Would you like to buy in a supermarket where the supermarket owner decides what you will get for your money after you made the payment? Such a supermarket would arguably not attract many customers. Yet although this is an odd allegory, a good deal of our consumption we all make in exactly this way – and we are even forced to buy! We pay taxes to the government, and afterward, politicians decide what we get for this money.

Sellers serving private customers have to deliver value for money. You won’t buy a second time in a grocery store if the food was spoiled or the package you bought turned out to be empty. Public services, however, you cannot retrieve from another government, at least as long as you do not emigrate to another country. Okay, we do not have the freedom of choice -- but shouldn’t we nevertheless demand value for tax money from the government in the same way as we demand good services from private suppliers?

For evaluating whether or not the government has spent its money reasonably, political decisions – and in particular budgeting decisions – must be made transparently. How transparent is the government budgeting of Georgia?

The International Budget Partnership (IBP) is a non-government-organization funded by several major US donors, like the Open Society Institute and the Ford Foundation. The IBP collects information on budget transparency in 100 countries and summarizes their findings in a country ranking. In 2012, the top five countries in this ranking, scoring 81 or more points on a scale from 0 to 100, were New Zealand, South Africa, the United Kingdom, Sweden, Norway, and France. Then there are 17 countries with a score between 80 and 61. In this group are, among others, the United States, Russia, India, and Spain. Georgia is closely below this group with a score of 55 points. With this performance, Georgia ranks 33 among the 100 countries and it does better than Ukraine (53 points) and much better than Argentina and Turkey (both 50 points). The bottom 52 countries score on average just 24 points, showing that Georgia is pretty transparent in its budgeting.

THE ADVANTAGES OF TRANSPARENCY

Citizens have some degree of discretion when it comes to paying taxes. In many cases, taxes can be avoided without substantial risk of detection. For example, it is essentially up to taxi drivers in Tbilisi whether or not they report their income correctly, as nobody but themselves records their earnings. Likewise, it is difficult for the government to keep track of the revenues of small vegetable sellers that can be found everywhere in Tbilisi. Of course, there are more sophisticated ways to avoid tax payments than just not handing out receipts, and the bigger the taxable income is, the higher are the incentives to become creative about this.

However, as it turned out, people do not cheat on the government as much as they can. Indeed, the level of tax avoidance is far below what we would expect under the paradigm of homo oeconomicus. In 2010, it was shown by the UK economist Sanjit Dhami (who was frequently teaching at ISET in Tbilisi) and his coauthor Ali Al-Nowaihi that a model of bounded rationality can explain the observed levels of tax evasion much better than classical economics. A similar argument is made by the Swiss economists Bruno S. Frey and Benno Torgler in a 2003 paper. They provide empirical evidence for their hypothesis that tax morale is very much a function of the taxpayers’ perceptions of the legitimacy of the government and its budgeting decisions. In other words, a citizen of New Zealand, who can see clearly how his tax money is used, is voluntarily paying more taxes than somebody in a country where the budgeting process is rather a “black box”. If this is true, then increasing budget transparency can actually raise the government’s tax revenues.

Another important advantage of transparency is that it makes corruption more difficult. The level of detail on which the budget is reported plays a significant role. A corrupt politician who intends to divert public funds into his own pocket has to hide these funds by ballooning budgetary items, and the more fine-grained the composition of the budget is, the more difficult it is to balloon anything without attracting attention. Similarly, the supervision of the budget by citizens and the media increases the truthfulness of the reported numbers - decision-makers want to avoid the suspicion that something might be fishy, and they will therefore try to avoid grey areas and expenditures for unclear purposes.

Then there are also purely economic advantages resulting from budget transparency. For example, it may mitigate the negative effects of an economic crisis by reducing the uncertainty of the public about government responses. If it becomes clear that the government will increase its expenditures in order to counter the economic slowdown (the so-called “deficit spending” of Keynes), consumer confidence and business confidence may be reestablished faster than if people are ignorant about the government’s willingness and potential to act.

More generally, budget transparency allows the citizens of a country to monitor and assess government decisions, creating incentives for the government to make use of its resources responsibly. Therefore fiscal transparency can promote the general quality of expenditures and it can make resource allocation more efficient, leading to more growth and economic development.

Part of the development of Georgia into a mature civil society is that citizens take responsibility not only for their families, friends, and colleagues but also for society as a whole. No Georgian should be indifferent about how tax money is spent, as Georgian tax money belongs to the Georgian people. If money is spent inefficiently, this should be a concern to everybody. If even worse, public money is diverted to private pockets, the whole population should feel victimized. This requires identification with the society as a whole, as otherwise, an individual citizen may simply not feel that he/she fell victim to theft, as the damage is shared by so many.

For increasing the level of budget transparency and utilizing its various advantages, the starting point is the attitude of every single citizen of this country.