Decency, predictability, responsibility
The development of the economic situation in 1999-2000 gives cause for cautious optimism for the first time in the past decade. Obviously, certain negative trends have been overcome and it is safe to assume, also for the first time, that some headway has been made in the social sphere. The current cabinet has to be given its due, without doubt.
Another important thing is that the stated objectives and tasks of the government’s economic and social policy are consistent with the fundamental interests of this country. Any government considering these interests a priority must follow these guidelines.
The problem is how consistently the stated program is being implemented, whether actual endeavors are equal to the stated objectives, and to what extent the available capacities are being utilized. The SDPU(o) has a right to broach the subject and bring it into the limelight, because it is a party of the majority and supported the premier’s candidacy and cabinet program. It is one of the parties providing the government the greatest support in parliament (as evidenced by voting results). Thus the SDPU(o) has its share of responsibility for the cabinet’s performance and expects the government to take its views into account.
One of the most pressing issues is keeping the achieved degree of economic growth stable and increase it in the next couple of years. Easing the tax burden on the economy is a compulsory condition of such stability. Tax reform could and should have been carried out in 2000. Failure to do so was the cabinet’s strategic mistake and the negative consequences are hard to assess.
No less a mistake would be the enactment of the tax code at this stage, taking a see-no-evil attitude, without correcting serious shortcomings. The taxpayer’s legal guarantees must be more clearly formulated, so as to protect him from the fiscal authorities’ arbitrariness, and these authorities’ functions and rights must be strictly delimited. The tax rates must be lowered substantially, quickly, and simultaneously, without any stages. Otherwise the stimulating effect will be lessened, and this could discredit reform and strengthen the arguments of those who favor high taxes.
We all know the sources capable of making up for the initial setback in the tax returns. In the first place, expanding the tax base. We are told that VAT exemptions are almost six times the amount received as tax returns. This is absurd, and the evidence shows that it is time we exchanged slogans for deeds. There are no strong arguments against lowering the VAT rate to 15% (which is still quite high by European standards).
Tax reform can be successful only after bringing order to the budget. One cannot help but agree with the stated principles and objectives of the budget policy: discarding the destructive offset patterns, exemptions and write-offs; sufficiency [being balanced], social orientation, etc. Yet an analysis of what has been accomplished fails to stimulate euphoria.
The Accounting Chamber has found that tax exemptions increased by 25% during nine months of 2000 compared to the same period the previous year, exceeding the state budget’s common fund’s incomes; the budget surplus is a fiction, because what we actually have a multibillion concealed deficit; budget social expenses are underfunded, but those on state administration, primarily in the executive field, are overfunded.
It is beyond understanding why, given the most favorable economic conditions, unexpectedly high social production growth and above-plan budget revenues, the faulty practice of budget offsets was restored in late 2000, increasing the number of entities entitled to such offsets, and softening offset terms and conditions, the more so that the staggering sums received by the budget were due to the record high inflation rate in the past four years. It is generally known that every fourth hryvnia, in terms of budget income, was an inflationary one and that incomes could be increased by another UAH 1.5 billion only by exceeding the projected inflation index.
Likewise, it is hard to understand why the number of cases of repaying foreign loans received against cabinet guarantees, using budget funds, has increased over the past several months, despite repeated enactments banning this practice (losses sustained because of this practice amounted to $1 billion at the start of 2000).
The government persists in applying old erroneous methods of solving budget problems contrary to its own declarations and program, depriving the budget of live money that could be spent on social needs. Perhaps they are simply unable to assess the aggravating situation in the social sphere, otherwise they would not finance over- the-budget expenditures of separate authoritative structures totaling some UAH 500 million (considering that the budget envisaged doubling the amount anyway). This money would have sufficed to pay wage/salary arrears in 2000.
Apart from separate positive changes, social problems remain to be solved, so the living standard can be increased. The average take-home pay declined, and pensions plummeted in 2000. Paying off pension arrears became easier largely due to high inflation. It also must be admitted that the current pension rise is just an attempt to refund what people lost earlier because of high inflation, considering that in 2000 consumer prices went up 34.5% and most pensioners have spend all their money on food, rent, and utilities.
Reducing back wages and salaries by 23% with a 25.8% inflation rate means that the government’s debt remains unpaid.
