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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Budget-2014: “kleptos’ lobby”

Analysts calculated: this draft budget will easily lose 170 to 188 billion hryvnias
21 January, 2014 - 11:28
Photo by Ruslan KANIUKA, The Day

Last Thursday, the day before the draft budget 2014 was supposed to be examined, factions and committees of the Verkhovna Rada received and open e-mail from Poltava region. It contained an appeal from the regional deputies of all ranks and town and village mayors to adopt the budget on January 16. “Blocking the budget is a way to economic problems and breakdowns in sustainment of the citizens,” 500 signers remarked. “If you choose this way, what will you come to districts with?” the representatives of communities of Poltava region asked and suggested the MPs taking responsibility for every their action, decision and suggestion. “These are political rules and standards we aspire to as a European country,” the e-mail reads.

Can one blame the government and the Party of Regions for using these and other accessible methods to have a budget? However, in normal situation another question should have been raised. Is the budget ready to be adopted within one day? (This is what the Prime Minister Mykola Azarov is insisting on). However, the social-economic and political situation in Ukraine is difficult to be called satisfying. In similar conditions we have often used the formula nobody has proven: it is better to have a bad budget than not to have any. On the other hand, is it possible now, with the slump in production and unfavorable world market conditions to export the record-breaking harvest and, which is not less important, in conditions of severe street bifurcations, to dream about ideal budget?

It is possible to dream… And it is also possible to promote the merits of the budget without mentioning its flaws. Head of the sub-committee of the budget committee of the parliament (faction of the Party of Regions) Ihor Molotok calls the present draft budget “dynamic and socially directed.” To prove it he says about “the raise of the minimum salary by 8.2 percent and maternity allowances up to 8.8 billion hryvnias, raise of allowances for A-level students and raise of allowances for orphans by 25 percent.” “Besides, we have provided for 400 million hryvnias of payments for ambulance medics,” the MP joyfully continued. “It is the first time we have suggested feeding all children from the 5th to 11th grade from the state budget to accomplish the president’s social initiatives. It is the first time [the state budget. – Author] has provided for 1.1 billion hryvnias for targeted single assistance for young medics and teachers sent to work in the countryside.”

Head of Laboratory of Legislative Initiatives program Denys Chernykov and director of the foundation Open Society Ivan Sikory have thoroughly analyzed the draft budget and concluded that it has too many system risks. According to their calculations, the sum of possible budget losses is 170-188 billion hryvnias (21-24 billion dollars). In particular, 100 billion will be lost due to the corrupt tax on budget during government procurement. Overall 24 to 40 billion hryvnias will cost the “commission” to reimburse VAT; 5 to 7 billion hryvnias the budget will lose due to unpaid excise duties for contraband oil products; 25 billion hryvnias will be stolen when “mixing” the Ukrainian and imported gas; 13.3 billion hryvnias will cost the ineffective, in experts’ opinion, support of coal mining industry and 2.7 billion hryvnias will consume the subsidized loan for electrical energy industry that last year earned 4.3 billion hryvnias on export.

The researchers also predict that in 2014 exporters will suffer from fiscal “inquisition.” They will not be reimbursed 20 billion of VAT on time and 15 billion dollars of income tax they will have to pay in advance. With this business will lose 10 billion hryvnias because of introduction of bill schemes. The experts remark that the expenses on building and maintaining roads are three times as little as the expenses on loans service involved into this sphere. With this the government is planning to raise “road” debts by other 2.3 billion hryvnias. However, the support of small- and medium-sized business is reasonably called “micro crediting” as only 11.2 million hryvnias are provided for it. It is 20 times less than promised in the state program of economy development stimulation for 2013-14.

What are the officials seeking for creating such a budget? The experts are sure that the abovementioned system risks and losses will in all probability be much bigger as the calculations were based on very modern kickbacks of 30 percent. In fact, they often are as much as 70 percent. The experts opine that Ukrainian officials have been demonstrating rent-oriented behavior from budget to budget… However, the depth of the current economic problems requires an absolutely different approach. Otherwise the default is inevitable.

By Vitalii KNIAZHANSKY, The Day