On July 7, 2008, the Cabinet of Ministers of Ukraine introduced amendments to the 2008 State Budget of Ukraine. The presentation of the new draft took place in the Ukrainian House and started half an hour later than initially planned. Prime Minister of Ukraine Yuliya Tymoshenko was the main moderator of the event as the Minister of Finance and the Minister of Economy were silent for practically the entire presentation. Apparently, there was some hidden sense in that: not to attract the attention of the public to macroeconomic problems of the budget, but talk about simple and joyful things while demonstrating good elocution and oratory skills…

“Kyiv’s chestnuts have shed their blossoms…”

Those who thought that the government of Yuliya Tymoshenko would keep its word and would introduce amendments to this year’s state budget by March 1^st, are either incorrigible romantics or earnest supporters of BYuT. We forecasted that the new version of the state budget would be ready only in summer. And right we were.

The new version of the 2008 state budget was born last weekend. Additionally, Yuliya Tymoshenko called upon to all political forces to consolidate efforts and ratify the amendments as soon as possible.

The question – why did the government wait until the last week before the parliament’s summer break – is rhetorical. And why would the MP’s try their best helping the government to ratify the amendments after they had worked hard blocking the speaker's rostrum and announcing intermissions?

Even experts in state budget issues are not sure that the amendments to the Law on the state budget of 28 December 2007 are necessary today. For instance, Ihor Burakovskiy, Doctor of Economics, director of the Institute for Economic Studies and Political Consultations, is insisting that from the macro-economical standpoint it would be better to forget about any amendments today.

“We are now watching the conflict between economical rationality and political logic,” says Mr. Burakovskiy. “Economic rationality demands the implementation of a restrictive fiscal policy: there shouldn't be any budget deficit there and the state’s expenses should be reduced where it’s possible. However, this economic rationality is not understood politicians. Additionally, it contradicts our “good” laws. Alas, the legislation currently in force is conducive to inflation.”

About new amendments to the 2008 state budget

It was quite hard to distribute an additional UAH 30.4 billion between hungry “mouths”. According to Viktor Pynzenyk, who actually uttered several words at the presentation, there were six hryvnias of budget proposals for every hryvnia available from the state budget.

Apparently fearing accusations of populism, the government didn’t allot all additional funds for discretionary expenditure, dividing them into three equal parts: 1) regional budgets support; 2) industries support and investments; 3) social sphere.

Additional support of some industries looks anachronistic or, if you wish, a concession to lobbying groups. As in good old times, it is planned to support agriculture, shipbuilding, aircraft building, the space industry, roads and subway construction, and theindustries of primary concern are undefined. Although, as Mr. Burakovskiy says, “If we don’t follow the laws of economics, any discussion about priorities is useless…”

It is proposed to support industries (except for the agricultural industry) and finance preparations for Euro-2012 through the mechanism of state guarantees, which has long ago discredited itself. The new amendments to the budget propose more than UAH 9 billion in state guarantees. According to Article 13, the state guarantees should be issued for five years. However, it is absolutely clear that if in 2008, the state roads construction service is to receive UAH 4.3 billion and the state coal mining enterprises are to receive UAH 3.1 billion for technical re-outfitting, then in 2013, it will be the state budget that will have to pay this money back. Or, perhaps, Tymoshenko government hopes that inflation will depreciate this year’s state guarantees the same way as they were depreciated in the 90s.

The new version of the budget is quite contradictory. On the one hand, the Cabinet of Ministers is reducing the budget deficit by UAH 146 million, although this doesn’t make much difference since the total budget deficit is more than UAH 18 billion. And on the other hand, it is planned that earnings from privatization (ha-ha) will be increased from UAH 8.6 billion to UAH 8.92 billion.

Starting on July 1^st, it is planned to substantially increase the minimum living wage (Article 58), which is an undoubtedly positive feature of the new bill. For instance, it is proposed to increase the minimum pension from UAH 492 to UAH 544. If the amendments to the state budget are ratified, the government will allot an additional UAH 1.5 billion to increase minimum living wages, and total additional subsidies from the state budget to the Pension fund will be UAH 6.1 billion.

However, after saying “A,” the Cabinet of Ministers is not saying “B”. It is planned that starting on October 1^st, the minimum living wage for the disabled will be UAH 546, and this means that pensioners will receive but a meager UAH 2 rise. If the government believes in future deflation, it is its right to be mistaken, but why should millions of pensioners pay for this?

The level of minimum wage is not reviewed in the amendments. Nevertheless, the government has rescheduled the introduction of the third stage of a Single tariff scale for the servants of the budget sphere from November to September.

Yuliya Tymoshenko didn’t say a word about the fact that the article on compensation of devalued deposits in the USSR Savings Bank was restricted. Yes, the government plans to allot an additional UAH 1.4 billion to compensate depositors. However, the procedure of compensation has been changed – it is proposed to compensate devalued deposits by liquidating debts for utilities and electricity. The government promises to liquidate only the debts existing before January 1, 2008 under the condition that after January 1^st, the person entitled to compensation regularly pays his or her utility bills.

