changes which cannot be described as radical.
Another economist, Arsic, sees in Vucic’s statement “promises related to electoral campaign” which are “non-realistic”. Our foreign trade deficit has already reached 6% of the GDP and it would be dangerous to allow its further increase. There are no sufficient savings in Serbia able to substitute the lack of public investment (unlike in China which before starting the GDP and salary growth disposed of a big reserve fund). A salary increase surpassing the productivity increase would negatively affect our competitiveness at the global market. A smaller part of gross salaries going to the health insurance fund and budget would seriously affect the quality of social services… Arsic doesn’t consider the example of Romania as a valid one either, as before the start of the reform their salaries made only 19.4% of the country’s GDP (giving space for a considerable increase), while in Serbia their participation in the GDP is already 41.5%.
In economy, the reality can hardly be concealed by words and very soon we shall be able to witness the truthfulness of these statements ourselves.
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