Message of the Head of State Kassym-Jomart Tokayev to the people of Kazakhstan

Message of the Head of State Kassym-Jomart Tokayev to the people of Kazakhstan

JUST STATE. ONE NATION. WELFARE SOCIETY

Dear compatriots! Dear deputies, members of the Government!

In accordance with Article 59 of the Constitution of the Republic of Kazakhstan, I declare the third session of the Parliament of the VII convocation open.

Dear deputies!

Congratulations to everyone on the start of the next session of the Parliament! This year our country has entered a new stage of development. In a national referendum, the majority of citizens supported the course of political modernization. The constitutional reform has become a fundamental step in the creation of a New Fair Kazakhstan. Structural economic reforms should be a continuation of political modernization. We have a deep restructuring of relations in the triad “citizen – business – state.” First of all, the state will ensure equality of opportunity and justice for all. A high level of public goods and support for socially vulnerable categories of the population, including citizens with special needs, will be guaranteed. An appropriate institution of the Ombudsman under the President will be created. The state will fully support economic freedom, but at the same time will vigorously protect citizens from excessive market fluctuations. Small and medium business will receive strong development. Now I will outline the specific directions of reforms.

FIRST. NEW ECONOMIC POLICY

The systemic problems of our economy are well known. These are dependence on raw materials, low labor productivity, insufficient level of innovation, uneven distribution of income. Of course, all these are complex problems, but there are concrete ways to solve them. These are macroeconomic stability, diversification of the economy, digitalization, development of small and medium-sized businesses, human capital, and ensuring the rule of law. However, there is still no tangible progress in these matters. Clearly, new approaches are needed. The basic goal of our economic policy remains unchanged – the qualitative and inclusive growth of the well-being of our citizens. The priorities of the new economic course will be: – stimulating private entrepreneurial initiative, that is, moving away from state capitalism and excessive state intervention in the economy; – the development of competition, that is, the provision of equal opportunities for all; – and, of course, a fair distribution of national income. All this presupposes the solution of a number of priority tasks.

First. Administrative regulation of prices reduces the investment attractiveness of entire industries, leads to a shortage of goods and dependence on imports. Therefore, it is necessary to phase out state intervention in pricing. The exception will be non-competitive markets – the tariffs of monopolists will remain under tight control. But control does not mean pressure. Today, cases have become more frequent when government agencies, including law enforcement agencies, rushed to check the business and demand lower prices and tariffs. Such populist actions must be stopped. It is important to strike a balance between the need to limit the profits of monopolies and ensure investment in infrastructure. In the country, two-thirds of the electricity supply networks, 57% of thermal communications and almost half of the water supply networks are worn out. These numbers speak for themselves. Artificial containment of tariffs is fraught with rolling blackouts, accidents, and, as a result, a threat to the health and life of citizens. In monopoly markets, it is necessary to switch to a new tariff policy “Tariff in exchange for investment”. The wear and tear of networks and capacities should be reduced by at least 15%. The tariff will be provided in exchange for investments in infrastructure and participation in the state monitoring system to ensure transparency. The owner must make a significant part of the investment from his own funds, and not at the expense of the tariff. It is necessary to develop effective incentives for the introduction of innovations, to allow the redistribution of part of the costs within the tariff estimate and to keep a certain share of income. Cross-subsidization of tariffs, in which prices for some consumers are constrained by the increased cost of services for others, will have to be phased out.

Second. Further demonopolization of the economy requires institutional solutions. The concept of “conglomerate” should be defined at the legislative level. Market entities connected with each other are required to obtain a permit for economic concentration. All their transactions must be carefully checked, including for signs of the use of non-market prices. The development of a market economy is negatively affected by the activities of single operators. Therefore, this institution should be regulated. Existing operators should be transferred to a competitive environment or recognized as monopolists, and their activities should be regulated within the framework of special antimonopoly law.

