By Oleksiy Plotnykov,
doctor of economics
The government’s intent to reduce budget expenditures from 50% of GDP to 35% actually testifies to a new stage of the economic crisis.
The steep reduction of the budget expenditures is caused mainly by the fact that taxes are not paid properly and the revenue side does not receive the money it needs. Exceeding the planned level of budget deficit and difficulties in relations with the IMF also flow from this.
The government has shown some flexibility in this situation. Absence of any mechanisms for proper tax collecting led them to chose a different tack, ignoring the threat of possible social explosion. Steep decrease of budget expenditures will lead to new problems in paying wages and salaries as well as to cutting the number of employees in state organizations (like schools, daycare facilities, and clinics) and deep cuts in spending on science and education. The state intends to convert to the complete commercialization of education, meaning it will become inaccessible. Pensioners will not even have the hope of their pensions’ being increased, and fee-for-service medicine will not help the nation’s health.
Even with this, government does not want to reform taxation system. It is easy to declare, as Mr. Tyhypko did recently, that our excise rates are “the lowest in the world,” but the rest of the system is perhaps the most monstrous in the world. Especially if you take the mechanism of tax collecting.
The plans for steep decrease of budget expenditures will also show IMF that there is something going on in Ukrainian economy, something that should look like economic reform.
But instead of lessening tax pressure and thus stimulating taxpaying, the Ukrainian government drifts with the current; it decides to reduce expenditures. Which means the budget-supported sphere will suffer. All this will not make the President and the Cabinet of Ministers more popular in the country.






