In the 2025 state budget and other adopted socio-economic laws, the human factor...

At the plenary session of the Milli Majlis (National Assembly) held on December 16, the draft law "On the State Budget for 2025" was discussed in its third reading and adopted.

In 2025, state budget revenues are expected to reach 38.356 billion manats (5.4% more compared to the approved forecast for 2024), while expenditures are projected at 41.4076 billion manats (4.2% higher). Consequently, a deficit amounting to 3.0516 billion manats, equivalent to 2.36% of GDP, is expected in the budget. This marks a 9% decrease compared to the previous year.

The Milli Majlis also adopted in the third reading the draft laws "On Amendments to the Tax Code," "On the Minimum Subsistence Level for 2025," and "On the Budget of the State Social Protection Fund (SSPF) for 2025."

Are the 2025 state budget and other adopted economic laws people-oriented?

Economic expert Rovshan Agayev answers this and other questions from ASTANA.

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Question: Mr. Rovshan, during the Milli Majlis session, the draft law "On the State Budget for 2025" was adopted in its third reading. How would you assess this budget overall? What is the main difference between this budget and previous ones?

Answer: There are no fundamental differences in the structure of revenues or expenditures. Expenditures remain focused on defense, education, social protection, and investments, while revenues are primarily generated from corporate income taxes, value-added taxes (VAT), and transfers from the State Oil Fund.

However, there is growth in both areas. State budget revenues increased by 1.9 billion manats (5.2%) to 38.3 billion manats, while expenditures expanded by 1.7 billion manats (4.2%) to 41.4 billion manats.

Question: Are the budget expenditures fairly distributed this time? What are the main priorities?

Answer: There is no exact measure of "fairness" in budget expenditure distribution globally. The key criterion is the budget's priorities, i.e., which problems the government considers most urgent. Proper prioritization requires a precise understanding of society's needs.

In the 2025 budget, the top three priorities are defense expenditures at 20.3%, education at 12%, and social protection at 11.6%. Additionally, approximately 10% of the budget, or 4 billion manats, is allocated for the reconstruction of liberated territories.

Compared to 2024, defense expenditures will increase by 18%, social protection by 9.6%, education by 8.7%, and healthcare by 7.1%. The only area seeing a decrease is the costs for rebuilding liberated territories, projected to fall by 17% or 855 million manats.

Question: Where will the revenues mainly come from? Is it still dependent on oil and gas income?

Answer: Revenues will primarily come from three sources: corporate income tax, value-added tax (VAT), and transfers from the State Oil Fund. These three sources will account for 76% of all budget revenues in 2025, or 29.1 billion manats in absolute terms.

Looking at the revenue forecast, it is evident that the state's dependence on oil and gas revenues has slightly increased. While the dependence was 48.9% in 2024, it is expected to reach 49.1% next year. Additionally, the share of transfers from the Oil Fund in the state budget will rise from 35.2% to 37.9%. Transfers from the Fund to the budget will increase from 12.8 billion manats in 2024 to 14.5 billion manats in 2025.

Question: Amendments to the Tax Code were adopted in the third reading. What has changed this time?

Answer: This year’s amendments include tax incentives for joint projects within the framework of public-private partnerships, activities utilizing renewable energy sources, and certain cultural activities (e.g., theaters, cinemas, museums, etc.). Additionally, a mandatory requirement for property contracts between business operators and property owners has been introduced, except in agricultural markets.

Notably, the most significant change is the restoration of tax benefits for micro and small entrepreneurs, which were abolished earlier this year. From January 2024, small businesses with an annual turnover not exceeding 200 manats were taxed at a 20% rate, similar to other businesses, instead of the previous 5%. However, under the new amendments, a 5% rate will be reinstated for certain activities, albeit with adjustments. The reduced rate will apply to micro-businesses with annual revenues not exceeding 45,000 manats, including activities like media services, software development, project design, translation, advertising, tourism, and research.

Question: The Milli Majlis also adopted the minimum subsistence level and need criterion for the next year. Do you think these are sufficient to meet an individual's needs?

Answer: The minimum subsistence level will be increased to 285 manats, which is 15 manats (5.5%) higher than in 2024. Considering the officially announced annual inflation rate of 4.4%, this level of adjustment appears adequate. However, the main issue lies in the composition of the consumption basket.

Although Azerbaijan has been classified as an upper-middle-income country by the World Bank for the past 15 years, the current minimum consumption standards (for food, non-food items, and services) align with those of low-income countries. For instance, the minimum consumption standards for meat, fish, and fruits in Azerbaijan lag behind those in Kazakhstan and Belarus. Furthermore, access to the internet—considered a basic human right globally—is not included in the minimum basket. Without updating these standards, simply indexing the subsistence level to inflation will remain insufficient.

Question: The 2025 budget for the State Social Protection Fund has been adopted. What’s new here?

Answer: The Fund's budget has grown by approximately 10%. In 2025, the revenues and expenditures of the State Social Protection Fund are projected to be slightly over 7.6 billion manats, an increase of 726.5 million manats compared to this year. Nearly half of the revenue increase (368.5 million manats) will come from expanded budget transfers, amounting to 1.6 billion manats, or 21% of total revenue. This dependence on the state budget is higher than the 2024 level of less than 18%.

As for expenditures, 7.2 billion manats (94% of the total) will be directly allocated to pensions. The remaining funds will mainly cover childbirth and childcare benefits as well as funeral allowances.

Question: What are your suggestions for making these projects more people-oriented?

Answer: For me, a people-oriented budget is not just one with a high social burden but also one that directly considers people’s needs through effective mechanisms. This involves studying the needs of various social groups—such as persons with disabilities, children, youth, the elderly, women, farmers, teachers, doctors, and civil servants—via independent experts and civil society organizations. Ensuring public participation in budgeting would address this. Unfortunately, such mechanisms are not operational in Azerbaijan.