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22.12.2019

The Law on the State Budget of Ukraine for 2020, which was recently adopted by the Verkhovna Rada, will be further elaborated and undergo some changes. What indicators are pledged to the state’s budget for the next year and how the “budget for a trillion” will affect the lives of Ukrainians, Pavlo Ostrovskyi, an analyst of public organization «Strong Communities» helped HROMADA Skhid to understand.

The official budget at the time of the layout of the newspaper had not yet been published, different editions published slightly different figures after the adoption of the document, so we will refer to the most reliable source – the site of the Verkhovna Rada of Ukraine. In any case, the order of the figures will not change much.

What do we see first of all? Budget 2020 is deficient, expenditures exceed revenues. However, for all the years of independence there were only two non-deficit budgets in Ukraine: in 2000, when revenues and expenses amounted to 33.9 billion UAH, and in 2001, when revenues and expenses amounted to 42 billion UAH.

The planned GDP growth rate is 3.7%. The planned inflation rate is 6.3% (we remind that Ukraine ended with inflation 9.8% in 2018, which is the lowest figure in the last five years).

HOW DOES THE BUDGETARY SYSTEM OF UKRAINE WORK?

The largest donor of the budget are the citizens of Ukraine. As the government estimates, from the taxation of their income, the largest amount of money should go to the state budget. 10 billion UAH less will come from profit of enterprises.

As the budgetary system in Ukraine is two-level, our taxes are distributed between state and local budgets in legally determined proportions. However, only two national taxes are fully put to the state budget. The rest also goes in appropriate proportions to the budgets of regions, districts, cities, united communities, villages.

The main types of taxes to the state budget include:

  • value added tax – 100%
  • personal income tax – 25%
  • excise tax – 86.56% on fuel, 100% on vehicles
  • corporate income tax – 90%
  • environmental tax – 45%
  • subsoil rental fee – 70%
  • special tax – 100%.

 

Local budgets are not approved until the Law on the State Budget is adopted, because it contains the main macro indicators: the size of the minimum wage and amount of the subsistence rates for different categories of citizens that directly affect planned local expenditures.

In both local and state budgets, expenditures are divided into protected and non-protected. Whatever changes they would make to the budget during the year, protected expenditures cannot be reduced. This means pensions, social assistance, salaries of state employees as well as public debt management. Other expenditures are unprotected and they can be reduced throughout the year. On the other hand, increase it if the revenue part of the budget is exceeded.

DEBT AND STATE EMPLOYEES

The biggest cost-based item is debt payment. According to the budget, every Ukrainian has more than 10 thousand UAH of debt payments.

However, from government material prepared for the budget presentation, it is clear that Ukraine has a significant debt to those, who are most often mentioned by the government, mass media and ordinary Ukrainians.

Next year, we have to pay to the IMF and other international financial institutions only 14.1% of debt from total amount. This year, Ukraine did not borrow anything from the IMF.

The majority of debt – over 38% – the government will repay for domestic state bonds in UAH. In second place is the redemption of domestic state bonds in foreign currency. This is 19.5% of debt.

Because of the issue of domestic state bonds, the government of 2019 financed the budget deficit, attracting over 300 billion UAH for 8 months (of which foreigners invested about 100 billion UAH). Therefore, the hryvnia exchange rate is currently lower than calculated in budget 2019 figure at the rate of 28.2 hryvnia for one dollar.

For comparison, the IMF interest rate for Ukraine is 3% per annum. The bonds are placed at 17-20%.

The largest item of expenditures after spending on debt is the salaries and cash cover of state employees. The government plans to spend a third of all public money on this.

There has not been significant “improvement” for state employees. In particular, salaries of educators will increase by 9% next year. In addition, young teachers will receive a lump sum payment at the rate of 10 subsistence rates for able-bodied persons as of January 01, 2020 (nearly 21.000 UAH). However, the Cabinet of Ministers has suspended the minimum fixed official salary of a teacher at the amount of three subsistence rates; the money has not been budgeted for it.

SUBSIDIES

One of the major issues, which concern citizens, is the payment of subsidies. Subsidies will remain monetized, i.e. in cash. They are estimated at nearly 48 billion UAH, which is 10 billion less than last year. The Ministry of Finance explains the subsidy fund reduction by the fact that larger amount was included into the budget than the subsidy had been assigned in the budget 2019, and in the future the subsidy recipients would be less. This is probably due to the government innovation. From May 2020, households can expect a subsidy if citizens registered there, spend more than 20% of their income on utilities (previously was up from 15%).

Today, about 3 million households receive subsidies. 3 million 300 thousand were last year. How many grantees will be eliminated in this heating season, they will calculate in a month or two.

The process of controlling the appropriateness of subsidy payments will intensify this year. The reason for not assigning subsidies is the arrears of payment for housing and utilities services as well as hidden wealth. If violations are found – the money will have to be turned back.

“During the verification of subsidies, the Ministry of Finance identifies persons who, when receiving a subsidy, make purchases of valuable items: cars, apartments and other luxury goods. The verification process also allows identifying of so-called “dead souls” and those who receive two subsidies”, the Ministry of Finance said.

