12 Feb


Author:  Sopo Japaridze

Original: https://jacobinmag.com/2017/06/georgia-constitution-georgian-dream-taxes-article-94 


Georgia’s elites are changing the country’s constitution to forever foreclose the possibility of taxing the rich.

 Early this week, on May 5, 2017, public hearings began across Georgia on constitutional amendments proposed by the ruling coalition. Ever since receiving a constitutional majority in parliament last year, Georgian Dream has prepared to change the country’s constitution.

Georgian Dream’s first step was to set up a Constitutional Reform Commission to develop draft constitutional amendments, which would later be subject to public debate and two parliamentary votes. The commission has been plagued by severe differences between Georgian Dream and opposition groups from the very start — many have left and boycotted the commission. In response, the opposition has voiced concerns over the commission’s plans to make the current mix of proportional and majoritarian systems into a strictly proportional one, keep the 5 percent parliamentary entry threshold for political parties, and abolish direct elections of the president, stating the ruling party will use these new changes to stay in power permanently.

However, opposition groups are yet to comment on Paragraph 94 of Georgia’s constitution. This particular paragraph forbids the raising of taxes by parliament without holding a special referendum, which can only be initiated by the government. This paragraph is part of Georgia’s Liberty Act, which former president Mikheil Saakashvili pushed through in 2010 in order to severely weaken future governments by limiting their sources of budget revenue and strangle the prospect of progressive taxation in the name of “freedom” for enterprise and market. In doing so, it entrenches libertarian ideology in the country’s constitution, to the detriment of desperate, working Georgians.

Extra Regressive

After Saakashvili’s Rose Revolution began in 2003, Georgia’s tax system was reformed to be one of the simplest — and most regressive — tax systems in the world. There are onlysix types of taxes: a 20 percent flat income tax, a profit tax (which has now been abolished if the company reinvests, then they pay no taxes), an excise tax on a few selected goods, VAT at 18 percent, an import tax that ranges from 0 percent to 12 percent, and a property tax which is up to 1 percent. There is no progressive taxation, no inheritance tax, and there are no social security taxes.

In 2010, Georgia’s president, Mikheil Saakashvili, rushed through amendments to the constitution restricting the powers of the president and rebalancing power in favor of the cabinet of ministers. At the same time, Saakashvili included a paragraph and an accompanying organic law that would restrict tax-raising powers, the so-called Liberty Act, without much in the way of public or private consultation.

Even the IMF was against it, and international advisers forced a provision in the bill allowing the government to temporarily increase taxes for up to three years in emergencies. As Saakashvili and Kakha Bendukidze, the mastermind of Georgia’s free-market reforms, co-wrote in their article, “Georgia: The Most Radical Catch-Up Reforms“: “The idea was to design a straitjacket for the irreversibility of reforms carried out by the government during the previous period and to create the basis for the inviolability of the principles of economic freedom.”

Paragraph 94 thus caps government-expenditures-to-GDP ratio at 30 percent, the debt-to-GDP ratio at 60 percent, and the budget-deficit-to-GDP ratio at 3 percent. A referendum on this issue can only pose the question of raising flat taxes for all Georgian citizens — the organic law forbids a referendum on progressive taxation.


Elite Consensus

Last month, as part of the constitutional reform process started by Georgian Dream, the Social-Democrat parliamentary faction initiated a proposal to remove Paragraph 94.

They did so with virtually no support from other parliamentary groups. Instead, they co-signed a letter demanding its removal with twenty-four other public organizations, including the sizeable Georgian Trade Union Confederation. In turn, the Constitutional Reform Commission, which has focused on deliberating procedures of political party participation, safeguarding the Georgian language, and defining marriage as being between a man and a woman, overwhelmingly voted against removing the Liberty Act during the final vote on the draft amendments.

Over the past year, Georgia’s conservative groups have demanded a strict definition of marriage, with stalls in the streets and massive canvassing to promote a traditional and heterosexual definition of marriage. Not surprisingly, western media has largely concentrated on the “marriage question,” completely ignoring other detrimental aspects of the constitutional amendments.

Indeed, the commission’s decision signals the high level of commitment to a free-market ideology that is being reified in Georgia’s constitution. And since the commission has voted, they will now hold brief discussions over the new draft for the benefit of the public before parliament votes in the spring and again in the fall sessions.


