Ukrainians to pay part of their wages to discharge national debts

The government is going to partially shift its wage arrears burden on the shoulders of working Ukrainians, UNIAN news agency reports quoting the Minister for Social Policies, Serhii Tihipko, as saying this in Mykolaiv.

According to Tihipko, his ministry is drawing up a bill which suggests using deductions from every working Ukrainian’s wages to establish a fund to clear public sector pay arrears. In all probability, a part of the single social contribution’s money will be redistributed from certain social funds into a new fund, which will have no administration of its own but which will be accumulating money for the enterprises where this kind of situation has emerged,” UNIAN quotes the vice-premier as saying. Tihipko says that all the working people will remit money to this fund from each of their wages or salaries (with the workload remaining intact). “You are paying an average 36.6 percent today as a single social contribution. We are planning to reduce some contributions, channel the resulting difference into the new fund, and thus clear the arrears,” the minister explained. According to Tihipko, the government is forced to take this step because there are no other options to solve the pay arrears problem. The vice-premier admits that about a billion hryvnias will be needed next year to disburse public sector back wages.

So the Ministry for Social Policies is calling on all the working Ukrainians to assume joint responsibility. It would all be good in this case if people had to pay off their own debts. But, in reality, the Ukrainians will have to pay their hard-earned hryvnias for “effective” governmental management, i.e., for the “work” of the bureaucrats who are supposed to keep and augment the people’s good.

The Day asked some experts the following question: how will this initiative affect the labor market and what economic consequences can this have?

Rostyslav KRAVETS, lawyer; senior partner; Kravets, Novak, and Partners law firm:

“In my view, these steps mirror the outright collapse of the current social policy. On the other hand, this shows departure from the earlier-declared solidarity principle of pension charge accumulation and return to the individual system. So we are coming back to the Soviet Union. As a lawyer and a gainfully employed person, I do not understand why I must partially pay wages to public-sector employees, for state-run entities have the owner. The state is again trying to shift the payment of its debts to the ordinary Ukrainian. This initiative means additional pressure which will result in more illegally-paid wages and reduce the real budget revenues.”

Oleksandr KENDIUKHOV, chairman, All-Ukrainian League of Academic Economists:

“It is wrong to take money from those who work and give it to an ineffective sector. It is an extremely bad practice which warps the economic process. Now about the effectiveness of state-run businesses. What the state still owns are mostly the companies that are natural monopolies and the strategically important enterprises. Almost all of them are monopolists on their markets. How can one be a monopolist and a loss-making unit at the same time? The answer is in the strange policy of managing these businesses. In Japan, for example, the most profitable businesses are in full or partial state ownership. The loss-making factor can be grounds for the privatization of such enterprises. But let us not forget that the image of Ukraine as a reliable recipient of investments is an illusion. Half the privatized businesses in Ukraine are making losses. In my view, what will help solve the problem of public-sector pay arrears is liquidation of the system of corruption-based kickbacks which increase the product prime cost by 20 to 30 percent.”

Volodymyr LANOVY, ex-minister of economics of Ukraine; president, Market Reform Center:

“This step will improve nothing. On the contrary, arrears will be increasing at a faster pace. The public sector will be still more parasitic – not at the expense of budgetary funds, but at the expense of the pockets of each of us.”