Thoughts on the 2024 Address

Here are my thoughts on the 2024 Address.

The first thing that stands out is the change in the Address's format. Previously, the Address contained a large number of specific instructions in considerable detail. The new one describes only general directions, and the specific mechanisms are to be worked out at the Government level. On the one hand, this is a good thing: it gives the Government room to maneuver and to change tactics depending on market conditions. On the other, it allows the Government to comply with an instruction in form while not actually achieving the desired result.

Second, we did not see in the Address any proposals for resolving pressing problems, at least economic ones, and it is still very hard to say how the goals of doubling GDP, closing the budget deficit and growing the National Fund to USD 100 billion will be achieved. Perhaps some plan of action exists, but so far we see only separate initiatives in the Address that do not add up to a coherent picture. One theme runs through the whole Address like a red thread: the social obligations already assumed are very high, and the efficiency of social spending needs to improve. To that end, the plan is to introduce a social wallet, a basic package of medical care and a unified healthcare system, among other things, which points to a desire to cut social spending.

I will not describe the entire Address, but I will try to single out only what falls within my area of expertise.

Introduction of a differentiated PIT. This has been discussed for a long time, and as an economist I support it, since a progressive tax system is the fairest and is used in most developed countries. I have written a great deal about this and will not repeat myself here. I will only note that differentiation also requires a mechanism of tax deductions, so that the economic function of taxes is fully realized.

Postponement of the Tax Code's entry into force to 2026. I also consider this a very sensible decision, given the quality of the proposed document, which does nothing at all to solve the problem of the budget deficit or to spur the country's economic growth. What is needed here is a balanced and entirely different approach to drafting the Code.

Taxation of dividends of second-tier banks. This is a highly controversial decision that may do more harm than good. The task is to increase lending to the real sector, and for that we need more banks in the country and real competition. Tougher taxation of the sector will discourage new players from entering, and boosting competition will be extremely difficult. Microfinance organizations will remain microfinance organizations, while the owners of second-tier banks will devise a hundred ways to extract dividends through stock market instruments, contractors and suppliers, agency agreements and so on. The question will become especially acute for publicly listed banks, as well as for fintech add-ons, which are in essence part of the banking ecosystem.

A new law on banks. This decision is long overdue, because the current law is indeed outdated, has long failed to reflect the current situation and does not regulate fintech companies and ecosystems at all. Provisions are needed for neobanks and niche banks with limited licenses. This would increase diversity and competition in the sector.

Lending to the real sector. I have been hearing about this for the last five years or so, and the results are unimpressive, because we are not addressing the root problems of lending, and the problem simply cannot be solved with a stick. The current situation is the product of imbalances created in favor of banks, which can earn risk-free returns, and of the difficulty of recovering problem debt from the corporate sector.

Investing the National Fund inside the country. This is another controversial initiative: placing the National Fund's assets domestically instead of in foreign markets. The National Fund was created, first and foremost, to sterilize oil revenues and so avoid Dutch disease. This decision will aggravate Dutch disease, because investing National Fund money inside the country will first simply strengthen the tenge, which will be extremely damaging for all of industry, and then lead to inflation and many other problems. This topic deserves a separate post.

The retail tax in the B2C sectors. In my opinion, this is the right direction, because it will close the loophole of artificially splitting up businesses to avoid taxes. I have written about taxes many times, and my main message is that economic agents should be taxed equally.

There are, of course, many other interesting initiatives that merit discussion, but I am more interested in how the instructions from the previous Address were carried out. I have not seen a consolidated public document on the status of their implementation. For example, the previous Address spoke of reorganizing Baiterek, merging the exchanges, attracting new banks and so on, but what became of those instructions remains an open question.

The Address also specifically mentioned the work of the Investment Headquarters. However, there is no public report on its work either, so it is very hard to assess how effective this tool is. As I see it, the task of the Investment Headquarters is to resolve systemic issues by way of individual cases. Its work should address the problems not only of a particular enterprise but of the whole industry, and every meeting should produce legislative initiatives to eliminate bottlenecks and problem areas.

I do not have much faith in the effectiveness of manual management at the national level, yet I see it being used more and more: regional investment headquarters have now been created, and they are unlikely to be effective.

Unfortunately, one has to state the fact that many of the decisions being made violate economic laws, and the country's economic bloc seems to have no macroeconomists, at least none whose advice is heeded.