SUBVENTIONS

Prior to the first reading, the budget version did not envisage traditional state subventions for the social and economic development of regions. The public and politicians have often criticized such subventions. Saying that it is a payment to the deputies for loyalty, when “yours” deputies receive high subventions, and “others” – miserable or do not receive at all. Moreover, funding subventions to local budgets was stopped in the summer, in the Office of the President, because they saw corruption risks. Studies of the “Honest” movement have regularly noted cases where MPs promoted the attraction of budget subventions to their districts, positioning this money as their own contribution.

However, many MPs were outraged by this innovation, so scandalous subventions were returned to the final version of the budget. The government and the parliament have made a political decision: the subventions remain, because without them MPs do not want to vote for the budget. But the amount of subventions has almost halved as contrasted with 2019.

Local budgets will no longer receive direct subventions from the state budget for the payment of assistance to families with children, needy families, persons who have no right to a pension, persons and children with disabilities. These subventions are now part of the costs of the Ministry of Social Policy.

The budget of the Ministry of Social Policy has accordingly increased, fundamentally new assistance programs have appeared there: paying from the budget for day care for people who need it, including children with disabilities. 100 million UAH are budgeted to this. Such assistance is expected to enable family members to work and improve their financial situation.

HEALTH CARE REFORM

The mechanism of financing medicine is also changing. From April 01, 2020, second- and third-level healthcare institutions (specialized assistance) will switch to a new payment system. Previously, public healthcare institutions received funding from the Ministry of Health, now the National Health Service of Ukraine (NHSU) will become the budget holder. In order for a hospital to conclude a contract with the NHSU, it must fulfill several conditions: first, to be autonomous (i.e. to become an independent institution), secondly, to have the necessary equipment to perform the declared services and, thirdly, to obtain necessary licenses. Those institutions that do not have time to switch to the new system by April 01 will be funded on a residual basis at the expense of a new subvention at the amount of 1.5 billion UAH.

Expenditures on health care reform are budgeted by the NHSU – from 19.2 billion UAH in 2019 it has increased to 72.3 billion UAH.

In addition, it is planned to triple the funding for the Affordable Medicine program – from 1 billion UAH to 3.2 billion UAH.

Other 900 million UAH will be spent on the purchase of 470 ambulances.

Next year, emergency medicine will receive + 109% of funding. In addition, it is planned that the state will compensate for the cost of childbirth, treatment of stroke/heart attack and so on.

DEFENSE

The most scandalous story related to this year’s budget was increasing funding of National Security and Defense Council (NSDC) in 158 times. If 177.7 million UAH were assigned to this institution in 2019, than in the draft budget 2020 approved in the first reading, this rate was expected to increase to 28.2 billion UAH. Then the NSDC explained that this money would be distributed between all authorities of the security and defense sector of Ukraine, and they were really reallocated between the army and security forces in the second reading of the draft. The NSDC received funding at the amount of 211.8 million UAH.

Overall, the Ministry of Defense budget increased from 102 billion UAH to 116.1 billion UAH. It does not include the priority cash security raising to military, as it was before. Instead, the amount for social adaptation of anti-terrorist operation/joint operation veterans has increased twice.

SUBSISTENCE RATE

We will meet the New Year with the total subsistence rate at the mount of 2 027 UAH per month. From July 01 it will increase to 2 118 UAH and from December 01 to 2 189 UAH.

The peculiarity of this year’s budget was the beautiful declaration: “The Cabinet of Ministers of Ukraine have to undertake measures to the approximation of the subsistence rate in 2020 to its real value, which may amount to about 4 251 UAH, with a corresponding adjustment of the subsistence rate for the main social and demographic groups”.

It sounds very ambitious, however, the question remains open of how much the Government will be able to find the resources to make such a subsistence rate adjustment and what sources of filling it will require. One possible opinion is that the subsistence rate will increase, but this will disconnect social benefits.

HOUSING FOR DISPLACED PERSONS

For the first time in 5 years, the state has declared a step to the problem of housing for displaced persons. It is a long-term government loan of up to 20 years at 3% per annum with a minimum own contribution of up to 6% of the cost of housing. 200 million UAH are budgeted for this program – 100 million for crediting of displaced persons and anti-terrorist operation/joint operation participants.

However, they gave only 72 hours to apply for the program, from December 03 to December 05. As people testify who have registered in the queue wishing to get a loan, among the required documents is a tax certificate, time of issue of which is 3 days. Therefore, out of the tens of thousands who wanted to use a preferential mortgage, thousands were able to submit the necessary documents. As far as no more than 120 displaced families will receive credit, all others will be left only with negative emotions.

Juliia Bozhko, a journalist describes why loan program for enforced displaced persons has become a “disappointment of the year” for her:

– We should have talked about its start few months ahead. We had been expecting a preferential mortgage for the last five years. Instead of this, an information on submission of documents appears in just a few days, and an unhealthy agiotage begins…. Now the top ten is still changing. In a strange way, the number 197 has moved to the second place in Kyiv. There must be a dispute – about split second. I do not know how they will decide when the time will coincide. After all, there were first-come, first-served basis and those who mailed. No one has received the money yet, but the program seems to be already at the center of a scandal.

The government also plans to launch a compensation program for housing destroyed by the war. 40.2 million UAH are budgeted for this. According to Oksana Koliada, a Minister of Veterans Affairs, Temporarily Occupied Territories and IDPs, 134 families will be able to receive compensation next year.

Pavlo OSTROVSKYI, Oleksii HNATENKO/Gromada Skhid No. 8, 2019