Bout over Budget: Round Two
On November 14, the Cabinet of Ministers sent the draft 2004 State Budget of Ukraine for the second parliamentary reading, missing the deadline by a few days. Clearly, this was done not because of the Budgetary Committee’s recently expressed fears that the government was slowing down the budget adoption. The more so that this statement was made by committee chairman Petro Poroshenko immediately after he had met First Vice-Premier and Minister of Finance Mykola Azarov.
Incidentally, another meeting had a far greater effect on the budgetary process. Mr. Azarov reported last Wednesday to the President on how the draft budget was being prepared for the second reading. Leonid Kuchma instructed him that the 2004 budget retain the current taxation system for small, medium, and agricultural businesses.
So the proposal is to adopt the new version of the budget with proposed revenues of UAH 60.7 billion and expenditures of UAH 64 billion (for other details see the Budgetary Committee’s Web site). It will be recalled that the first-reading draft proposed revenues of UAH 58.2 billion revenues (with due account of local transfers) and expenditures of UAH 59.6 billion (also including transfers), with the budget deficit coming to UAH 2.369 billion. Now the Cabinet suggests setting a UAH 3.43 billion ceiling on the 2004 deficit.
Macroeconomic indices for the years 2003 and 2004 have also been revised. The projected nominal GDP has been increased by UAH 9.5 billion to UAH 283.5 billion compared to the first-reading version, while the consumer price index (that is, the rate of inflation) has been raised by 0.7% to 6.7%. The average annual hryvnia-US dollar exchange rate was set at UAH 5.38-5.42/$1(against UAH 5.42/$1 in the first-reading version). This runs counter to National Bank Governor Serhiy Tyhypko’s recent statement that UAH 5.38/$1 is the NBU’s 2004 target. It can thus be concluded that the government either has to take a more cautious approach or is, as usual, securing its rears. While Cabinet and Finance Ministry experts worked on the new draft budget, now submitted to the parliament, Mr. Azarov addressed a public hearing. He said the Cabinet was trying to balance the components of not only the budget of consumption but also that of development. According to Mr. Azarov, the tax and pension reform will make it possible next year to raise domestic consumption by reducing the income tax and to upgrade the industry by increasing depreciation standards of the equipment brought into operation after 1999.
Yet, the most surprising development in the bout between the Cabinet and the VR Budgetary Committee was a proposal to set a minimum monthly wage of UAH 205 starting January 1, 2004, and to restore, from March 1, 2004, the position-related proportions in the remuneration of public-sector employees. The Cabinet thinks it problematic to set a minimum wage of UAH 237, as it was planned before, should the proportions be restored. Calculations show this would require a UAH 5 billion increase in wages-related expenses compared to the year 2003. Government officials think this will unbalance the budgets of all levels and will “immediately boost wage arrears and bring about a high cost of production and low output in agriculture.” It is suggested that the minimum wage of UAH 237 be introduced on November 1 without restoring position-related proportions.
In all probability, this innovation will cause the greatest ripple in society and in parliament, where the Cabinet will have to blunt attacks from both left and right. For it is precisely this issue that parliamentary factions like to use to earn political dividends.
