Marko Rakar: Elections Have Positive Effect on Economy

A contrarian view on government spending on parliamentary elections.

While the drama surrounding the dismissal of MOST’s ministers has died down, and the government appears stable enough that early parliamentary elections will certainly not take place anytime soon, it is never too late to look more closely at some of the claims which are in such situations always presented as undeniable truths, while in reality they are anything but.

One of such claims is that early parliamentary elections would be costly and that its costs should be avoided. The demagogy about the economic consequences of an early election was often mentioned by Prime Minister Plenković himself, who said that his interests were “the Croatian state, economy and security, and above all the people”. His predecessor Orešković at one point similarly claimed that “the new elections would cost us between one and two billion euros.”

We should analyse a bit this ultimate demagogic claim about expensive elections and their effect on the society and the economy.

The first ambiguity around the election is their cost. The generally accepted figure is around 120 million kuna. It includes activities of electoral bodies which, according to data from 2015, cost about 70 million kunas. If we divide this number by the number of polling stations (6.618 in local elections), one day of voting costs us around 10.577 kunas per polling station.

To this, we should add the cost of compensation to political parties for the election campaign. According to data for 2016, this is additional 26 million kuna (of which HDZ and SDP received almost 21 million kunas). We still need additional 24 million kunas to reach the total of 120 million. This amount is particularly interesting since it is not included in the State Election Commission’s budget. It is hard to explain where the money went, but we know there are two major suppliers of elections services.

The first of these is APIS IT which provides IT support. If we assume that this service was paid from the budget reserve, in 2016, it cost 8.6 million kunas. Honestly, it is a bit hard to justify such a cost for software that has long been written and which demands a minimal number of people to operate. There is also the cost of printing and distributing ballots. Again, if we assume that it was paid from the budget reserve, it cost around 6 million kunas in 2016, which was paid to the state-owned Narodne Novine company.

Both costs seem far from market prices. For example, according to statements and public competitions announced by Narodne Novine, about 100 tonnes of paper were purchased for parliamentary elections. If we assume that a ballot is the size of A2 paper, 100 tonnes of paper corresponds to approximately five million ballots (although there are just 3.7 million voters). A hundred tonnes of paper cost about 600,000 kunas, and printing can cost nearly the same amount. It is not clear why Narodne Novine charged this service five times more.

Similar calculations could also be made for APIS IT services, and therefore Narodne Novine and APIS are sure to be the winners of every election, regardless of the end result. These two companies, on the basis of their administrative instituted monopoly and through inflated service costs, actually receive illegal subsidies, according to the EU regulations. Anyway, even if we accept this inflated price, we still need about 10 million kunas more in order to reach the target of 120 million kunas.

But, the real question is how these 120 million kunas is spent and what impact this money has on our economy. It should be noted immediately that a large part of these funds would be immediately returned to the state by collecting taxes. Fees for polling station workers are subject to income taxes and corresponding contributions, 25 percent of VAT is charged on service costs, while the money received by the political parties from the budget is returned through the costs of publicity and election activities.

Also, it is to be assumed that polling station workers would use the money they earn for their own consumption and improving their standard of living, so a large part of that amount will end up in the state coffers again.

There is no research which would show the influence of elections on our economy, but the research carried out by Rebecca Lessem (Carnegie Mellon University), and Carly Urban (Montana State University) clearly shows the net positive effect of election campaigns in local communities where elections take place (primarily through accommodation services and retail).

From all of this, I would conclude that the 120 million kunas needed to hold the elections would positively affect our economy, as most of that money is immediately returned through additional and increased spending.

And these 120 million kunas are just one of positive effects. If we look at the 2016 state budget, we should also note that the budget deficit was initially set at 7.5 billion kunas. Today we know that the deficit was far smaller and amounted to only 2.7 billion kunas. Reasons should be sought in how the government functioned last year. In the first three months of 2016, the government operated on the basis of provisional budget and its hands were more or less tied. After that, from 1 April to 18 June (about 55 working days), the government had all of its powers. Then again, until the formation of the new cabinet on 27 October, it again had just caretaker powers. And then the new administration did not have enough time to spend a significant amount of funds because shortest deadlines for major public procurement are around 50 days, so the ministers simply did not have enough time.

Our politicians are happy to praise themselves for limiting government spending, launching major strategies and being conscientious and careful in planning, but in reality, the only reason why Croatia did not continue with its ever-increasing deficits was the fall of Orešković’s government and the procedures surrounding the election process. In short, the investment of 120 million kunas in the parliamentary elections, the unstable political climate and a year without a government in power, brought us a reduction of the state budget deficit by about 4.8 billion kunas.

Also, we achieved a GDP growth of almost 3%, improved our credit rating, did not spend as much as planned, and managed to reduce the total debt for the first time in a long time. I would say that these were the best spent 120 million kunas in a long time. We are obviously better off without a government.

And, one additional benefit of elections is that we get to see the look of nervousness and sweat on the face of our politicians. Why should not they earn their salary for a change?

For more from Marko Rakar, visit his blog at www.mrak.org 

 

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