The last thing is that our government wouldn’t be our government if didn’t intrude into the tax law. In addition to amendments to some norms of the law on value added tax, they would like to amend the Law on customs duties, the Law on licensing of some types of entrepreneurship and the Law on partnerships (in the section on income distribution).

One of the few positive elements of new version of the state budget is that the procedure of the distribution of the tax on environmental pollution has been modified to benefit local communities. If the new amendments are ratified, then 50% of the tax on environmental pollution gathered in the regions will go to the oblast budgets and other 50% – to the budgets of the cities, villages and towns. Kyiv and Sevastopol are exceptions – it was promised to leave 100% of the tax on environmental pollution in these cities.

“Dad can do everything but turn into mom..."

Did Viktor Yushchenko like this? Of course he didn't, although the government tried to accommodate the President in many ways. For instance, a scanty (considering the importance of the accompanying PR campaign) UAH 1.4 billion towards thecompensation of devalued deposits in the USSR Savings Bank in the second half of 2008, and the super-financing of the President’s dream to create a hetman's capital in the village Baturin (Chernihov region). It is planned to allot UAH 115 million from the state budget to build a military lyceum, national park and develop infrastructure in Baturin, when for the development of hundreds of towns and villages the draft budget allots only UAH 1 billion.

The Press Secretary of the President of Ukraine pointed out the drawbacks of the new draft budget: insufficient financing of the Agrarian fund (instead of UAH 1.5 billion the draft budget earmarked only UAH 1.018 billion), insufficient financing of the Armed Forces of Ukraine and purchases of housing for military men, not considering all of the President’s initiatives in the ecological and humanitarian spheres, incorrect inflation figures…

At the meeting with Our Ukraine-People’s Self-Defense Bloc, Viktor Andriyovych remarked that first it was necessary to pass the law on the judicial system, then – the set of legislation initiatives of the President, then – create a parliamentary commission for the investigation of the “Lutsenko case”, and only after all the above he will give his blessing to start considering the new amendments to the state budget.

Incidentally, last Thursday, an unprecedented statement appeared in Ukrainskaya Pravda newspaper: “President Viktor Yushchenko criticized the draft amendments to the state budget and introduced his own draft budget into the Verkhovna Rada” (referring to the President’s press service).

And this is very sad, not only because the President shouldn’t violate the Budget Code and the Constitution (which say that the right to draft and introduce the law on the state budget rests with the the Cabinet of Ministers), but also because the President’s draft budget is quite poor.

The President’s draft budget law of July 10, 2008 is around a 90% replication of the draft budget law of July 7, 2008 prepared by the Cabinet of Ministers. If this is politics, then Viktor Yushchenko has played against himself. “The alternative budget proposal is a step to destruction of the executive branch of state power,” thinks Ihor Burakovskiy. “This step will relieve the government of responsibility for the quality and effectiveness of economic policy.”

If the President doesn’t agree with some expenses outlined by the Cabinet of Ministers, then we will with pleasure introduce what exactly the President has proposed in his draft.

First, the implementation of a Single tariff scale for the servants of the budget sphere is scheduled for November as in present budget. Second, there is no additional UAH 1.4 billion for the compensation of devalued deposits in the President’s draft budget. Third, it is not proposed to sell land plots exclusively through auctions. Fourth, there is a new, very poor initiative to provide citizens waiting for the housing with cheap apartments: local budgets are supposed to make the first payments (covering 30% of total cost) for the housing and the rest (70%) the citizens are to pay on their own. Fifth, UAH 1.5 billion is earmarked for the Agrarian fund to purchase grain. Sixth, the expenses on maintenance and development of the Armed Forces are sharply increased, including UAH 1.050 billion towards support for military men and UAH 170 million on the “Baturin” project. Seventh, there is UAH 102 million instead of UAH 160 million as in the government’s draft for construction of the Monument to the Famine Victims in the President’s draft budget…

“Victory is what we want…”

Early Friday morning, the budget committee of the Verkhovna Rada couldn’t make a decision regarding the President’s draft budget law. The draft lacked some trifles like comparison tables with revenues and expenses. Additionally, the representatives of the Presidential Secretariat didn’t come to the committee’s meeting.

Meanwhile, at the coordination meeting with the speaker, the factions’ leaders surprisingly compromised with each other. BYuT agreed to prepare an urgent report on the government’s work (which has been an obstacle for the work of the Verkhovna Rada for the entire week) as it decided to not impede the opposition in examination of the matter on a vote of no confidence for the government, and agreed to the ratification of the law on the judicial system (prepared by the Party of Regions) so that the Party of Regions would support the government’s draft budget law and the draft would be passed with 300 votes.

The logic of this deal is clear: in this case Viktor Yushchneko is deprived of the possibility to exercise his veto.

At the moment of publication we were not aware of the results of the Verkhovna Rada’s meeting. However, it is most likely that the MP’s would play a draw - they won’t ratify the amendments to the state budget law and won't resolve to dismiss the government.

“We have played the first half…”

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