Easy come, easy go

Ukraine’s 2013 budget, which the Verkhovna Rada passed in a record time of 32 (!) minutes, promises a lot of surprises.

The 2013 budget is the fourth national treasury dealt with by Mykola Azarov’s last Cabinet. On coming to power in early 2010, the Party of Regions received a country that had begun a new year without the national treasury. In essence, the 2010 budget was adopted on this government’s initiative as late as April 26, which was also a record of sorts for Ukraine. Besides, experts say Azarov’s first budget was the most critical in the 19 years of Ukrainian independence. A little less than three years on, experts awarded this “status” to the newly-passed 2013 budget.

Indeed, Azarov’s “first” and “last” budgets look much the same, as far as the intention to save on social expenditures and contributions to the real economy is concerned. Moreover, they keep intact, and even increase in some articles, subsidies for the state apparatus and the uniformed services.

The 2013 budget has also broken one more record – in the size of the budget deficit, which comes to 50.4 billion hryvnias or 3.2 percent of the GDP. The last time the state pocket had such a deep hole was in 2010 – 54 billion hryvnias. Incidentally, Azarov put this figure down to the mistakes the Tymoshenko government made during the “domestic struggle” against the world crisis consequences. Therefore, Azarov considered budget deficit reduction to 35 billion hryvnias in 2011 as almost his personal achievement. Obviously, this had a temporary effect, for the hole began to widen again in the next year.

To patch up the pocket in some way, the government expected to borrow 135 billion hryvnias, which was in fact to cover more than a third (37.49 percent) of budgetary revenues. Interestingly, the national treasury was patched up in the same way in 2010, too. But the borrowings almost equaled the “earnings,” as the 2010 budget’s borrowings constituted 40.25 percent of the revenues.

REVENUES IS AN OVERWHELMING TASK

The 2010 and 2013 budgets most noticeably differ in their revenues. While the government expected to collect UAH 190.6 billion-worth taxes three years ago, now it has revised its evaluation of the fiscal system’s potential. So the government hopes to receive tax earnings worth UAH 300.7 billion hryvnias in 2013. Yet, speaking to The Day off-record, a rank-and-file taxman got embarrassed when he heard of a “plan” like this. He said he would have to quit the job in this case because there would be virtually unfulfillable plans. Our interviewee said that almost all businesspeople in Ukraine had already paid all taxes a year in advance (!).

Although Azarov pointed out that the new budget would preserve “tendencies towards economic growth,” real figures testify to the contrary. The projected 2013 budgetary revenues will drop by UAH 12 billion in comparison to the 2012 budget, while the GDP growth will slow down by 0.5 and 0.3 percent in comparison with 2012 and the “anti-crisis” 2010, respectively.

The Azarov government is also pinning a great hope on IMF loans. But one of the main conditions to obtain them is to raise the household gas price, which will in turn also increase treasury revenues.

Hyping the 2013 budget, Azarov emphasized its “saving nature.” But, obeying the well-known rules of saving in 2010, the government did a good “cut-up job” on social expenditures, for example, almost halving research subsidies. Culture is also on the receiving end – although the Ministry of Culture’s overall budget was raised, such articles as cinema and museums are being axed: expenditures for these spheres have been cut tenfold (!) in the past four years.

The agro-industrial complex is also in a critical condition as subsidies were cut by UAH 2 billion in comparison with 2012. Mykola Prysiazhniuk, Minister for Agrarian Policies and Food, has already said he will suggest revising, in January or February, the 2013 state budget’s articles that deal with funding the main agrarian sector support programs.

Besides, austerity measures will also affect the passenger transport, where low-cost travel has been underfunded by a billion, which can only offset two thirds of the expenses. At the same time, allocations for the construction and reconstruction of roads were raised by UAH 4 billion (to UAH 13.5 billion) against the year 2012. This in turn complies with the strategy of President Viktor Yanukovych who said the other day that the economy would be rising the next year owing to a more active construction of infrastructural projects.

FOR THE FIRST TIME IN MANY YEARS, KYIV IS TURNING FROM A DONOR CITY INTO A SUBSIDIZED CITY

Local budgets are a critical problem of the 2013 national budget. The deficit of the cities’ financial resources will account to 24.7 percent, i.e., almost 30 billion hryvnias.

“Urban and rural public-sector employees have not been provided with wages and salaries for the last quarter of 2013, and there are no funds to pay for public utility and electricity charges,” the Association of Ukrainian Cities said. Conversely, the “tribute” paid by big cities from their local budgets to the national budget has gone up by 45 percent (!), even though all these cities have failed to raise the budgetary revenues planned for the end of 2012 and, in the words of mayors, the 2013 revenues are clearly overrated.

Besides, the government has earmarked a mere UAH 1.34 billion for the socioeconomic development of individual cities, UAH 2.8 billion down on the year 2012. What is more, almost 50 percent of this amount is intended for the Donbas: 30 percent (UAH 400.6 million) for Donetsk oblast and 16.3 percent (UAH 218 million) for Luhansk oblast. At the same time, only UAH 11 million (0.8 percent) is to go to Kyiv, UAH 2 million (0.2 percent) to Vinnytsia oblast, UAH 9 million (0.7 percent) to Volyn oblast, UAH 5 million (0.4 percent) to Chernivtsi and Khmelnytsky oblasts each, and UAH 8 million (0.6 percent) to Ivano-Frankivsk oblast.

The situation in the capital is an aberration – for the first time in many years, Kyiv will turn from a donor city into a subsidized city. The cause is that 50 percent of individual income tax earnings in Kyiv are to be channeled into the national budget.

In addition, due to a UAH 12-billion deficit in the funding of housing and the public utilities, the budget comprises absolutely no expenditures for house elevators, reconstruction of dormitories, improvement of water quality, re-equipment and heavy repairs of condominium buildings, replacement and major repairs of heating networks, energy effectiveness and energy saving measures, and many other programs. What also remains unfunded is the State Target-Oriented Program of the Socioeconomic Development of Small Cities in 2011-15.

Meanwhile, the funding of the Prosecutor General’s Office has been raised to UAH 3.2 billion, twice as much as in 2010 and 39 percent more than in 2012. Subsidies for the State Security Service have gone up by more than a billion hryvnias (to UAH 3.4 billion) compared to 2010. The Ministry of the Interior will receive almost 6 percent more than it did in 2012 – UAH 15 billion. The funding of the judicial system has been doubled in the past three years to UAH 4.3 billion. At the same time, the new budget reduces expenditures for the Ministry of Defense.

Interestingly, by cutting expenditures for the social sphere and the budget-forming sectors, the government is actively subsidizing the uniformed services. Why and against whom is the government putting up a defense? Or, maybe, some “additional” forces will be needed to collect the coveted 300 billion hryvnias from the economy?