Law/2. Administrative and financial law

Yesselbayev Nursultan, Aidarkhanova Kulyash

Law faculty, al-Farabi Kazakh National University, Almaty, Kazakhstan

Financial policy of the Republic of Kazakhstan

The state plays the key role in providing successful performance of any modern economic system. Throughout its history, the state has been performing certain functions in the area of financial relations in addition to maintenance of order and legality and national defense arrangement. The state performs such functions as a part of financial policy and form by the methods of the financial mechanism operating in this financial system. Thus, financial policy of the state reflects forms and methods of specific use of finance in economy and therefore economy model applied and is indicated thereby to a great extent. Great variety of objectives set to the state in the market economy is defined by financial policy functions performed by the state. In order to solve such objectives set to the state in the course of performance of such functions, the state has a set of financial policy mechanisms available.

Financial policy means the activities of the state and enterprises aimed at optimal use of finance, granting relative resources to implement the state program in the area of economic and social development [1]. Financial policy has direct influence on the economy growth of the country and is a key element of economic policy at place in a specific state. Financial policy enables getting milestones for goals and objectives for further economic growth of the state.

Specific understanding of the development concept for entrepreneurship structures of all types is an integral part of financial policy. One of the main areas of financial policy is in choosing an optimal mechanism contributing to attaining goals and objectives set [2].

In the age of finance globalization in the modern world, relatively free flow of capital and other limited resources, financial policy of a state can’t be built independently and take into account just internal state of the economy, but should be oriented on relative requirements and standards of international financial law and international financial institutions [3].

The objectives solved by financial policy are as follows: a. providing conditions to create the largest possible volume of financial resources based on specific features of each specific development stage of the country; b. rational distribution and use of financial resources between the public production fields, national economy sectors, allocating for to specific purposes; с. developing a relative financial mechanism to implement planned areas of economic development and continuous improvement thereof.

The programs of Kazakhstan for economy development and market reform improvement provide for a set of measures for financial rehabilitation of the economy and activation of monetary policy, consumer’s market development with extended share of domestic producers, ensuring stable production, strengthening economic relations. Major areas of transition to market relations are as follows: keeping minimum inflation rate, demonopolizing economy, developing entrepreneurship and competition, market infrastructure (commodity exchanges and stock exchanges, investment funds, network of companies engaged in commercial wholesale and retail trading, commercial banks, insurance companies, warehouse industry, transport sector, container resources, commercial information centers, advertising companies, a network of repair, maintenance, advising and legal services, etc.). According to those programs, financial policy and operation of the financial system during the market transition period are aimed at getting required financial resources, full and timely mobilization thereof to the budget, continuous financing for measures provided for by the state programs for social and economic development and strengthening control over targeted and rational use of the state material, labour and monetary resources. Such objectives result from the need in financial provision for the social and economic development strategy of the republic based on ensuring of sustained economic growth. The nearest goal is to ensure the balanced state of the state budget and solve the issue of financial rehabilitation of the national economy based on economy stabilization.

When implementing financial policy, it is important to observe the following principles of financial policy: 1) respecting the interests of all members of public production, social, national and professional groups in developing, approving and meeting budgets based on actual amount of financial resources available; 2) ensuring regular arrangement of financial relations; 3) balance of income and expenses in all areas and elements of the financial system; 4) creating financial reserves (excess of income over expenditure in the budgeting system and financial reserves in industrial finance); and 5) optimal allocation of financial resources between the state and economic entities.

Thus, based on the objectives set to financial policy there are three basic types of financial policy: economic growth policy, stabilization policy, and economic activity restraining policy.

The first one, i.e. economic growth policy is a system of financial measures aimed at increasing real volumes of gross domestic product and increasing employment rate. Such incentive financial policy includes growing state expenses and tax burden reduction. In other words, if there is a well-balanced budget currently existing, financial policy shall move to the budget deficit in the period of recession or depression. If the government uses measures of fiscal policy and public expenses policy trying to keep the volume of output at the level typical for considered country and keep prices stable, the state is deemed to conduct stabilization policy. In turn, economic activity restraining policy is, just the reverse, aimed at decreasing real GNP vs. its potential level and is used by the government in the period of rise or boom in order to avoid crisis of overproduction and inflation arising along with the excessive demand. Restraining policy provides for decrease in government expenses and increase in taxes. In other words, financial policy shall be oriented to positive balance of government expenses if the economy has control of inflation as its objective.

There are also two types of financial policy: а) discretionary policy or policy conducted directly by the government; or b) nondiscretionary financial policy, i.e. built-in stabilizers.

Nondiscretionary financial policy is a set of capacities of the tax system for independent stabilization, i.e. some of its specific features enabling regulation of economic activities in the country without any regulating authorities directly involved. In addition to tax stabilizer, there is a set of essential built-in stabilizers, which while combining might balance the economic system of the country. Four of them can be defined, such as:

1. Social benefits, including unemployment benefits. Indeed, the taxes allowing unemployment benefits rise steeply with high employment rate. Therefore the emergency fund grows in the period of boom and affects too high expenses while keeping inflation at bay. On the contrary, in the period of low employment rate, the emergency fund is used to pay income thereby increasing purchasing power, maintaining consumption, which results in decreased drop in production, thereby mitigating such drop. Other types of allowances, such as beneficial allowances beyond social insurance system, also refer to stabilizing type by the nature of their automatic countercyclical regulation.

