Deep Dive - Gavrilita's Plan for COVID Relief

The Gavrilita Government Proposes a Concrete COVID Response, what is it?

Welcome to our first “Deep Dive” at Moldova Matters! In this format, we are going to take a look at an important issue of the moment and dig a bit deeper into it. The goal is to try and provide some context and understanding for an issue that maybe only gets cursory reporting. As with the Weekly Roundup my goal is to provide understanding on an issue and not to simply express my opinions on it. That said, while this is not an op-ed, I sometimes inject my own analysis on an issue and make a point of pointing that out. Enjoy!

Candidate for Prime Minister, Natalia Gavrilita, presented her proposed cabinet of ministers and program of action to the Parliament last week for a vote. As we discussed on the Weekly Roundup from February 19th, their team did not garner a single vote in Parliament. 

So, literally no one voted for this Government or Program? Why would I care about it then?

A fine question. The first reason, and the one we will cover today, is that this program includes specific initiatives to address in the the COVID-19 Pandemic and ensuing economic crisis. Since the start of this pandemic, there has been no clear government program of response designed to tackle both the health and the economic aspects of this problem. While the Gavrilita government will not be voted in they have been the first to seriously propose a response such as this. If we get a proposed Program from the possible Mariana Durlesteanu government we will also examine her crisis response plan in Moldova Matters. 

The second reason, to pay attention to this program, is that this proposed government is entirely made up of President Sandu’s allies and predominantly PAS party members. Because this proposed government is politically affiliated we can look at the program as a first draft of an electoral platform for the upcoming election (though we do not know when that would be). We won’t do a deep dive into these medium and long term plans this time around, but I encourage you to read the program in it’s entirety if you are interested. 

Ok, so what is in this proposal?

So, the bills at the heart of this Program is the “Anti-Crisis Package.” It would implement a wide reaching response to the COVID-19 Pandemic crisis from both a health and economic standpoint. It is worth noting, that the proposed “Anti-Crisis Package” would be the first major piece of legislation in Moldova dealing with the COVID-19 Crisis. 

Wait, what!? COVID-19 (as in 2019) is over a year old in Moldova. It’s 2021! How hasn’t there been legislation about this?!

A fine question. And one we don’t really know the answer to. Moldova failed to act quickly on a relief package and as has been outlined in various reports as far back as April 2020 faced serious challenges and responded far less vigorously than comparable countries. To date, we have not seen any Prime Minister seriously discuss the economic impact of COVID-19 or engage with affected industries. Mostly, political conversation has revolved around the “Budget” and maintaining government revenues. Moldova may be the only country in the world for example where the tax rate on restaurants was lower on Dec 31, 2019 than it was on December 31, 2020 (10% vs 15% VAT with a brief raise to 20% from Jan - April). 

Wow, ok then, what is in this belated Crisis response bill?  

We’ll go through a few sections step by step. By no means is this an exhaustive exploration of the proposal, but we’re going to highlight many of the key ideas and some of the context to understand them. 

The Health Crisis

From a health perspective, there are a few key provisions

• Creation of a new council of medical experts to advise on managing the pandemic

• An advanced testing regime for providing free tests and ongoing testing for people in frontline positions

Context: Currently, testing is done mostly at hospital admission or via paid private clinics. Those who get COVID but are not admited to the hospital may or may not be tested. In many cases I am personally aware of they are not tested or counted. 

• Plans for rotating medical personnel to better serve overloaded rural hospitals and clinics

• Working with the EU and COVAX on a vaccine timetable and creation of a national hotline and public information campaign to help people get vaccinate

While none of this is particularly controversial and follows a typical “listen to the science” political angle, it is more than is being done currently. While there is a national vaccination plan the public outreach has been limited and problems with testing continue to be a serious problem. There is regular debate whether test-positivity rates of 30-40% are because of spiking infections, or simply limiting of tests. Fundamentally though, Moldova is currently paralized by not having a functioning Government so almost any plan is an improvment. 

Unemployment and Individual Economic Suffering

Like every country, people are out of work or have been economically hurt in Moldova. This bill proposes benefits for individual support include the following key ideas

• Increasing the minimum pension by 15%

Context: Every Moldovan politician says they will raise pensions every election. Politically it is a standard promise, but rarely do pensions change very much. The reason for the promises though is clear - the old age pensions are woefully inadequate with many retirees trying to get by on less then $50 / mo. 

• Increasing the income tax excemption for children and re-introducing an exemption for married couples

Context: Moldova has a flat income tax with a modest individual exemption. Almost all taxpayers, from janitors to CEOs pay the same tax rate.

• Simplifying and deburecritizing the application process for unemployment benefits including online application. Extension of the period a person is eligible for unemployment benefits 

Context: this system has seen major issues during the pandemic. I know multiple people who waited in long lines to apply for benefits only to be turned away for technical reasons or discouraged in other ways. While there are official unemployment numbers they are inaccurate and in many cases misled by a system that makes it very hard to register as unemployed. 

While this program is not nearly as bold as many European neighbors who implemented salary subsidies and paid furlough schemes, it is substantialy bolder than the status quo. Reforming the proess for unemployment is, in my opinion, key. In Moldova many processes are needlessly (often endlessly) bureaucratic. In a crisis such as this denying unemployment benefits endlessly for paperwork reasons puts stress on both individuals and companies (who must comply with the paperwork) when all are very vulnerable. 

Support for Local Businesses Hurt During the Pandemic

In order to support local business the plan has the following provisions. 