A Permanent Attack

The Liberty Act is thoroughly undemocratic. It restricts taxation by the people’s representative body, the parliament, and ensures that the referendum necessary to increase taxes can only be initiated by the government (rather than two hundred thousand signatures, as is the case for any other referendum). It thus effectively removes one of the most important topics of debate from Georgia’s public and political sphere.

The Liberty Act is detrimental to building an inclusive, healthy and sustainable economy. It cripples the budget both in terms of income sources and its cap on expenditures. Indeed, Georgia’s current budget is mostly made up of VAT and income taxes supplied by Georgia’s poorest citizens (as statistics I obtained from Georgia’s Revenue Service show) — there is no significant middle class who can pay for the country to function.

As deteriorating labor rights have sparked protests across Georgia, new amendments, much like the original constitution, are a dream for liberal free-marketeers.

There are some forward-thinking, though mostly cosmetic, proposals too, such as enshrining the right to internet use. Still, given the growing needs of Georgia’s population, whether in terms of social services or better education for the job market, they require a proactive government which can provide assistance. Yet the act restricts the development of social-welfare provision — tax revenues to sustain long-term and robust social services are limited without changing existing tax scales. The Liberty Act thus permits the previous government’s libertarian ideology to remain in force, despite Georgia’s electorate voting the Saakashvili government out of power in 2012.

If this paragraph is not taken out of Georgia’s constitution now, there will be no other chance of removing it in the foreseeable future — obtaining a constitutional majority willing to agree on changes will be almost impossible given the current political polarization. This will doom the country to continuing economic policies that have impoverished and indebted Georgians, whose only hope of a better life is to leave the country.

Western states didn’t build democratic institutions and social welfare provision in a day — for decades, if not centuries, people fought for their rights and won. And in Georgia, there is a budding movement that focuses on economic and social rights. Indeed, the twenty-four organizations behind the open letter to the constitutional commission have formed a coalition and will spend the next month raising this issue at the public consultations over the amendments across Georgia. Yet the time it will take to educate and mobilize the population against the Liberty Act will be long and tortuous — and if Paragraph 94 remains in place, it’ll be too late.

12 Feb


Author: Revaz Karanadze

The 2007–2008 US mortgage crisis soon became contagious for the US financial speculatory markets that plunged the Wall Street into the panic. The panic caused the plummet of the credibility of the whole American banking sector that was echoed in almost all of the global financial centres. As the crisis went the private financial institutions were constantly losing their power to liquefy the assets. Henceforth, the leading hegemonic paradigms were set to be adjusted to the solution of the crisis.

Ironically, the neoliberal deregulatory mechanisms that have always been pushed for more “free market” came under harsh scrutiny and the lobbyists commenced to compete in asking for governments to get bailouts. The ideology of “too big to fail” was generally implied for manipulating the discourse that if these “huge” financial speculators would not be bailed out when the whole system would collapse. Consequently, the banks and other financial institutions were to be “rescued” by accumulating money from the citizens (who are mostly never spared when it comes to their private individual debts).

Nevertheless, it is worth to highlight that some incremental neo-Keynesian regulatory measures were put in place between 2010 and 2014. These seemingly alternative regulations would have some power to halt the further downfall of the banks and would to some extent alleviate the burden from the ordinary taxpayers, as they would not have to pay for the crimes of the financial sector. With the introduction of Volcker Rule in the United States, the commercial banks were separated or in some cases even restricted to have an access to deposit banking (the 1999 repeal of the Glass-Steagall Act gave too much freedom to the banks). The almost identical regulatory measures were adopted in the United Kingdom — the Vickers’ proposal of ring-fencing and regulating the LIBOR (The London Interbank Offered Rate). Withal, after these regulatory mechanisms were put in place this was the first time in history when hedge funds fell under a regulatory oversight (Langley, 2015).

Unlike, the United States and the United Kingdom, in the European Union, the story unveiled with a different scenario. Although like in the US and in the UK the blame was redirected from capital to labour, the EU scenario varies for the following reasons: The EU is not a country, but a single market of unequally developed sovereign economies with multi-layered bureaucratic apparatus lacking the democratic and political credibility (although there is the Lisbon agreement which never fully gave political power to European Central Bank to overrun the national policies) of pushing for applicable solutions to each member state, where every country has its own vision.

