Heavy blow to the middle class

Boosting municipal costs is a salient issue for Ukrainians. Starting in August, their gas bills will double. The government plans to increase central heating and hot water prices. Economists offer forecasts that are even less hope-inspiring, considering that this may well lead to higher prices for consumer goods — while wages and salaries remain the same! The government says not to worry, that citizens will be able to enjoy a state subsidy program, so their utility bills will actually cost them less. Our Cabinet explains the price increase by the need of preventing Ukraine from going bankrupt.

Statistics available at the Ptukha Institute of Demography and Social Studies indicate that some 20 percent citizens of Ukraine are living below the poverty line. Experts predict that this utility price jump will not have any tangible effect on these statistics — but only because of the government subsidies, and that a great many Ukrainians will apply for them. Citizens with medium revenues on record may suffer, instead, as they will probably not receive these subsidies, so they will have to pay the double-sized utility bills and make up for their budget spending by going hard on their own expenses. More on this in the following interview with Liudmyla CHERENKO, head of the living standard research department, Ptukha Institute of Demography and Social Studies.

Ms. Cherenko, what social strata will suffer the worst from the utility cost increase? How will this affect Ukraine’s poverty line?

Cherenko: “Our studies show that middle-income people will suffer the worst if they have to spend 20-30 percent more on the utility bills. But nothing really tragic there, considering that our utility and fuel expenses show a remarkably low ratio, so that, with the costs rising, this ratio will show just a slight increase. The problem is elsewhere: we are spending too much on food, so that there is little money left for the utility bill. Low-income people would only benefit from increased bills and access to government subsidies. Of course, some strata will suffer. Medium-income individuals who used to pay 300 hryvnias a month will now have to pay 450 hryvnias. Needless to say, an extra 150 hryvnias is tough for the family budget, considering that this money could be spent when on vacation, for the purchase of consumer goods, or to pay for [extra] municipal services… This will lower the living standards and buying capacity, yet this doesn’t mark a critical situation. Much has been said and written about the need to increase the tariffs in the more favorable period of 2002-06 when the nominal individual incomes were markedly on an upward curve, but the tariffs were then frozen. Now with the crisis underway and incomes dropping in many cases, increasing these tariffs will be considerably harder to sustain.”

If the municipal tariffs were increased during that favorable period, what advantages would we have now?

Cherenko: “We would be close to the payment structure of the developed countries where the population pays all their bills and where the state makes up for such expenses on the part of middle- and high-income citizens, not only low-income ones. We would have become used to spending fifteen rather than eight percent of the family budget on the utility bills and these expenses wouldn’t be as hard to bear as they are now. In fact, utility bills cost much more anywhere else than in Ukraine, so this topic wouldn’t be so acute. Why do we always complain about low incomes and living standard? Mostly because this is part of our mentality. Of course if you paid 350 hryvnias’ worth of the utility bill yesterday and today you have to pay 450 hryvnias, with no pay increase, you won’t be happy and you’ll say that your living standard is down. People are particularly annoyed by the gas bills, especially in rural areas, were they often pay 600-800 hryvnias a month in winter, as they use gas for cooking, heating and hot water. They will all have to pay, even those who don’t have gas stoves and don’t use gas for heating.”

As a researcher and sociologist, do you think that Ukrainians are already alarmed by being unable to pay these bills?

Cherenko: “Most people now try to pay their utility bills on time, but I feel concerned about the strata that stop paying them, and about those that haven’t been paying their bills for years. Well, there is this sad phenomenon in our society. These people figure the state owes them something, but that they owe it nothing whatsoever. This is wrong. They are provided municipal services — their quality is another story — and so they have to pay for them. They believe their I’ll-pay-if-I-feel-like-paying attitude is normal, despite the growing arrears. And so people with debts worth 20-30 thousand hryvnias continue to live unbothered. During the period of higher tariffs this is the worst problem as many people will adopt this attitude and stop paying their bills. Not coincidentally, the government has reinstated fines for untimely payments. The same practice existed under the Soviets, but these fines were abolished in the 1990s when there were so many back wages and pensions. That was a decision made in view of the times, for if you received your April wage in September, why should you pay the fine, considering that your outstanding utility bills were the fault of the state? Today there aren’t so many back wages and pensions, just up to five percent of the wage fund, so we’re talking about exceptions, not the rule.”

In view of this, do you think that Ukrainians will pay their bills on time or will apply for subsidies en masse?

Cherenko: “All who are entitled to subsidies will apply for them. This is a popular program, it enjoys public approval and people never miss an opportunity to use it. The thing is that people use it even if they don’t actually need it because subsidies are granted in accordance with the applicant’s official incomes. Regrettably, people try to get everything they can from the state, even if their incomes are good enough. I hope there won’t be unpaid utility bills on a massive scale. I have studied the statistics and there have been slight increases in outstanding bills each year, but in most cases this has to do with habitual debtors plus people in dire straits because of the crisis. Most of the population pay their bills on time. Of course, there will be more people who won’t want or will be unable to pay their bills. This is the biggest problem.”