2. Agricultural conservation programs of current importance for developed capitalist countries: when purchasing power deteriorates and prices for agricultural products drop, federal government sponsor farmers by absorbing surplus supplies; when inflation is coming and prices are growing, the state unload such previously purchased products onto the market by absorbing surplus money; that weakens any economic trend.

3. Business reliability effect. The reality is that joint-stock companies and other similar legal entities keep the same level of dividends for the purpose of creating an illusion of stable income earned by corporation, even if their income changes during a short period of time. That results in weakening demand for products and services, which would otherwise be presented by depositors – those, e.g. who earned increased profit from their securities. In other case, there would be an inverse effect, which would also result in situation stabilization.

4. Sluggishness of propensity to consume. Thus, an individual striving for keeping established living standard adopts slowly his/her increased income [4].

Mechanism of financial policy operation at the beginning of the period of independent development of Kazakhstan was characterized by inconsistency and contradictoriness. On the one hand, the policy selection was affected by destabilizing factors within the post-Soviet territory and financial measures had to follow those taken in other countries, especially in Russia. That was determined by common economic relations, interdependent economies, common currency, shared borders, and way of thinking typical for CIS-countries. This group of factors resulted from change of social and economic formation accompanied by drastic break of established relations, systems, mechanisms. So-called “shock therapy” was conducted in economy in order to transit to the market formation as soon as possible: price and market liberalization, giving up centrally planned principles, liberalization of foreign exchange, state monopoly of key types of economic activities, derestriction of operation of low-level structures of national economy.

On the other hand, measures were taken in a hurry and unprepared way, so that the society did not recognize them as required to be implemented in Kazakhstan. They include discretionary decisions on emergency transformation of production relations; drive to centralize finance; incorrect property redistribution in the course of denationalization and privatization; disregarding interests of entities in material production, priority industries of non-production field, and therefore major social groups; frequent changes in and amendments to the laws and regulations. In that case, there was no reasonable economic strategy and tactical measures of financial policy were aimed at emergency responding interdependent on cause-effect relations; elimination of adverse effects in one place resulted in adverse effects appearing in the other place [5].

In conclusion, we might say that the financial system depends on interaction between the elements or subsystems, such as: 1) totality of financial relations; 2) totality of money funds; and 3) financial administrative machinery. None of its subsystems can exist on its own: finance, on the one hand, presents a part of production relations and therefore acts as an element of the system of such relations, and on the other hand it presents the system consisting of interrelated elements with their own functional properties. Financial policy and financial mechanism as components of economic policy and mechanism have influence on regular course of the expanded reproduction process. Well-formulated financial policy and streamlined synchronous financial mechanism contribute to social and economic development of the society. Financial policy of the state contains regular arrangement of finance with economic laws taken into consideration and in accordance with the social development tasks. Financial policy of every stage of social development has its own specific features, solves different tasks with regard to the economy state, urgent needs of material and social life of the society, and other factors.

With all diversity of financial policy in Kazakhstan, its content can be expressed in consistent performance of the following stages:

1) development of scientifically justified concept of finance development in the country based on effect of economic laws, economic state examined as well as prospects of social and economic development of the society;

2) formulation of strategic and tactical measures of financial policy based on relative goals and objectives of economic policy; and

3) practical implementation of planned actions via financial mechanism with its reconstruction or adjustment depending on radical extent of economic transformation [6].

Financial policy is a set of task-oriented intents and measures conducted by the state in the field of finance in order to perform its functions and tasks. Financial policy is a component of economic policy. Along with economic policy in general, financial policy is developed by the state based on the requirements of economic laws, i.e. entity, constantly repeating, objective relations and interrelations between phenomena and processes in the economic life of the society. Depending on the length of the period and nature of tasks to be solved, financial policy is divided into financial strategy and financial tactics.

References:

1. Gryaznova А. G., Finance: Textbook edited by A.G. Gryaznova, Y.V. Markina. - М.: Finance and Statistics, 2004. - 504 p.

2. The Ministry of Finance of the Russian Federation [e-source]. – Access mode. -URL: http://www.minfin.ru

3. Klimovich V.P. Finance, Money Circulation, Loan: Teaching Aid. - М.: INFRA-М, 2004. - 240 p.

4. Finance / V.M. Radionova. Y.Y. Vavilov - М.: Finance and Statistics 1999.

5. Nurumov А. А. Taxes and Finance of the Market Economy. Astana: Yel Orda, 2004.- 304p

Ilyassov К.К. Financial and Lending Issues in Economy Development of Kazakhstan / Edited by - Almaty: Bilim, 2002 - 240 p.