Budget Deficit: To Grow or Shrink?

Parliament Deputy Speaker Viktor Medvedchuk called the budget deficit indicated in the draft (0.6% of the GDP, or Hr 712 million, which is the balance between the expenses and the revenues) not realistic and said the SDPU(u) faction was going to propose that the "full amount of arrears of social payments" also be included in the budget deficit.

The experts have divergent opinions on this: some think that increasing deficit will cause inflation, while the others consider that cuts in social programs will cause further reduction in effective demand among the population.

The Day's expert and Candidate of Science (economics) Vitaly Melnychuk, who is the Deputy Chairman of the Parliamentary Accounting Chamber, said that the proposals to increase the deficit, voiced mostly by the Left, have resulted only in growing sales volumes of government bonds. According to Mr. Melnychuk, the requirement to increase expenditures should be discussed in parallel fashion with sources for covering them.

Further, he said that one cannot but support the idea of including a special budget expense item to regulate the repayment of the back wages and salaries, pensions, etc. To accomplish this, one could either allocate funds from budget revenues, which experts believe is obviously understated, or even make a purposeful monetary emission providing, of course, it has a solid basis. Creation of a new financial pyramid is not acceptable, said Mr. Melnychuk: an emission of Hr 1 billion would cost the budget Hr 1.5-2 billion. The most effective way to collect the funds required to solve social problems would be to increase budget revenues by canceling the innumerable tax privileges granted by the government. The Tax Administration estimates such privileges at Hr 19.7 billion in 1997 (in particular, VAT exemptions amount to Hr 16 billion). This was 1.2 times more than all budget revenues, and this year the situation has not changed.

The quality of the decision approved will tell both on ordinary people and the whole economy