The burst of financial bubbles in Greece paved the way to unleashing the fear for the European single market to collapse. The French president Nicola Sarkozy fearful that the other EU countries would follow the Greeks to become incapable of avoiding further monetary value deterioration of the stocks of the Southern Eurozone countries offered solutions that would involve all the EU countries to pool their strength together in order to address the crisis with solidarily. He also shifted his fiscal conservatism to more neo-Keynesian views. However, Germany was reluctant to help, but instead, Germany played the derogatory discourse of the “Lazy Greeks” and “PIIGS” (Portugal, Ireland, Italy, Greece, Spain). This German discourse was administered to held accountable the South European countries and these countries needed to be punished (Crespy & Schmidt, 2012).

Though, after the further pressure from the EU and even the US the German Chancellor Angela Merkel and the German Finance Wolfgang Schäuble caved in. The German policymakers realised the deepening of the crisis would affect the single market and would hit German private entrepreneurship power as well. Therefore, as the strongest EU economy, Germany, pushed for extreme conditionality by imposing harsh austerity measures on the “PIIGS” countries, while being committed to the discourse created for the German electorate and the German taxpayers. After several rounds of belated talks, Germany persuaded France on the effectiveness of ordoliberalism that would require the whole EU to follow.

The South European countries and Ireland were expected to recover their economy through strict austerity, although it is to be highlighted that the IMF was less enthusiastic of the EU, ECB and European council to push for the policies that had not worked well in South American countries several decades earlier.

The push for the austerity policies proved to be a social disaster for crisis-affected countries. The forced massive budget cuts caused the deceleration of wages and the deprivation of welfare from the people, while German capital grew. Nonetheless, the austerity politics failed to find legitimation in Portugal.

The Portuguese case bares unique characteristics. Firstly, unlike Greece, Portuguese economy was generally weak and there were almost no financial bubble speculations there. Thus the German wrath was less felt in Lisbon, but the austerity conditionality was still applied by the right-wing Social Democratic Party of Portugal. The logic behind this action was to prove that Portuguese economy could soon be capable of increasing GDP growth through public spending and budgetary cuts and alleviating the labour regulations would bring in more foreign investments to the country. The flashpoint was that Troika was afraid that the Portuguese public debt would take its toll if the recovery would not come sooner through the positive GDP growth. By 2012 Portugal had one of the highest public debts in the EU accounting for 112% of the GDP.

“The austerity caused the unemployment to skyrocket to 17.3% by 2013. Utilities were privatised, VAT raised, a surtax imposed on incomes, public sector pay and pensions slashed and benefits cut, a number of public holidays were revoked and the working day was extended. In a two-year period, education spending suffered a devastating 23% cut” (Jones, 2017).

Budget cuts were also applied to the healthcare and social security. Moreover, from the macroeconomic standpoint of the purchasing power of the population was damaged, hence decreasing the demand on the market affecting the growth of the GDP (OXFAM, 2013).

The public was outraged. The workers’ unions, student groups, and academics were capable of organising and massively delegitimizing the government’s discourse, thus constructing a counter-discourse led by the Socialist Party of Portugal that was capable of creating a coalition with Communist Party, Left Bloc, and the Greens. The new coalition was capable of unseating the Social Democrats after the 2015 elections, by promising to pursue the abandonment of austerity politics in Portugal.

People gather against government austerity policies at Lisbon’s main square Praca do Comercio March 2, 2013 (Reuters / Hugo Correia) / Reuters

The new government led by the prime minister António Costa, was successful in resisting to the pressure of troika. Unlike the Greek SYRIZA government, he kept his promised and reinstated all the pre-austerity politics, but with a progressive twist, by enabling the increase of public investments, increasing the minimum wage and pensions. The sceptics of this measure considering Socialist policies to fail or even to bring a bigger catastrophe.

“The promised disaster did not materialise. By the autumn of 2016 — a year after taking power — the government could boast of sustained economic growth and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved to 2.1% — lower than at any time since the return of democracy four decades ago. Indeed, this is the first time Portugal has ever met eurozone fiscal rules. Meanwhile, the economy has now grown for13 successive quarters” (Jones, 2017).

In addition, in order to avoid further political speculation that the Troika would portray him as a radical, Costa made a smart move endorsing the right-wing Marcelo Rebelo de Sousa for a rather symbolic post of the president in the parliamentary democracy system of the Portuguese Republic (Ames, 2016)

Consequently, Portugal was the only example in the post-crisis Global North to avoid the full social devastation of the austerity neoliberalism by doing the contrary to the economic conditionality through the implementation of heterodox economic measures. This is a precedent of the political judgment of the government being congruent with the democratic will of the people, a dissimilar plotline from Greece. The capability, the audacity and the willingness of the Portuguese government to put the welfare of the populations as its policy objective rather than the directives of Troika is what real democracy is about. As the Portuguese government was successful by legitimising the voice of the people engraved in the anti-austerity policies, Troika has little to no say in the Portuguese affairs now.

