EBRD Report: Inequality Down, Satisfaction Up
It's a top-ranking position Georgia cannot be proud of. In a new Transition Report from the European Bank of Reconstruction and Development (EBRD) presented last week, it was revealed that Georgia has the biggest inequality of opportunities among the post-communist states.
Georgia, it seems, is highly dependent on family background when it comes to what people in Georgia can achieve regarding job and income. The inequality of opportunities is even higher than in, for example, Moldova, Kosovo or Kazakhstan,
“The inequality of opportunities is a very important issue, because it can have negative effects on a country,” said Bruno Balvarena, Regional Director of the EBRD, at the presentation of the report in Tbilisi. “The economic system is not as effective as it could be because people aren't able to make the best use of their skills.”
Inequality of opportunities may also diminish confidence in the market system and in democratic institutions. This can make reforms more difficult or even impossible. An overall inequality of opportunities is not only seen as unfair but it can also slow down the growth of a country.
Apparently, when you are born a girl in a Georgian village far away from the big city and your parents were not once members of the Communist Party, then you will find yourself at a particular disadvantage as to what work position you can get and how much income you can earn. In Georgia, gender is the strongest factor affecting opportunities in life. Therefore, women are more likely to have a lower income than men.
The fact that gender matters so much is also found in Georgia’s neighboring countries of Azerbaijan and Turkey. Yet in other post-communist regions it is different- in Central Asia and the Balkans, gender is not such a big factor when it comes to life opportunities.
Georgia is also among the leading countries in the region with inequality evident in income and wealth. This gap between the poor and the rich can be a direct consequence of the inequality of opportunities.
One billionaire's wealth in Georgia is worth over 35 percent of the GDP. That's one of the highest ratios in the world according to EBRD. It means that most people have a low income and a few people are very rich. Further, in Georgia the poverty rate is relatively high, similar to that of China, with almost 30 percent of the population earning less than USD 3.10 per day.
“The situation in Georgia is not as good as the World Bank suggests,” said EBRD’s Balvanera said, referring to the Doing Business Report 2017 of the World Bank released late October. “In this report, Georgia ranked among the Top 10 global improvers for implementing reforms to their business regulations. Yet further reforms are necessary.”
To fight inequality of wealth, the EBRD sees taxation of wealth or inheritance as an effective method. The wealth taxes in Georgia are low, with a revenue of less than 1 percent of the GDP compared to the average of OECD members with 2 percent. Revenues from taxation can be used to fight poverty and the inequality of opportunities.
At the presentation of the report, Alexander Plekhanov, Deputy Director of Research at the EBRD, mentioned the tax reform for companies starting next year. With the so called Estonian Model, re-invested earnings will be tax-free from 2017. “This reform means less taxation for companies, which is good for them, but it also means less income for the State to redistribute.”
Despite such negative aspects and the need for further reforms, the latest EBRD report also shows one positive trend for Georgia: the people here are more satisfied with life than they were in 2010 when the last such survey was conducted. Georgians are now about as satisfied as Italians, and clearly more than Russians, Greeks or Hungarians.
The report can be found (online version and pdf) here: http://2016.tr-ebrd.com (http://tr-ebrd.com
Lukas Mäder