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Remarks by President Tsakhia Elbegdorj at the State Great Khural on Discussion of the Budget for 2010

Mr. Speaker,
Mr. Prime Minister,
Distinguished Members,

I would like to make a few brief remarks in conjunction with the State Great Khural’s discussion of the budget for 2010.

Every year we do engage in constructive debates when discussing in the Parliament the budget for the next year. And certain decisions are made. Yet those decisions are not implemented. This chronic flaw should not persist in 2010. As the Minister of Finance responsibly states, 2010 should mark a year of “revolutionary” change in our fiscal policy.

When approving the budget for 2009 last year, the Parliament adopted a resolution instructing the Cabinet on certain actions. The fiscal expenditures were to be cut. Where they? No. The Cabinet was instructed to submit for Parliamentary discussion and debate its fiscal reform proposal within the first quarter of 2009. Was a proposal submitted? No. Social welfare policies were to be made more effective. Were they made so? No. Structural changes were to be made in public organizations. Were they made? No.

This is where we are, this is how we perform. Yet haven’t we been working together to conduct policy reforms and changes no matter who is the majority and who is minority? How long shall we be vindicating ourselves for unaccomplished tasks by an agreement signed or under the pretext of the crisis! In fact, this Coalition Government exists and works to undertake major policy changes and reforms, which we were not able to undertake for many years. A policy change, historic reform means making sweeping changes in policy issues.

I state straightforwardly – if Mongolia fails to make a quality change in our fiscal policy, any change, any reform will be worthless. Any explanation, any cooperation will serve meaningless, will be a waste of time.

Local governments are chronically short of budget, our peoples lives are deteriorating – when this all will change! Who else shall change the situation if not the current joint government, current Parliament? What other Government, what other Parliament should the people hope to change the situation? The time is ripe for us to ask these questions from ourselves.

The core mandate of any organization representing the public and advocating the benefits and interests of the people is to be able to control and monitor the process of setting universal norms and standards and implementation thereof. The essence of the choice of our people lies not in the Government taking up for all social works, but in ensuring that the whole society is actively engaged in value creation and making sure that the Government enables the society to perform that way.

The fundamental nature of any fiscal policy is to estimate revenue-expenditure projections customized not for the government, but for the society. At a certain time of a year the government discusses and approves its budget for the subsequent year, yet at other times of the year, the government has to exercise an active control and monitoring over the fiscal performance. For legitimate reasons, this duty itself entails certain costs and expenditures for which the government would have a budget to command.

We collect the budget from our people. Yet the bulk of the collected funds is spent not for the people, but for the government, which we in simpler language describe as “the share of the administrative expenditures in the budget being high”. When and if the government starts disposing fiscal funds in their whole entirety, put briefly, if the government meddles into fiscal affairs, then the whole budget-borne swindle blooms.

The nucleus of the fiscal policy, therefore, should rest in availing the society of the necessary funds for financing the development efforts and placing an efficient monitoring on the disbursement and use of these funds. Checking budget items, at the planning stage, against whether it is a government’s job to undertake this or that particular social project is an optimal way of spending peoples money, and at the same time, is the best solution for rectifying, curing the government. Otherwise, as the latest budget adjustment has shown, trimming the expenditures to balance merely a mathematical equation is of no value at all. Scrutinizing or screening any budget expenditure through a filter – whether this function is to be performed by the government, whether to finance that function, or project with people’s tax money – has to be the main job of our policy makers. Only then, when we have such a law, when we instill such a principle, can we say we achieved fiscal policy reform.

There is another issue which has been tossed among the decision makers for years. That is the issue of transfer of fiscal and financial power to local governments. If there is something that awaits a solution and immediate, this would be this very something – the time has long come to address this matter. By no means should increasing subsidies to local governments be interpreted as transfer of fiscal powers to local governments. Truer would be to assert that rendering more fiscal power means leaving more revenues under the discretion of local governments.

We should do away with a mindset to perceive those in this house as the central authority, and the rest as local authorities. Our notion of “local” is somewhat flawed too. That “local”, in fact, is the true core, central authority. So what we refer to as “local” in fact are the “central” powers, therefore, money should be circulating there. Equally, human rights must be secured there too. Any of us has a hometown. None of us was born in this house, the government house.

