President Kassym-Jomart Tokayev’s State of the Nation Address
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 7th convocation open.
I congratulate everyone on the start of another session of the Parliament!
This year our country has entered a new stage of development.
In a nationwide referendum, the majority of citizens supported the course of political modernisation. The constitutional reform was a fundamental step in the creation of the New Fair Kazakhstan.
The continuation of political modernisation should be structural economic transformation.
We are facing a profound restructuring of relations in the triad “citizen – business – state”.
First and foremost, the state will ensure equality of opportunities and justice for all.
A high level of public welfare and support for socially vulnerable categories of the population, including citizens with special needs, will be guaranteed. The relevant institution of the Ombudsperson under the President will be established.
The state will fully support economic freedom, but at the same time will resolutely protect citizens against excessive market fluctuations.
Small and medium-sized businesses will be vigorously developed.
Now, I will outline specific areas of reform.
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, and unequal income distribution.
There is no doubt that all these problems are complex, however, there are concrete ways to solve them.
These include ensuring macroeconomic stability, economic diversification, digitalization, and development of small and medium-sized businesses, human capital, and the rule of law.
However, there is still no tangible progress on these issues. Clearly, new approaches are required.
The basic goal of our economic policy remains unchanged: qualitative and inclusive growth of the well-being of our citizens.
The priorities of the new economic course will be:
- stimulating private entrepreneurial initiative, which means moving away from state capitalism and excessive government intervention in the economy;
- development of competition, which means ensuring equal opportunities for all;
- and, of course, a fair distribution of the national income.
All of this involves solving a number of high-priority tasks.
First. Administrative regulation of prices reduces the investment attractiveness of entire industries and leads to a shortage of goods as well as dependence on imports.
Therefore, the government’s interference in pricing will be phased out. The exception will be non- competitive markets - the tariffs of monopolists will remain under tight control. But control does not mean pressure.
Today, there are increasing number of cases when government agencies, including law enforcement agencies, rush to inspect businesses and demand lower prices and tariffs. Such populist actions must be stopped.
It is important to strike a balance between the need to limit monopoly profits and ensure investment in infrastructure.
Two-thirds of the country’s power supply networks, 57% of its heating networks, and almost half of its water supply networks are worn out. These figures speak for themselves.
Artificial containment of tariffs is fraught with rolling outages, accidents, and, as a result, a threat to the health and lives of citizens.
In monopoly markets, it is necessary to switch to a new tariff policy “Tariff in exchange for investment”.
The indicators of wear and tear of networks and capacities should be reduced by at least 15%.
The tariff will be provided in exchange for investment in infrastructure and participation in the state monitoring system to ensure transparency. The owner will have to make a substantial part of the investment from their own funds, not from the tariff.
Effective incentives for innovations should be developed, to allow the redistribution of part of the costs within the tariff estimate and retention of a certain share of income.
Cross-subsidization of tariffs, in which prices for some consumers are restrained by increasing the cost of services for others, should be gradually abandoned.
Second. Institutional solutions are needed to further de-monopolise the economy.
The concept of a “conglomerate” should be defined at the legislative level. Related entities of the market are obliged to obtain a permit for economic concentration. All their transactions should be thoroughly checked, including for indications 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 recognised as monopolists and regulated under the special antimonopoly law.
Third. Sustained economic growth depends directly on a clear, predictable tax policy.
In order to reboot fiscal regulation, a new Tax Code will be prepared in 2023. Its most problematic block - tax administration - will have 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 increasing the effectiveness of tax incentives.
For this purpose, it is necessary to move to differentiated tax rates in different sectors of the economy. It is necessary to introduce mechanisms of reduction or exemption from corporate income tax on profits aimed at technological modernisation and scientific development. Special tax regimes should be simplified to minimise the temptation for tax evasion.
The new code should provide for the prevention of intentional fragmentation of organisations in order to reduce the tax burden.
For the development of civilized trade, the application of a retail tax with adequate rates and simple procedures is to be expanded.
As part of the tax reform, it is important to consider the possibility of introducing a so-called “luxury tax”. It would be levied on the purchase of expensive real estate, vehicles, and would not affect the middle class.
I would like to focus separately on the topic of fees when buying cars.
Everyone knows the problem with cars from some neighbouring countries. They remain outside the legal field, posing a threat to public safety.
It is necessary to take decisive measures to shut down all illegal channels for importing cars from now on. At the same time, it is necessary to regulate the situation with such cars imported before September 1 of this year.
To legalise them, I propose to apply a one-time fee for recycling and primary registration in an amount not exceeding 200,000 – 250,000 tenge. This measure should apply to vehicles that are not wanted by the police and have passed 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. Next. The multitude of inspectors is one of the main causes of inefficiency.
Therefore, it is necessary to introduce a mechanism of integrated customs control at the border. Customs clearance centers should operate on a “single window” basis.
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 marginal standards that must be observed in 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.
Budgetary processes must be radically simplified. It is also necessary to allow government agencies to carry over unspent funds to the next year. This solution will help get rid of the inefficient practice of returning money to the budget.
At the same time, a budget risk management system should be launched, including in the quasi-public sector. We have begun to transfer tax revenues to the regions; this work must continue.
The "People’s Participation Budget" project, which has proven itself, should be scaled up to cities of district significance and villages. At least 10% of expenditures on housing and public utilities should be formed with the involvement of the public.
For the effective implementation of the approaches outlined, it is necessary to adopt a new Budget Code.
Sixth. Systemic support for entrepreneurship.
Here, first and foremost, it is necessary to launch a full-fledged "regulation from scratch”. This mandate has been dragging on for two years.
Instead of endless adjustments to hundreds and thousands of bylaws and instructions, new compact and understandable rules of operation should be approved. This approach should be fully implemented from January 1, 2024.
Next. In 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 an 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, not the minimum price.
Procurement of state and quasi-state organisations should be transferred to a single platform. The implementation of these approaches will require the adoption of a new law "On Public Procurement".
Seventh. We should 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 sphere should be transparent and concluded on a competitive basis. To increase the efficiency of this mechanism, an appropriate law should be adopted.
Eighth. The lack of credit resources remains a serious problem for domestic businesses.
Underfunding of small and medium business in Kazakhstan amounts to about 42 billion dollars. At the same time, banks have accumulated multitrillion-dollar liquidity, which actually does not work for the economy.
The National Bank, the Agency for Financial Regulation, and the Government must find specific solutions to ensure stable and affordable lending to the real sector.
Taking into account the most complicated specifics of the situation, the National Bank should show more flexibility, I would say, ingenuity. There are positive examples of this abroad.
Ninth. Land is the basic factor of production. Without access to it, it is impossible to do business.
By the end of the year, it is necessary to develop effective approaches for the prompt and transparent allocation of land to entrepreneurs.
Each region and major community should assess the availability of unoccupied or underutilized land. This information should be fully available to businesses.
I am confident that these measures will improve the competitiveness of not only the entrepreneurial class, but the economy as a whole.
More details on the website: www.akorda.kz