18:12 14.04.2020


A "quarantine" budget that leads the country to default

7 min read
A "quarantine" budget that leads the country to default

Mykhailo Tsymbaliuk, Member of Parliament of Ukraine, Batkivshchyna, First Deputy Chairman  of the Committee on Social Policy and Protection of Veterans’ Rights

From the student bench, most experts who understand the economy know that if the budget deficit exceeds the highest deficit level or significantly reduces government treasury revenues, then a sequestration mechanism is introduced. In fact, it is the proportion of monthly expenses for all items during the period remaining until the end of the financial year.

The last sequestration of the State Budget in Ukraine was carried out in 2014, when the Ukrainian economy was significantly influenced by the war in the East of our country. Expenditure revisions were discussed at the end of last year, but they have never reached the end.

Today, the world is facing a new challenge – the rapid spread of coronavirus infection, which has stopped thousands of budget-forming businesses, and millions of people have simply lost their jobs. The situation is almost the same in every country in the world that is struggling with COVID-19. Ukraine is no exception, and the refore the revision of the State Budget 2020 was inevitable.

In the end, the proposed amendments to the country’s main financial document were voted down by the MPs from «monomajority», but it is not the budget that can save Ukraine from default and provide citizens with high quality social protection.

Thus, after the changes, the State Budget revenues decreased by almost UAH 120 billion and will amount to UAH 975.8 billion. The Government and the Parliamentary Committee of the Verkhovna Rada decided that our country will lose the most on:

VAT on imports - UAH 45.7 billion;

rents for subsoil use - UAH 22.9 billion;

VAT on manufactured goods - UAH 21.4 billion;

corporate income tax - UAH 20.7 billion.

And thus the budget deficit will increase by UAH 202,1 billion, in particular due to debt borrowing.

According to the last changes to the State Budget, the most money will go to the Coronavirus Fund. They plan to collect UAH 64.7 billion. In addition, they decided to finance the Pension Fund (+29.7 billion UAH) and servicing public debt (+3.3 billion UAH).

However, the main focus should be on reducing budget programs - the funds have been taken to a range without a doubt necessary for the existence of the state branches. Most of all, benefits and housing subsidies have been cut - they will be reduced by 8.2 billion UAH. People’s deputies, though, reassure that it is only a savings from the warm winter, but still the majority of consumers’ moneyhave been paid, so I am convinced that it will be even more difficult to get benefits for the next heating season.

In the context of a large-scale and long-term process of decentralization and integration of territorial communities, the Government has apparently decided to put this on the brakes, since the State Regional Development Fund is underpaid by UAH 2,6 billion, and subsidies to local budgets to support the development of UGFs have been reduced by 100%, just over UAH 2 billion. Local councils will not be provided with the necessary funds to improve the social protection of certain categories of pedagogical workers in secondary education institutions. They also limited the funding for the creation of educational and practical centers of modern vocational education (UAH 160 million), which in our country is still in a very poor state, and all the maintenance of such institutions was transferred to the shoulders of local councils. It turns out to be a vicious circle - there is no money in the field, so vocational education centres are simply closed and thus form a shortage of workers’ specialities in the country’s labour market.

The theatres will receive 120 million hryvnias less, the Ukrainian cultural fund 90 million less, the state cinema - 307 million - and so on almost every item of culture and education. They did not save 250 million hryvnias for educational equipment for universities, 400 million hryvnias for basic science funding in universities, 59 million hryvnias for training in universities. Accordingly, such underfunding significantly casts doubt on the quality of higher education, which was one of the best in Eastern Europe. This year young teachers will be remained without financial motivation from the side of the state – the government “cut” 1.5 billion hryvnias in the budget for them and the level of their salaries will remain within 5 thousand hryvnias a month...

With such approaches, teachers will simply quit their job and look for better ways to make money. However, the only thing that does not affect the reduction is the salaries of teachers and the payment of scholarships. With incomplete funding, but the New Ukrainian School project is still underway and students will be able to join the updated classes as early as September begins. It is our priority that successful projects have the right to exist, regardless of the country’s financial capacity, because the crisis will pass and an educated civil society will be needed in our country...

Nothing has changed for the doctors too… According to the changes to the budget, the promised lifting of medical staff is provided only for the time of quarantine…

Apart from the mentioned Pension Fund, expenditures in changes to the State Budget have increased the payment of judges’ fees. The interior ministry of Ukraine was also successful - they are increasing their budget (!) by 195 million to over 93 billion hryvnias...

Logical questions also arise to the final provisions of the changes to the State Budget of the country. In particular, it is about reimbursement of expenditures at Dnipro airport (UAH 900 million) and Izmail airport (UAH 70 million), which is absurd at the beginning, since the budget envisages a complete reduction of such budgetary destinations. In addition, the budget provides for the cancellation of part of the debt of the Kyiv City Council, which is illogical if the Kyiv city budget is surplus.

It is supposed that by the end of the quarantine, there will be a wage restriction for employees of budgetary institutions and members of supervisory boards of no more than 10 minimum wages, namely UAH 47 230. In the end, it would also be advisable to temporarily introduce a targeted tax on “big” salaries - those over ten “minimums” - a 50% PIT that went to the Coronavirus Fund. Because, unfortunately, we do not have the confidence that the representatives of the supervisory boards will not receive alarger premium after the quarantine.

As a result, we see a picture where neither the ideology nor the logic of the proposed budget changes has changed. In particular, this may indicate a lack of an independent vision and ideology proposal from the new finance minister. Moreover, former Finance Minister Ihor Umanskyi was preparing preliminary budget revision amendments - they were worthy of his post. It is likely that the dismissal of the official has led to his principled stance on overcoming corruption schemes. Because the ex-minister of finance said that businessmen and officials steal from us about 10 billion hryvnias every month, 120 billion hryvnias a year. According to him, if this money went to the budget, no loans would be needed for Ukraine, and in 30 years of independence would be a considerable amount.

And, the most outrageous thing is that the Cabinet of Ministers has no vision of the budget sphere for next year as Article 33 of the Budget Code on the main directions of budgetary policy for the next 2021 is suspended.

Building a strategy is the key to success and a real assessment of the situation. Unfortunately, this is still lacking for the current officials, who form a further vision of life in our country.