The essence of the fiscal policy should not be defined by a right of how much a public organization is to collect from who and how much it has to allocate to who. Instead, a fiscal policy is to be defined by how much an individual citizen pays in taxes at what levels of government, and what services does the same citizen receive from each of the levels of the government he or she paid tax to. Moreover, the citizen should know the costs and expenditures, the structure of the government organization, and what services this public organization is to provide to the citizen. This is what a people’s state policy should look like in a state where powers originate from people, and where revenues are created by people.

Just to clarify, let’s take an example. Let’s assume that a citizen D pays 1000 tugrugs in taxes. Half of the taxes are paid to the soum or district where he resides. For this, citizen D must be aware of what services he becomes entitled to receive from the district or soum government. The district\soum government is to secure the most convenient living environment for citizen D – clean, safe environment, with reliable supply of clean water, with good roads, illuminated streets, sound heating etc. Some 300 tugrugs of his taxes are paid to the aimag or city government in return for which citizen D receives education, health, pension and social welfare services. Remaining 200 tugrugs are paid to the state budget, with which the state keeps army, runs its foreign policy and maintains the state.

Briefly, as I mentioned earlier, the citizen, in essence, becomes the very authority to define what services to receive from the government, what expenditures his state\government would incur given the amount of taxes he or she pays. Of course, the citizen would need more services, investments must be made to benefit the citizens, and countries do provide for these needs and requirements of their people. Financing for these services the state derives from customs, excise, corporate income, insurance and other types of fees and taxes. Yet whatever way the state names the taxes, whatever fee or payments are collected, they are paid by an individual or groups of individuals. And therefore, books read that any tax, any budget are meant for the good of the people.

To all intents and purposes, fiscal authority is a matter of knowledge of an individual citizen as to where to pay taxes and what services to receive from who and at what costs, and is not, at all, the power holders’ decision to divide money. Therefore, any prudent fiscal reform should not focus on what is collected in the treasury, but rather on the allocation, disbursement, monitoring and supervision of those collected funds.

If the Citizens’ Representatives Meetings at each of our soums, districts, aimags and cities do engage in similar discussions as are held at Parliament on budget generated from taxes paid by the people, we may say genuine civic rights are being exercised by Mongolians. As well, local self-governance will be attained. And not “paper-democracy”, but the real democracy shall be in place.

Representatives of the people at each and every administrative unit should feel the difficulty of making decisions involving money, should feel and understand the perspiration, the hard work of the people to better their lives and subsistence. Otherwise, any contemplations on development, any development efforts would fail to be integral, holistic and comprehensive if discussing and approving the budget is seen as the duty of only the Parliament, and if the Ministry of Finance, or the central government turn into mere commentators of the reasons and grounds of ending up with the budget we have at hand.

Allocating money, dividing powers is not the virtue of only the government. It is accompanied by both fame and disgrace. You, distinguished Members of Parliament, are well aware of this. It’s akin to a camel caravan with equally distributed loads. Only then our public service shall be streamlined when every single public servant feels for the peoples needs and concerns and turns these worries into concrete actions aiming to serve the peoples needs and concerns. I do believe that both the Parliament and the Government are aware of what needs to be done in order to shift to such a regime.

I have come to speak at this podium today to indicate at the need to realistically set by law the clear delineation of the levels and scopes for administrative units as to how to source the budget and how to disburse the budget resources. In formal language, please do give the core administrative authorities where people reside the fiscal powers and the tax powers. This is what we call the “fiscal disposal authority”. I have reminded that rights should centralize around the people. And the necessary legal regulation should be adequately ensured.

We must approach fiscal issues in a comprehensive and complex manner. The government, as a routine, plans the budget and has it discussed by the Parliament. The Parliament does its regular job – discusses and approves it, barely fitting within the timelines. Then, as usual, the budget is adjusted. Budget adjustments come as reward for irresponsibility. The budget is made into a law. Yet the responsibilities thus put in law are forgotten then. If we conduct fiscal reform we must forget about the adjustments against irresponsibility, the so-called “budget adjustments”. Those who exceed their budget, get budgetary compensations, and those fiscal managers who save their budget, have their savings “confiscated”, and this malpractice must be eradicated as we are a democracy, a country with democratic fiscal and monetary policies.