• Increase the credit guarantee fund to 1.5 billion lei and we will change the guarantee mechanism to provide enterprises with funds circulating.

Context: While there have been some state backed loans during the pandemic, they have mostly been limited to state reimursement of interest. This does not help companies who are struggling qualify for loans and the credit guarantee fund that existed pre-pandemic was insufficient. 

• Increase the Agricultural Subsidy Fund to 1.5 billion lei.
  

Context: In addition to other challenges, Moldova suffered from a serious drought in 2020 and farmers are in dire need of relief. 

• Adoption of the application of the “0” rate to the reinvested income tax for 2020 and 2021.

Context: Moldova taxes profits whether or not they are dispersed or reinvested in the company. A 0% tax on reinvested profits would allow companies to rebuild and expand faster once the crisis is over. It is unsure if that will come in time for 2021 for many companies. 

• Prohibit the application of penalties without the existence of recommendations within a prior consultative control.

Context: “Controls” or inspections for compliance with the COVID rules have become a fact of life for small businesses this year. In Moldova, all inspections are a risk for corruption and abuse. In these times the situation has become increasingly precarious as the COVID rules are often very unclear. This proposal requires the authorities to make their first inspection “consultative,” meaning that they tell a company what they are doing wrong and make recommendations for them to fix the problem. Only after a set period can they come back and fine for non-compliance. This reduces the strongarming potential of inspectors by prohibiting them from issuing fines on a first inspection.  

• Elimination of the penalties for late payment of taxes for 2020 if staggered contracts are concluded between economic agents and the state, for the affected sectors

Context: Many companies got hit by shutdowns in March just as their tax bill for 2019 was coming due. This created a situation where taxes from good economic times rolled into bad times and were compounded by ongoing taxes paid whether or not you were working (e.g. salary taxes). The tax inspectorate has worked in good faith with many companies this year to avoid situations where a company goes bankrupt for lack of money to pay taxes. But there was never a formal program and companies carrying debts are also racking up penalties. This proposal would cancel old penalties and implement a payment plan system for last years tax debt. 

• Introduction of a tax holiday for 6 months to re-employ people on reduced jobs in the affected sectors .

Context: Payroll / income taxes in Moldova are a major cost for companies. The flat tax system essentially means that all employees payroll is taxed at nearly 40%. This proposal creates a 6 month holiday for re-hired workers allowing companies to replace jobs lost during the crisis period with a major tax savings. This is stimulus for creating jobs in its simplest form. 

• Granting a tax deduction on the purchase of personal protective equipment (PPE) by economic agents.

Context: Companies who have lost substantial business in 2020 also acquired many new costs in the form of masks, hand sanitizers, thermometers, and additional work or even staff for cleaning and maintaining a safe environment. This is a major cost and this proposal would provide a tax credit to support companies in keeping people safe. 

• In the Horeca branch, reduction of VAT to 5% for a period of 2 years and we will offer tax exemptions for domestic tourism vouchers.

Context: Among the hardest hit sectors worldwide is HORECA (Hotels, Restaurants, Catering). The proposal for a targeted 2 year tax cut to support a sector was first pioneered by the UK. As a restaurant owner, I can say that this would be a major boost to a sector that is losing good establishments every week. 

• Together with local authorities, simplification the rules and permits for the use of parks and public spaces during the summer for leisure activities, including festivals, shows, concerts and terraces.

Context: During summer 2020 many countries around Europe created mechanisms for people to be social and outside during the warm months where they would be safer socializing. Many cities allowed public land to be used for restaurant terraces or the showing of movies in parks. Moldova did not make any such moves last summer and the (already incredibly difficult) process of getting permits to operate in parks or sidewalk terraces was made more difficult by an unwillingness of the local authorities to setup any clear process. 

In conclusion, this crisis response plan has something for almost everyone. It is no where near as sweeping as the actions taken by larger, richer, countries in 2020, but it does target the areas of real pain for individuals and companies. 

Ok, thats a lot of ideas, could the actually get it done?

Well, no. But that was kinda the point. This Anti-Crisis bill was included in the government program along with an equally bold Anti-Corruption reform. The PAS goal is one word - Elections. The structure of the program including these two initial bills was an insurance policy against other parties voting for the Gavrilita government in order to prevent elections. Essentially, the Program calls for the new government to pass two major legislative initiatives “on their responsibility.¹” Because both bills are essentially a wish basket of PAS priorities and threaten to implement real anti-corruption reform, it is unlikely that the other parties would risk these bills becoming law - hence, elections. 

So, wait, this was never going to become law? Why did I read this?

Well, such are the intricacies of politics in Moldova. The reality is that these ideas are now in the conversation much more than before. The represent one party’s approach to this crisis and we have yet to hear a plan from any other party. Hopefully, this forces other political groups to make their own proposals as well. If so, we’ll be sure to do another Deep Dive here at Moldova Matters.

1. What does “on their responsibility” mean? 

This phrase is the key to the whole program and constitutes the “insurance policy” mentioned above. When a Moldovan Government moves to pass a bill “on their responsibility” it is essentially governing by fiat. They simply say that this bill will become law and if you don’t agree, vote us out. Or seen differently, it is a strong threat to resign if the bill isn’t passed. In either case, you either get the bill or you lose the government. This means that Natalia Gavrilita has told the other parties that if put into the Prime Ministership without the support of a majority of Parliament she will behave as if she has a full mandate to act and will act decisively as if she has strong support. Basically, she is daring them to try avoiding elections by appointing her.