The population’s real incomes grew not because of pay rise, but because of income from the so- called survival economy — private farming plots, vegetable gardens, orchards, etc.
Wages, salaries, and pensions dropping in conditions of economic depression are understandable, but they are paradoxical given quite intensive GDP growth. This can be explained not only by the long overdue reform ignoring the payroll system, indifference to the increasing accruals on wages and salaries, pushing this system into the shadows and illegal accounting patterns. The Stabilization Package proclaimed by the cabinet at the time of its appointment has remained a nice motto. If implemented, it could have dramatically increased the trade unions’ role in protecting working people’s rights, including the right to adequate remuneration. Thus it is necessary to raise the issue of carrying out this clause in the government program.
Our incomes policy must be revised quickly and radically. The time has come to raise the question of exempting a considerable part of the population, people with low incomes, from all taxes, and of substantially lowering the tax rates. It is high time we stopped discussing the need to switch to targeted social aid and finally started this transition (at least by instituting a system to monitor poverty).
In many respects the situation in the social sphere is determined by the fact that the correctly identified priorities and tasks assigned are not transformed into a specific current policy. This is characteristic of the entire economy. Strategic guidelines appear as a set of mottoes or abstract indices that are not directly connected with the cabinet’s practical policies. As a result, the economic strategy plays no real role, being replaced by situational responses to current problems. We are losing the ability to adequately meet the global challenges of our times. Thus, we are doing nothing about solving the problem of rejuvenating Ukraine’s production apparatus. Here depreciation has reached the critical point. This problem becomes especially pressing with regard to elements of infrastructure, which cannot be solved quickly and without the government’s direct participation, while relying on market mechanisms. If it does not become a stimulus triggering the elaboration and immediate implementation of a series of coordinated specific measures, this country will soon face a series of industrial calamities. The absence of a strategic approach is also manifest in the manner in which we try to restructure domestic production, science, and information.
One of the consequences of the dominance of current tasks over strategic objectives is the instability and unpredictability of economic policy, which becomes a factor disorganizing business life, raising business risks to a level where normal business becomes impossible. I could cite countless examples of this unpredictability of the government.
One of them was an attempt to revise the key privatization procedures without changing the law, replacing them with biased high level decisions. This was a clear sign to the foreign and domestic investors that the government was not going to play by the legally established rules. Small wonder that the privatization revenue plan showed a sharply worsened performance.
Right after adopting simplified small business tax procedures and simplifying somewhat the system of regulation of their activities, an attempt was made to revise these decisions (non-inclusion of the simplified taxation procedures in the first draft of the tax code, an attempt to introduce electronic cash registers, and so on).
Versatile as they are, most of these problems can be reduced to a common denominator. The point is not who is holding what post or which high officials are after what. The point is that we still do not have an effective mechanism of monitoring the executive, and subjecting its efforts to the interests of society. The anonymous bureaucratic machine has quietly soft-pedaled the administrative reform, reducing it to another series of mergers, divisions, alterations, while keeping the functions and authority unchanged. As a result the number of bureaucrats and expenses involved has grown.
The problem of subjecting bureaucratic endeavors to the public interest in a forming democracy can only be solved by developing an effective political party system, securing a reliable link in the chain of society, parties, representative bodies, policies, government, and bureaucracy. The issue of the parliamentary majority influencing the cabinet and formation of a politically responsible government is not just a political issue. It is a way to establish an effective state machine without which a steady development of the economy is impossible.
I would not want the reader to address my criticism of the cabinet’s performance exclusively to my rejection of Viktor Yushchenko as premier. This criticism is based on universal rules stemming from my views and ideological approach of the SDPU(o). I would address this criticism to any cabinet, regardless of who heads it and regardless of my own status.
I believe that the government can be effective only if it conforms to the following requirements:
— strict adherence to principles understandable to the whole society;
— tactical decisions made relying on a carefully developed strategy, constantly being corrected;
— keeping society informed, without any restriction or equivocation, about the government’s attainments, failures, and their causes, responding to criticism calmly and with dignity;
— assuming full responsibility for every decision, keeping consistent and strictly honoring every commitment; and
— reliance on a clearly structured parliamentary majority when developing its policy.