Another notable indicator of the need for fiscal reform is the cash promises that we, the politicians make. On one hand, this is an election promise, yet, on the other hand, such promises were made because of too much concentration of fiscal and monetary powers, and because of too flawed fiscal policy we have. Once the promises were made, they have to be kept. But the lesson we learn is important as well. Politicians see the swampy path, and the lessons are learned by crossing the swamps by having some politicians survived through them, some drawn in them.

We do not see in the nearest future the potential in our economy to absorb any cash promises exceeding those made in the last parliamentary election. Therefore, we must ban by law both the candidates and nominating bodies to make cash promises to the electorate. Anyone who believes he serves the people should be capable to timely derive lessons, to timely draw conclusions and timely make due decisions; most importantly, at the right time.

Observing budget discussions at the Parliament, we don’t hear the terms “members’ money, constituency money”, which is worth appraising. These terms were coined as illustration of ultimate swindle in the budget-making and approval processes. Moreover, this malpractice challenged the fundamental value of our constitutional state. The democratic principle of approving, implementing and monitoring the budget, checked and balanced division of powers enshrined in our Constitution must be persistently maintained. One may recall raising the “members’ or the constituencies’ money” issue toward the end of budget debates at the Parliament. If the notion is embedded in the budget, I must state, the Parliament will have to publicly address its such faulty decision, nurtured on conflict of interest.

The IMF names Mongolia as the Asian country most harshly hit by the crisis. The WHO also enlists Mongolia as one of the countries most severely affected by the H1N1 viral infection. I think those officials and prestigious Mongolian organizations do recall with unease and embarrassment their own comments and conclusions made when those crises were startling the world, especially when the global financial crisis was whirling. I mean the official statements that Mongolia would not be hit by the crisis, or would be least affected.

The crisis and pandemic do not only prove that nothing human is alien to Mongolians, that Mongolia is equally unimmune like any other country to global affairs, but also, and most importantly, it has shown how unrealistic our formal statements and conclusions are. Look at how the crises are affecting our lives. Our society and economy do not have sufficient strength to withstand various challenges, and the resilience of our government to counteract is weak. The realities we are in keep reminding us to draw practical conclusions, change, reform the way we work, the way we think. And the body and venue to discuss these pivotal issues is this respectful forum in this hall.

For any country, for any government, its people’s health and security are dear. I would like to earnestly urge the Members of the Parliament to accord special attention to fiscal stances of health sector – medical and health workers, maternity homes, infectious diseases treatment etc. Some issues may wait until next year, until we reform our fiscal policies, however, health sector issues can’t afford to wait.

Speaking of the next year, every time when our Government and the Ministry of Finance decide to refurbish the budget, they always needed one more year. And the Parliament bears with it. To repeat, we must put an end to fiscal irresponsibility. From 2010 and on, no “later”, no “next year” should be put up with. The Government and the Ministry of Finance
must conduct their promised “revolution” in the budget within 2010. And hopefully, the Parliament will not be instructing the same assignments time and time again.

Another important note that I would like to draw your attention to is fiscal deficit. A budget with deficit simply means that the government is performing inadequately. Budget deficit especially in underdeveloped country entails distrust and disgrace and slows down the pace of development. The resources we created in 2007 and 2008 and in preceding years were all used up in the 2009 budget. In 2010, much is being expected through foreign aid, which may be gone in 2011, for we keep failing to reform our budget. Recovering budget deficit with loans and credits is not sustainable. Our future generations are being penalized for the irresponsibility of current officials and power holders.

Many constructive ideas and proposals, discussed since years ago, to cut the share of administrative expenditures in the budget are still roaming in the air. In recent years, and even this year, a crisis year, administrative expenditures are further growing, which is a totally unhealthy phenomenon. Mongolia’s share of administrative expenditures in the budget is not just one or two, or even ten or twenty, but one hundred percent, or twice as much as the average of the countries with similar level of development, but which were able to skim down their administrative expenditures.

For three consecutive fiscal years the salaries of our teachers and doctors and the pensions of our elderly and the benefits for our children remained, virtually, frozen, at the same level as they were three years ago. Yet recall how life has changed in those three years with prices and costs going straight up. If you truly care for peoples lives, truly intend to decentralize the budget, reform it in a timely and persistent fashion, otherwise Mongolia’s irresponsible fiscal and financial policies might lead us to wreckage. If fiscal irresponsibility persists, next year the budget will not survive the Parliament’s scrutiny.

Thank you for attention.