We must understand and learn from Portugal that democracy is real when it really reflects the social and economic needs of the populations, and not to pursue the directives of the agents of international finance and capital that have no other interest but to design Georgia for the international business to exploit it. Since the dismantlement of the Soviet Union, Georgia has fallen under experimental economic policies that have hollowed out the social dimension of the politics in the country. These neoliberal experiments of financialisation have cost the ordinary Georgians a severe price.

According to the 2017 IMF data, outstanding loans with the commercial banks consist 59.01% of the total GDP in Georgia. Whereas, 717,48 people per 1000 adults are borrowers of the commercial banks . The decline of wages, high unemployment, lack of jobs and the plummeting of purchasing power per capita, underpaid, irregular, and unstable jobs, these are the main reasons for people to undertake the risky endeavor of taking loans. Withal, the number of suicides committed because of indebtedness is growing every year and the number of fatalities in the workplace is still high (there is a lack of health and safety regulations and the labour inspection does not function properly).

Unfortunately, the Georgian government along with the dominant economic scholars push for economic policies that free finance from almost all the social responsibilities. The state constitution of the country limits budget expenditures to 30% of the national GDP, which already makes austerity constitutionally guaranteed. This happened after the 2010 constitutional amendments of the so-called “Liberty Act” that also limits the state’s sovereignty to manage fiscal politics and for parliament to have the power to determine taxation (Parliament of Georgia, 2010). However, the new government yielded to the pressure of the business association and their lobbyist organisations (e.g., Transparency International representation in Georgia had been vehemently campaigning to endorse this bill and portray the amendment of the taxation as a referendum issue to be a democratic matter). This has stripped the ordinary taxpayer the prospects of decent work, universal healthcare, free education, and universal social support programmes. This constitutional austerity limits the parliamentary power over the fiscal policies (e.g. parliament lacks the power to issue taxation policies that are against flat taxation) (Japaridze, 2017).

The low wages guarantee the impoverishment of the population, thus lowering consumption capacity. Thereby, the socioeconomic situation in the country is abysmal and hinders the political participation of most people in the political process. The only solution is a shift in the ideological and logical framework of the economic politics. Portuguese anti-austerity policies are an exemplary case of going against all odds of the hegemonic economic and political pressure to assure the triumph of democracy. Georgia needs to break with the vicious cycle–in many cases adopting policies that are even more radical than the requirements by the international financial institutions–of neoliberal austerity and instead place human welfare and development as the locomotive of the economic growth and progress.

And yes, a democratic alternative is possible, we can learn it from Portugal!


Ames, P. (2016, January 12). Why Portugal has become an oasis of stability. Portugal bucks Europe’s populist trend, but financial fragility remains a threat. Politico. Retrieved from https://www.politico.eu/article/why-portugal-has-become-europes-oasis-of-stability-antonio-costa-prime-minister/

Crespy, A., & Schmidt, V. (2012). The Discursive Double Game of EMU Reform: The Clash of Titans between French White Knight and German Iron Lady. Paper for the 9th Biennal Conference, (pp. 350–368). Ottawa.

IMF. (2017). Financial Access Survey: Georgia. Retrieved from http://data.imf.org/?sk=E5DCAB7E-A5CA-4892-A6EA-598B5463A34C&sId=1460043522778

Japaridze, S. (2017). The Oligarchs’ Constitution. Jacobin Magazine. Retrieved September 21, 2017, from https://www.jacobinmag.com/2017/06/georgia-constitution-georgian-dream-taxes-article-94

Jones, O. (2017, August 24). No alternative to austerity? That lie has now been nailed. The Guardian. Retrieved from https://www.theguardian.com/commentisfree/2017/aug/24/austerity-lie-deep-cuts-economy-portugal-socialist

Langley, P. (2015). In Liquidity Lost (pp. 124–145). Oxford University Press.