Third. Sustainable economic growth directly depends on a clear, predictable tax policy. In order to reset fiscal regulation, a new Tax Code will be prepared in 2023. Its most problematic block – tax administration – needs to be completely updated. It is also necessary to ensure the full digitalization of tax control, eliminating any face-to-face interaction. Another priority is to increase the effectiveness of tax incentives. To do this, it is necessary to move to differentiated tax rates in different sectors of the economy. It is necessary to introduce mechanisms to reduce or exempt from corporate income tax on profits aimed at technological modernization and scientific development. Special tax regimes will need to be simplified in order to minimize temptations for tax evasion. The new code should provide for the prevention of deliberate fragmentation of organizations in order to reduce the tax burden. For the development of civilized trade, it is necessary to expand the use of retail tax with adequate rates and simple procedures. As part of tax reform, it is important to consider introducing a so-called “luxury tax”. It will be charged for the purchase of expensive real estate, vehicles and will not affect the middle class. I will dwell separately on the topic of fees when buying cars. Everyone knows the problem with cars from some neighboring countries. They remain outside the legal field, creating a threat to public safety. It is necessary to take decisive measures to block all illegal channels for the import of cars in the future. At the same time, it is necessary to resolve the situation with such cars imported before September 1 of the current year. To legalize them, I propose to apply a single fee for disposal and initial registration in an amount not exceeding 200-250 thousand tenge. This measure should apply to cars that are not wanted and have passed the customs “clearance”.

Fourth. An effective tax policy is closely linked to transparent customs administration. It is important to complete the full integration of tax and customs information systems. Further. Multiple reviewers is one of the main reasons for inefficiency. Therefore, it is necessary to introduce an integrated customs control mechanism at the border. Customs clearance centers should operate on the principle of “one stop shop”. Fifth. We need to learn to live within our means. The budget policy model will be reformed by moving from “budget management” to “results management”. Directly in the Budget Code, it is necessary to fix the limiting standards that are mandatory for compliance with the planning and execution of the budget. The practice of inefficient spending of the resources of the National Fund will be stopped. This is extremely important. At the same time, transfers from the National Fund will continue, but only for the development of critical infrastructure and projects of national importance. It is necessary to radically simplify the budgetary processes. Governments should also be allowed to carry forward undisbursed funds to the next year. This decision will help get rid of the inefficient practice of returning money to the budget. At the same time, it is necessary to launch a budget risk management system, including the quasi-public sector. We have begun transferring tax revenues to the regions, and this work needs to be continued. The well-established project “People’s Participation Budget” should be scaled to cities of regional significance and villages. At the same time, with the involvement of the public, at least 10% of the costs of housing and communal services should be formed. For the effective implementation of the identified approaches, it is necessary to adopt a new Budget Code.

Sixth. System support for entrepreneurship. Here, first of all, it is necessary to launch a full-fledged “regulation from a clean slate”. This order has been dragging its feet for two years now. Instead of endless adjustments to hundreds and thousands of by-laws and instructions, new compact and understandable rules of work should be approved. This approach should be fully implemented from January 1, 2024. Further. When providing financial support, the state will give priority to competitive small and medium-sized enterprises. The basic criteria for such assistance will be the growth of the wage fund and the increase in tax deductions. In parallel, an automated system for determining the recipients of state support measures will be introduced. It is necessary to build a qualitatively new system of public procurement. The priority should be the quality of purchased goods and services, and not the minimum price. Procurement of state and quasi-state organizations must be transferred to a single platform. To implement these approaches, it will be necessary to adopt a new law “On Public Procurement”.

Seventh. It is necessary to move to a new model of public-private partnership. Today, many PPP projects have become a “trough” for unscrupulous entrepreneurs and officials. Contracts in this area should be transparent and concluded on a competitive basis. To increase the effectiveness of this mechanism, it is necessary to adopt an appropriate law. Eighth. A serious problem for domestic business is the lack of credit resources. The underfunding of small and medium-sized businesses in Kazakhstan is about $42 billion. At the same time, banks have accumulated multi-trillion dollar liquidity, which actually does not work for the economy. The National Bank, the Agency for Financial Regulation, the Government must find specific solutions to ensure stable and affordable lending to the real sector. Taking into account the most complex specifics of the situation, the National Bank should show great flexibility, I would say, ingenuity. There are positive examples abroad. Ninth. Land is the basic factor of production. Without access to it, doing business is impossible. Before the end of the year, it is necessary to develop effective approaches for the prompt and transparent allocation of land plots to entrepreneurs. In each region and large settlement, an assessment should be made of the presence of unoccupied or unused land. This information must be fully accessible to the business. I am sure that these measures will increase the competitiveness of not only the business class, but also the economy as a whole.