On 31 July 2008, tanned and rested Ukrainian MPs met for an extraordinary parliamentary session to approve amendments to the 2008 State Budget and, thus, authorize allocations for the relief operations in six western oblasts of the country hit with floods. They were unusually unanimous – the new law was passed with a constitutional majority of 441votes.

The deliberations were lengthy, albeit fairly peaceful. All factions realize that a lean compromise is better than a fat lawsuit, especially now that the budget should be revised without delay. Yet through habit, opponents keep chastising one another and touting themselves as the only true advocates of the flood victims.

There were three draft laws proposing alternative ways to distribute additional financial resources. The first draft (#3019) originated from the Cabinet of Ministers on 28 July to be followed by the presidential one on 29 July. On the very eve of the session, the Verkhovna Rada Secretarial registered the third draft submitted by MP Olexander Peklushenko from the Party of Regions.

As the main aim of the Party of Regions was self-advertising, and its key demands were (а) to send money directly to the affected territories so as to spare people from the need to queue for hours in governmental agencies in Kyiv and (b) to ensure tough parliamentary control over money spending, we will not analyze its draft in detail.

The major budget disagreement was that between the Cabinet of Ministers and Presidential Secretariat, which has become a recent, ominous tradition in this country. Unfortunately, the divide is deepening and widening. It is dangerous and detrimental to the nation pending at least two battles in September – over amendments to the 2008 budgets and the 2009 draft budget. Formally speaking, those will be parliamentary battles, but in fact they will be fought by two candidates for the 2010 presidency, neither of whom is prepared to meet the other halfway.

This time, however, maybe in view of the devastating environmental disaster that befell millions of our countrymen and countrywomen, the parties achieved a consensus within less than two days – 30 and 31 July. Right from the start of the session, it was clear that the Party of Regions would support Yushchenko’s draft (which was far from perfect), and that some of the government proposals would be rejected.

It should be expected since the government, citing the need to restore dozens of bridges and hundreds of kilometers of roads destroyed by the flood, suggested increasing the government guarantees of the UKRAVTODOR loans by UAH 23.5 billion in 2008, whereas the current budget allocates as little as UAH 800 million for this purpose.

There was another stumbling block: the Cabinet of Ministers suggested raising the excise duty on tobacco goods, spirits and beer through incorporating relevant provisions into the budget law.

The ignorance of Ukrainian leaders, including lawmakers, in the matters of law is incredible. How many times must the media explain that, according to the tax law, Budget Code and Constitutional Court ruling of May 2008, taxes cannot be changed with a budget law? They can only be re-established with a special law, and the rigid implementation rule should be observed, namely: tax amendments take effect only at the beginning of the next budget year, provided they were adopted and signed by the President before 15 August of the preceding year.

MPs fought against the excise initiatives of the Tymoshenko government quietly but effectively. As a result, the proposed increase in excise duty on beer and spirits was dropped, and the “tobacco” excise rise was singled out into a special law adopted subsequent to the budget amendments.

Do not ask me what the law looks like and when cigarette prices will go up in Ukraine. I did not see the final text (nor did most of the MPs, I guess). According to Serhiy Teriokhin, Charmain of the VRU Tax Committee, the enforcement of new excise duty would bring up to UAH 1.1 billion additional budget revenues in 2008 and more than UAH 3 billion in 2009.

Presumably, this will not be the last rise in excise duty: as underscored by Mr Teriokhin, the tobacco excise duty in Ukraine is four times lower than in Poland and twice lower than in Russia.

Will the smokers’ money held restore the ruined houses and infrastructure in Western Ukraine? If it does, the effect will be delayed. In the meantime, the worst affected oblasts can only hope to get UAH 2.32 billion in subventions to be disbursed directly to them, by-passing the Ministry of economy; and to have state-owned enterprises and institutions reconstructed at the expense of the Cabinet of Ministers’ reserve fund, to which additional UAH 1.6 billion will be disbursed.

UKRAVTODOR will also receive additional funding, in the form of hundreds of millions of budget money, instead of added governmental guarantees of loans in the amount of UAH 23.5 billion.

MPs allocated an additional UAH 1 billion to the Agrarian Fund for purchasing newly harvested grain, and another UAH 400 million – for compensating the interest on loans to agricultural enterprises.

The bottom-line of the extraordinary parliamentary session is the allocation of UAH 5.8 billion of additional budget resources. About three quarters of these funds will be used to cope with the damage done by the flood. Once disbursed, will they reach the appropriate recipients? Will they be used effectively and efficiently?

Frankly speaking, the capacity of local governments entrusted with this budget money is too limited, but temptations are numerous… We have had the sad and bitter experience when the wealthy and potent profiteered on the woes of the bereaved, just because the former were close to the public funds…

Yet it is another story. Or isn’t it?