Fresh Holes in the Budget
The Cabinet of Ministers has announced a gloomy forecast about fulfillment of Ukraine’s 2002 state budget: should the current tax payments pattern remain the same, the treasury could fall 4 billion hryvnias short. Whence such an exact figure is anybody’s guess. Oddly enough, it coincides with the deficiency index for the first quarter (slightly over 1 billion hryvnias) multiplied by four.
A little earlier, President Leonid Kuchma spoke about the danger of a budget crisis. He is known to have discussed this point the other day with Prime Minister Anatoly Kinakh. Yet, it is still unknown what kind of instructions the government received in connection with this danger because the cabinet discussed this problem last Wednesday at a closed-door session. Premier Kinakh dropped just a few words about a package of bills to be proposed to Verkhovna Rada by May 15. He also said one of the ways to solve the budget problems was curtailing the shadow economic sector — “not by coercive, fiscal or administrative measures but, first of all, by creating conditions for the development of entrepreneurship and an effective basis for an investment-friendly climate.”
Yet, past experience shows that if Ukraine’s top officials begin to talk of budget problems, we are in for some fresh news. Tax Administration Chairman Mykola Azarov said the worst revenue payment situation is in the fuel-and-energy sector. In particular, the Naftohaz Ukrayiny Company has cut its budgetary payments, which coincided in time with the coming of new management. Incidentally, former Naftohaz President Vadym Kopylov is now again working as Mr. Azarov’s deputy. Naftohaz has run up a debt of 900 million hryvnias. It is not ruled out that Ukrainian oil traders will also be inspected. According to the Tax Administration, there are quite a few recently privatized companies among tax evaders. Mr. Azarov warns they could be de- privatized. “I will try to compel the state to reacquire the property of the enterprises that have worsened their financial results after privatization,” Mr. Azarov told the Tax Administration meeting on April 12. He also announced that the cabinet is already drawing up tax collection targets for poorly disciplined sectors. The highest targets will be assigned to the ministries of fuel and energy, agriculture, and industrial policy.
In terms of regions, the largest budgetary debtors are Donetsk, Ternopil, Kharkiv, Khmelnytsky, and Kirovohrad oblasts. This is a serious warning for these oblasts’ government. Regional public sector organizations have seen their accounts payable rise by a total UAH 293.1 million or 30.1% in January- March, although local budget revenues rose and Kyiv paid 100% of what it had due. To partially solve this problem, the cabinet intends to press for changes in the Budget Code of Ukraine, so that local authorities be allowed to take out loans from commercial banks, Prime Minister Kinakh said. The premier claims the non-fulfillment of local budgets presents the greatest danger at present.
As to the central budget, the cabinet is most likely to press for a legislation approving revenue cuts. Minister of Finance Ihor Yushko does not rule out that parliament will have to debate this point as early as late spring. Yet, this could happen only if other measures fail to yield fast results. With 75% of state budget expenditures having a protected status, the government will find it hard to sequester appropriated funds.
But Mr. Azarov still sees no special problems in fulfilling the state budget. He is inclined to blame the elections for the current difficulties: the candidates promised to write off all debts and cut all taxes, which had a negative effect on taxpayer discipline. Let us hope the optimism of tax authorities will save this country from a sequester.
