Censured by President, Leaves Businesses Guessing
The holiday season lull in our economy, which usually lasts a little over two weeks, was this time forcedly disrupted by the president. During his vacation, he inked Ukraine’s Budget Bill for 2003 and called on the lawmakers to “return” to it and eliminate its shortcomings, as well as work out mechanisms to compensate for the shortfall of funding for certain budget items.
In his budget message to the parliament, Pres. Kuchma briefly summarized the advantages and pointed up the shortcomings and inconsistencies of the budget which has been yet again adopted on an outdated tax base eroding the economy, while “tax bills drafted in line with modern requirements” are gathering dust, the president stressed. In this connection, the head of state called into question the planned increase in receipts from VAT and income tax on enterprises. (Additional tax receipts are to be partially secured by way of applying a UAH 400 million squeeze on state-run companies, which, in fact, will place them in an inferior position to private businesses and will violate a fundamental principle of taxation that tax burden on all entities should be equal, their forms of ownership notwithstanding.) The president believes the budget law also includes clauses which not only complicate VAT collection, but also grant additional VAT privileges. The introduction of zero VAT on imported gas to be sold directly to consumers, with the exception of the populace and state-funded establishments, and promissory notes to pay VAT on gas sales as well as imported goods, Pres. Kuchma fears, “can put planned budget receipts at stake.”
The letter reads that the approved budget deficit of UAH 2.03 billion or 0.8% of GDP runs counter to the requirements of the president’s message, the European Choice of Ukraine, laying down the principle of zero-deficit budget. “The planned increase in the state’s accounts payable, especially in its foreign debt, is unacceptable. In fact, for the first time in the three years the state debt has been decreasing, our debt policy is changing,” stated the president.
The president referred to the situation with budget receipts from privatization (UAH 2.15 billion) as “still unresolved.” As before, instead of being invested, this money goes elsewhere. Pres. Kuchma also believes “the unprecedented withdrawal of NBU revenue, as well as part of revenue of state-owned enterprises (a total of UAH 700 million) for investment purposes in conditions of shrinking incomes and an acute need for funding to develop their own production is threatening the stability of the country’s monetary system.”
The head of state also pointed out the shortcomings in the settlement of inter-budgetary accounts. “Common are violations of formalized approaches to calculating deductions and subventions by region, which results not only in low responsibility of local governments for securing adequate receipts, but also in the revival of “manual” control of the budgetary process,” said the president. He voiced concern over “the inadequate provision for certain social items of the budget,” in part, the lack of a mechanism to raise the minimum wage for 2003. On January 4, the president signed a law under which the minimum wage is UAH 185 as of January 1, and starting July 1 it will reach UAH 237. To raise the minimum wage will cost an additional UAH 3 billion. Pres. Kuchma reminded the deputies that the parliamentary majority and Cabinet of Ministers it formed should assume joint responsibility for “making the right decision on the minimum wage.” The president also expressed his disapproval of the sharp cutbacks in funding for healthcare, social security, and social welfare programs. “By contrast, funding for Verkhovna Rada has remained at the level of 2002,” stressed Pres. Kuchma and stated his intention “to demand that the government and local bodies of executive power unconditionally fulfill the tasks foreseen by the law On the State Budget of Ukraine for 2003 and take measures to mitigate the possible negative effect of its separate clauses.”
On the day the president sent to the parliament his remarks and proposals for budget improvements, the government went about setting immediate goals for its implementation. However, according to the Cabinet of Ministers press service, they mostly dealt with the strong points of a “strained and yet realistic” national budget and, especially, with its social welfare section. As Premier Viktor Yanukovych stressed at a Cabinet meeting, budget implementation will be contingent on the performance of the economy sectors and economic growth of the country.
Meanwhile, business circles, long awaiting the rules of fair play with the power set down in the Tax Code, have voiced concern over the lengthy maneuvers on the budget pitch. As The Day learned from Oleksandr Narbut, president of the Pulsar concern, this is not about who carried the day in the never-ending controversy between the government and the parliamentary budget committee over the feasibility or unfeasibility of separate clauses, in the course of which the committee attempted to deprive the government of the so-called caches which it uses to create and then manage financial reserves. In his opinion, the real problem lies far deeper. Has everything been done in the course of the budgetary process so that Ukraine could start working in a new system of coordinates which could serve as an additional impetus that could help overcome the current trend toward slower economic growth? As he put it, “The lack of fresh ideas in the sphere of taxation eventually brings about this trend, and this is the biggest problem in the light of a not so brilliant investment outlook and the downturn in the world economy.” Mr. Narbut believes that at the present stage the government will be struggling to fill state coffers in the traditionally difficult first quarter, which will be none the simpler in the light of the problems with the repayment of foreign debt, as well as complicated relations with the NBU.
Incidentally, budget problems and controversies serve as a fiscal barometer in business and industrial circles. After all, it stands to reason that the burden of an unrealistic budget will be shouldered by successful national businesses that, as a rule, have established contacts with foreign investors. When asked about the potential risks faced by businesses in connection with the budget implementation, Diana Smakhtina, director of the SigmaBleyzer company, told The Day that she is afraid of an unprofessional approach to drafting a budget, which can disrupt not only economic stability. The company controls over 70 enterprises, including majority stakes and portfolio investments, said Ms. Smakhtina. They are showing positive dynamics which we plan not only to sustain, but also build up. We want to work normally and pay taxes. Consequently, the most dangerous for us is instability which before all poses the threat of tax pressure that, as a rule, deals a heavy blow to successful enterprises. And since this imperfect budget will have to be implemented one way or another, Ms. Smakhtina believes, “screws will be tightened on businesses.”
