Who will pay?
The government together with the parliament has created a working group to further elaborate the 2003 draft budget. The new ministers and the deputies who have elected them have made up their minds to jump onto the budget train, trying to repair on the go. They have scheduled the third (and the last) reading of the budget scheduled to start in the middle of December to do so. As a rule, that reading is a mere formality (since they have already worked out revenues and expenditures), but not this time.
Prime Minister Viktor Yanukovych is well aware of the fact that his political future will depend on how the state budget will be fulfilled, and this is why he is determined. “We should increase revenues rather than puff out our cheeks,” the premier keeps telling the deputies. And he has already received the chief of state’s support, for President Leonid Kuchma has called the draft voted for in the second reading “a time for cuts.” Verkhovna Rada Budget Policy Committee Chairman Petro Poroshenko is resigned to serious further amending the draft as demanded, realizing that, otherwise, they could do without him. For the budget policy committee remains the only one that still is not divided in terms of parliament majority fractions.
The two readings resulted in nearly UAH 54 billion that Ukrainians will have to pay to the treasury next year. By comparison, 10 billion more than was slated for this year. The 2002 budget fulfillment has collapsed, if you happen to still be unaware of it, which was why Leonid Kuchma criticized Anatoly Kinakh’s government before dismissing it. For the sake of justice, we should note that last year’s budget was passed by the deputies in the heat of an election campaign, and the fanatical eagerness to immediately provide all the citizens with the sausage for 2.20 seized even the otherwise most pragmatic, with expected results concerning the feasibility of projected revenues and expenditures. Though no other parliamentary election is appearing on the scene so far, it still is not quite clear what the deputies expect to use to gild the treasury next year. Indeed, the sources have been officially determined, but what will make the receipts grow by 20% overnight? The newly appointed prime minister seems to be the last to know. He has already claimed that he will initiate legislative changes to solve the budget gap problem.
The problem is that the money the tax officials failed to find will not have to turn Viktor Yanukovych to the Donbas. According to the Tax Administration, metallurgy and coal are the sectors with the greatest volume of shadow transactions in Ukraine. At the last congress of metallurgy and coal employees Leonid Kuchma said that most metal transactions are made via offshore firms, the latter also owning controlling interests in the enterprises of this sector. Creating a work group to further amend the 2003 draft budget with those firms would certainly be more effective. Taking into account Yanukovych’s decisiveness, there is a certain probability that such a group will be formed. The metallurgical enterprise owners have their list of rigid conditions, in exchange for which the state can count on increasing the volume of taxes paid. The requirements include, first of all, reducing tax rates, liberalization of exchange rate policy, state support of the coal mining industry, and exempting from the VAT expenditures to buy new equipment. These measures can partially be taken as soon as in December.
With the economic prospect so hazy, passing a feasible budget for 2003 is vital to Ukraine. Even now the revenue shortage makes the government enter the credit market seeking loans on humiliating terms. On the eve of his dismissal as vice premier, Vasyl Rohovy predicted that it is the extent of the budget’s realism that will determine the further dynamics of our country’s credit ratings. It is also worth noting that the understanding of the need to reduce taxes that those in authority have shown could simply evaporate in the face of budget problems.
In fact, it is political rather than economic considerations that force the new government to take a tough stand in the budget battle. Viktor Yanukovych is not going to keep silent watching an unrealizable budget being passed, unlike Anatoly Kinakh, the former prime minister. The results of such silence are much too obvious. It is possible the bill on the 2003 budget will be vetoed, which would result in its delayed passage. But this will probably be the lesser evil than a budget that no one believes can be implemented, even those who try to do so.