OXFAM. (2013, September). Portugal Case Study. THE TRUE COST OF AUSTERITY. Retrieved from https://www.oxfam.org/sites/www.oxfam.org/files/cs-true-cost-austerity-inequality-portugal-120913-en.pdf

Parliament of Georgia. (2010). Constitution of Georgia: Article 94. Tbilisi. Tbilisi. Retrieved from http://www.parliament.ge/uploads/other/28/28803.pdf

11 Feb

Land Politics

Author: Sopo Japaridze

I remember the film by Ioseliani “Giorgobistve” made in 1966 which begins by showing the traditional– timeless–wine harvesting done in the village only to contrast the rest of the film that occurs in a Soviet wine factory where standards are lower and mechanized.  The winemaking process in the vineyard shows the agency and dignity of the winemaker, whilst the factory is reduced to workers lazily shirking their duties as the management is politicking to meet quotas and please upper management for further promotions.

The protagonist of the story becomes a hero when he disregards all the politics and follows his conscience. He saves one barrel of wine by dumping gelatin and forcing it to not be bottled for a few weeks giving it time to mature thus hindering the possibility of bottling an inferior version of Saperavi. It’s a very small act but nevertheless heroic. These heroic acts and consciousness was the moral justification of the demand for self-determination that took off in the 1980s.

No matter the pitfalls of the national liberation project, nor the incorrectly perceived origins of these Georgian values, the moral of the story is correct or shall I say, the moral of our story, our Georgianess, is correct.  For me, the Georgian claim to self-determination is the need for respect to our farmers and our environment that can yield immense economic, social and food security benefits while also fighting climate change and restoring soils, self-sufficiency and the environment.

Today we are living in a Georgia which has politicians, political parties and media “experts” who convince us that the free market is good; Georgian traditions either should be marketed well to sell a product in an efficient manner or fall by the wayside. The recent debate on the land paragraph in the constitution highlights the anti-Georgianess of the most fundamental free-market fanatics like GIRCHI and European Georgia who want to introduce unrestrained selling of land in their mistaken belief that large-scale industry in private hands is.. the most efficient way to reform agriculture which to them is the most backwards. Some of them espouse even more radical development plans in which Georgia should just import all of our food products which today’s reality is close to that since we import 50-80% of our staple foods.

These politicians who claim the sacredness of private property are the first advocates of dispossessing the poorest of private property as shown by their uncritical support for selling off the land. The reveal themselves as not protectors of private property for all, but the protectors of the rich and powerful using private property to exploit the poorest.

Georgian Dream has halted the land sale to foreigners for now in the constitution not because they agree to the paragraph but they are afraid how “emotional” Georgians are about land. Since coming to power Georgian Dream has taken steps to revitalize agriculture and have shown improvements though the policies are still too new to judge them accurately. The fundamental problem remains with these programs from the onset, is that it is oriented towards export especially to the EU market. They miss the most important part of the agricultural development which is to provide food security and respect to farmers who continue Georgian traditions. The objective of agricultural reform is not to increase export sales for the few better off farmers but to substitute our imported staple foods. It is to give the countryside the respect that it deserves, it is to make every farmer’s life dignified and restore our land.

Being dependent on imports for main staple foods is especially dangerous in our vulnerable country where the lari is constantly devaluing in relation to the dollar thus increasing food prices. Most people also have cars, loans and mortgages in dollars through a new law of “larization” is supposed to bring some relief, families have been squeezed every month to pay for their increasing loan payments from the non-increasing household income thus leaving even less for subsistence while at the same time mostly imported food is increasing in price. In effect, Georgians are being squeezed from both sides thus engendering insecurity and food quality intake decline thus increasing vulnerability.  This drives families to take out even more loans.

We can not only save Georgian agriculture thus Georgia, but we can make it thrive. Restoration of food security and farmer dignity is possible through small-scale farming combined with agroecology. Agroecology is knowledge-intensive. It is not “wide” like industrial farming but “deep.”  It encompasses a wide variety of practices, which are coherent with key principles of environmental preservation, social fairness, and economic viability. Agroecology combines parameters of sound ecological management, like minimizing the use of toxins by using on-farm renewable resources and privileging endogenous solutions to manage pests and disease, with an approach that upholds and secures farmers’ livelihoods.

It may be in many countries, agricultural resources for becoming self-sufficient with a well-fed population is objectively lacking but in Georgia, food insecurity is man-made and it can be unmade. The problem is the political will and not as they would have you believe economic. We will never be independent, we will never have self-determination if we cannot control our own environment, our food supply, and respect our farmers. I will repeat again, just as the dream before the breakdown of the USSR was strengthening and protecting our values, land and people, this dream is even more danger now than it ever has been. Georgian quest for self-determination cannot be realized unless we respect our farmers and our environment that will, in return, yield immense economic, social and food security benefits while also fighting climate change and restoring soils, self-sufficiency, our environment and most of all, our dignity.