TIGER FROM THE SOUTH

In January 2007, the government of Macedonia instituted a tax code with a single flat tax on both personal and corporate income. Further signs of attracting Foreign Direct Investment are moving along as well. A new portal Invest in Macedonia offers a bulk of information and guidelines to investors and entrepreneurs looking foreward to set a joint venture or pursue greenfield investment in Macedonia.

Estimates show that until 2009, the average economic growth rate will reach 6,5 percent reflecting strong investment growth and the growth of export. Tax cuts could substantially boost productive behavior towards creating more revenue on the market as well as better investment decisions in the entrepreneurial sector.

Macedonia's economy is 60,8 percent free with the highest degree of economic freedom in the Balkans. Trade freedom, fiscal freedom and monetary freedom are high while property rights protection and freedom from government are insufficient. Business sector still faces tremendous difficulties in operations and capital transactions. For example, the minimal capital basis (measured as the percentage of income per capita) required for starting a business is equal to 112 percent, reflecting a significant administrative burden faced by the businesses as a consequence of hard-hand regulation. Trade unionism is widespread in the form of labor monopolies. The trap captured by the influence of trade unions in labor policies is figured out when we take a closer look at wage-cost ratio dynamics. Non-wage costs of the employment in the business sector represent 33 percent of the salary. Labor regulations under restrictive government regulation strongly hinder the growth of productivity and openness in the labor market. Extensive government restrictions in various area lead to corruption which punitively undermines the potential of the economy as a whole. Widespread corruption is basically a sign of weak and indefinite protection of property rights by judiciairy. In such circumstances, the rule of law as a structural requirement, cannot exists in relation to liberty and property.





As an improved structural and economic performance is needed to sustain high levels of global competitiveness, low tax burden, smaller size of government and high openness to globalization are definitely needed for an economy such as Macedonian to move toward the per capita GDP convergence through economic growth which includes flat tax, dynamic education competition, a full degree of openness to globalization, sound macroeconomic and monetary policy as well in order to avoid high public debt, powerful spending and the expansionairy fiscal policy that undermine the competitive performance of the economy in the long run.