Ukraine’s parliament managed to stir itself into action to pass the 2016 budget on Christmas Day, potentially unlocking much-needed international funding to bring some cheer to the country in the New Year.
The decisive vote came at 4:04 a.m. on Dec. 25, with 263 lawmakers voting in favor of the budget bill.
The 2016 budget envisages Hr 595.081 billion ($23.8 billion) in revenues and expenditure of Hr 667.733 billion ($26.7 billion). The maximum deficit is set at Hr 83.694 billion ($3.35 billion). The country’s gross domestic product is forecast to grow by 2 percent — to roughly $94 billion — with a 12 percent inflation rate.
Ahead of passing the budget, Ukraine’s lawmakers approved changes to the tax code, on which the country’s budget next year is to be based.
IMF lending still in doubt
However, there are still questions over whether the passage of the 2016 budget will lead to another loan installment of $1.7 billion from the International Monetary Fund, which in turn could deliver another $2.3 billion from Western creditors.
“Receiving the next tranche from the IMF and other financial aid connected with it depends on whether the budget remains consistent with the goals of our program with the IMF after all the changes made in parliament,” Ukrainian Finance Minister Natalie Jaresko wrote in a post on her Facebook page after the vote. “That is – whether (the budget) remains balanced and responsible.”
The IMF set a limit to the budget deficit of 3.7 percent of GDP as a key condition for continuing its $40 billion bailout program for Ukraine. IMF First Deputy Managing Director David Lipton said in a statement on Dec. 18, after parliament failed to vote through the budget at an earlier sitting, that key reforms were also expected by the IMF.
“At the same time, it is equally important that the budget is supported by structural reforms to remove exemptions and widen the tax base, as well as streamline government spending on a sustainable basis, which also are key objectives of the program,” Lipton said.
According to Jaresko, the compliance of the adopted bills with the requirements of the IMF will be analyzed by IMF experts. The expert analysis is expected to start after the New Year’s holidays.
Cracks in the pro-West coalition
The vote on the new budget also exposed cracks in Ukraine’s pro-West coalition. Two of the coalition parties, Batkivshchyna (Motherland) and Samopomich (Self Help), did not support the bill.
Yulia Tymoshenko, the leader of the Batkivshchyna Party, said in parliament during the debate on the 2016 budget that the bill wouldn’t do enough to support Ukraine’s crisis-hit economy.
“We all understand that with a radical drop in the economy the state should be directing all available budget resources to supporting the economy,” Tymoshenko said. “I have in my hands an analysis of the budget by the (parliament) Accounting Chamber that shows a 30.9 percent cut in spending on economic activities.”
The Opposition Bloc, made up largely of former Party of Regions lawmakers from the era of ousted former President Viktor Yanukovych, also voted against the budget bill.
In the end, the government had to rely on the votes of the Radical Party, led by populist Oleg Lyashko, the Vidrodzhennia Party, and the People’s Will Party, none of which are part of the coalition, to pass the budget.
According to Ukrainian law, the draft budget should have been submitted to parliament in mid-September. But this year, like the one before, the bill was submitted late, on Dec. 11, leaving little time for lawmakers and the public to discuss the government’s spending plans for the next year. The draft budget underwent numerous revisions during the week before its approval.
And not all coalition lawmakers were happy with the way the budget was finally approved.
“A year ago the government of (Prime Minister Arseniy) Yatsenyuk promised that voting for a budget at 5 o’clock in the morning on the last session day of the year was an exception,” Serhiy Leschchenko, a lawmaker from the Bloc of Petro Poroshenko faction in parliament, wrote on Facebook after the vote. “But it’s happened again this year… In fact, this is a crude trick of Yatsenyuk – to drive lawmakers under the pressure of time, blackmailing them with (the threat of) a collapse of relations with the IMF, forcing everybody into submission to take the necessary decision.”
New Year’s ‘gift’ for the public
The 2016 budget will mean more austerity for Ukrainians.
The minimum wage, which serves as the basis for calculating budget-sector salaries and social benefits, will increase by 12.1 percent in several steps over the year to Hr 1,496 (about $60). While that will cover expected inflation in 2016, the increases are nowhere near enough to compensate for the depreciation the hryvnia has suffered in the two years since the Euro Maidan Revolution.
Parliament also voted in favor of setting individuals’ income tax at 18 percent instead of the current 15 and 20 percent, while cutting social security tax from nearly 40 to 22 percent. Lawmakers also backed limiting breaks on value-added tax for the farming sector. They also approved an increase in the excise tax on beer (100 percent) alcoholic drinks (50 percent), tobacco (40 percent) and fuel (13 percent).
Lawmakers voted to cancel a 5-10 percent import tax that was introduced in December 2014. Instead, they approved two separate registers of VAT refunds – one for businesses that export over 40 percent of their production, and a second for all other taxpayers.
The new Tax Code amendments also broaden the tax base for taxpayers in the third group of the simplified taxation system.
All the same, the amendments approved did not constitute the reform of the Tax Code that was promised by the government, and required by the IMF, and parliament and the government, led by the Finance Ministry, will still have to come to a compromise. Prime Minister Yatsenyuk said on Dec. 18 that discussion of amendments to the Tax Code would continue into the New Year, which means that broader reform of Ukraine’s tax system can’t be expected until well into 2016.
Kyiv Post writer Olena Savchuk can be reached at [email protected]
