Budget‘ geared to the elections’ will only weaken this country’s competitiveness on the foreign market
Most Ukrainian MPs look on the budget as a self-service shop through which they try to meet their election campaign requirements. This unusual notion was expressed recently by Ralf Wachsmuth, chief of the Ukrainian branch of the Konrad Adenauer Foundation. According to this expert, the trouble with our 2006 budget is that the parliamentary debate on this matter has coincided with the election race. This is why the MPs are still unable to pass the budget bill: each of them is defending his own interests and, as always, it is difficult to find points of convergence.
At the same time, according to Wachsmuth, the budget is a compass that is pointing the government and the entire country in the right direction. He believes that we are taking giant steps toward non-competitiveness because of the many social “gifts” provided in the budget for which the country cannot pay. On the other hand, subsidizing various industries makes them incapable of doing well on the market. In order to avoid this or, to quote Wachsmuth, “to give the future a chance,” one should only subsidize education and technological development, which will make the state solvent. The German expert urges our politicians not to complicate matters for generations to come by piling up debts that no one but they will have to pay off. He also called on Ukrainian experts not to throw the budget debate on the tender mercies of politicians but, instead, actively participate in it.
But, according to Gabriel Aslanian, an expert at the Laboratory of Legislative Initiatives, the state is not very interested in what society thinks. The authorities have remained largely indifferent to a barrage of criticism from experts. The government turned a blind eye to the fact that the economically advanced part of society actively opposed the excessively socialized budget of 2005. Nor does the 2006 budget show a balance between consumer expenses and development expenditures. The current government primarily tries to meet the requirements of consumers because it wants to reinforce and increase the love of the electorate.
Undoubtedly, the growth of individual incomes is an important and indispensable matter, but experts think that love can be won by means of more effective and economically less destructive methods — for example, by funding the public utilities reform, saving energy, and developing transportation facilities. These social investments would have produced immediate results and would have affected everyone, and would have been aimed at development. But while reforming public utilities needs at least UAH 0.5 billion, the state has allocated a mere three million hryvnias.
Another problem, experts say, is funding a lot of governmental target-oriented programs, including those aimed at developing industries where new jobs will be created. Yet some of them are 99.9 percent underfunded compared to the previous year. What is creating a real danger is the attempt to economize on strategically important things, such as new technologies, and industrial innovations. Aslanian notes that, while it is clear that production expenses are being slashed in compliance with WTO demands, it is difficult to justify cuts in expenditures for innovations.
On the other hand, the causes of these problems are readily apparent if one takes into account the complicated taxation situation. According to Dmytro Boyarchuk, an economist at the Center for Socioeconomic Studies, this year the government is pinning too much hope on tax revenue. Ostensibly, this optimism rests on the growing number of taxpayers as a result of business decriminalization. The expert claims, however, that there was no decriminalization: on the contrary, building up pressure on entrepreneurs (e.g., by increasing the tax rate for natural persons) has only worsened the business climate. So it would be quite logical for the government to curb its expectations and draw up a more pessimistic budget. The government has also underestimated the Pension Fund shortfall, which brought about a colossal budget deficit. Boyarchuk admits, though, that the government will soon have a splendid opportunity to solve these problems: there will be no stresses of this kind for a long time after the March elections. Now is the right time to deal with both pension and taxation reforms.
Oleksandra Kuzhel, president of the Academia Analytical Center, is convinced that the budget-adoption process should start with an explanation of the real situation in this country, for even the parliamentary opposition does not know the truth. She believes the situation can be improved by establishing criteria for monitoring the performance of every minister and by increasing the powers of the Auditing Chamber.
As for the president, every week he promises not to change the rules of the game but is doing precisely this with enviable regularity. Kuzhel says the tax burden can be eased even without budgetary amendments: all one has to do is cut the cost of administrative services, which have risen eight- fold in the last while. To tell the truth, this will also require a lot of money because the extrabudgetary funds for administrative services are helping many agencies to survive. Should this source of earnings dry up, these agencies will have to be funded from the budget, which has no money for such purposes.
