Ukraine’s parliament usually requires an all-night session to approve a budget, and this year was no exception: lawmakers approved the state budget for 2018 at almost midnight on Dec. 7.
What was unusual is that the budget was approved in early December – parliament usually leaves it until the last moment – the last days or hours of December, to finalize the state’s financial plans for the coming year.
As expected, the budget foresees an increase in spending on the army, education, and significantly – on law enforcement. It also envisions the launch of the long-awaited anti-corruption court. However, the budget doesn’t provide the expected financing to public broadcasting and transfers a lot of spending to local budgets.
Overall, 273 lawmakers voted in favor of the law. The majority of the support came from the deputies from President Petro Poroshenko Bloc, Narodnyi Front (People’s Front), Vidrodzhennia (Revival), Volia Narodu (People’s Will), and Radical Party. The Opposition Bloc and Samopomich voted against the budget, while Yuliia Tymoshenko’s Batkivshchyna Party (Fatherland) wasn’t present for voting, according to the Verkhovna Rada website.
“We have worked with you for several months in advance to form a high-quality and balanced budget for the country,” Prime Minister Volodymyr Groysman said in the parliament to the lawmakers before the vote. The Minister of Finance Oleksandr Danylyuk and President Petro Poroshenko also supported the law. Poroshenko Bloc’s lawmaker Iryna Lutsenko called the budget in Rada “a balanced and reasonable” one.
However, many were not so optimistic.
What is in the budget?
The document envisions national spending of $36.4 billion and revenues of $33.6 billion. In 2017, the government had planned to spend $29.8 billion and raise revenues of $27.2 billion.
To increase revenues, the government adopted changes to the tax code, raising tobacco excise duty.
According to the document published on the Verkhovna Rada website, the government expects an increase of 3 percent in GDP, with inflation projected at 9 percent. The increase in GDP over the first three quarters of 2017 is now at 2.1 percent.
Around $1.8 billion will be spent on servicing Ukraine’s foreign debt, and domestic debt of $4.8 billion.
The government is to increase the minimum wage from Hr 3,200 ($117) to Hr 3,723 ($137) starting from Jan. 1. However, Poroshenko said it might be increased to Hr 4,100 ($151). The national currency the hryvnia is expected to lose more value, with an average exchange rate of Hr 29.3 to the dollar used in budget calculations (the current rate is Hr 27.2), and the minimum wage will be increased in line with inflation.
Oleksandr Parashchiy, the head of research at Kyiv-based Concorde Capital investment bank, described the numbers in the budget as realistic. He said that “it’s a real breakthrough” that lawmakers adopted the decision so early.
“Looking today at these numbers, they do not look like a fantasy, and everything looks more or less realistic,” Parashchiy said. “The deficit corresponds to the demands of the International Monetary Fund.” However, he said inflation could be higher than envisioned in the budget.
However, “it is obvious that, like all of the previous ones, this (budget) is the result of a compromise between what the government would like to see and what deputies are ready to vote for,” he said. “It would be naive to think that lawmakers do not want to make money, including from the budget.”
Law enforcement financing
The 26-member Samopomich Party was among those who voted against the budget. Earlier that same day, its party member Yegor Soboliev was stripped of his position as a chairman of the anti-corruption committee in parliament.
“Samopomich voted against the budget of 2018 because it’s not a budget for the benefit of the people, or developing business – it’s a budget of waste and a police state,” Samopomich lawmaker Tetiana Ostrikova told the Kyiv Post in comments made via phone messaging.
Along with a rise in teachers’ salaries, an increase in health sector and science spending, and on road construction, the budget envisions a substantial rise in spending on law enforcement.
The government increased spending on the General Prosecutor’s Office (or GPO), the Security Service of Ukraine (SBU), and the Ministry of Internal Affairs. For instance, SBU and GPO will get $54.5 million and $64.4 million more respectively in 2018.
The Ministry of Internal Affairs got an increase of $646 million on last year’s budget allocation.
Ostrikova said the parliament based the budget on macro indicators from May, which were not reliable. “It was a negligence,” she said. After that, the government checked the indicators in November and found an additional Hr 35 billion in revenues and more than Hr 45 billion in expenses. The difference will be allocated to cover expenses on officials and law enforcement, she said.
“The public is not aware of what has been done by these law enforcement bodies over the last years in the fight against crime that they should receive these additional billions,” she said.
At the same time, Ostrikova said the expenses of the army were only 46 percent covered. In the 2018 budget, the government increases expenses on defense to 5 percent of GDP.
“So Samopomich is against the financing of police instead of soldiers,” she said.
Independent lawmaker Dmytro Dobrodomov also voted against the budget, saying one of the reasons he did is because a lot of expenses will be transferred to local budgets, though the budget is not prepared to cover it.
“(I’m) absolutely unsatisfied that a large part of medical, educational, and municipal expenses, and social benefits, (all) granted by the constitution, were transferred to the local budgets,” Dobrodomov said. “They will just fail to cope with them.”
Anti-corruption agencies
The budget envisions the long-delayed launch of the special anti-corruption court, allocating $1.2 million to this. The institution should serve as the final link in the chain of newly created anti-corruption agencies.
Financing of other intuitions was left practically unchanged, taking into account inflation – the National Anti-Corruption Bureau (NABU) will get $31.5 million (in 2017, the agency got $28.4 million), and the National Agency for Preventing Corruption – $25 million (compared to $22 million in 2017). The Special Anti-Corruption Prosecutor’s Office will receive slightly less than in 2017 – $4.2 million, compared to $4.4 million.
At the time when the state is increasing spending on law enforcement, “they cut financing to the NABU – the agency that I consider the most effective,” Dobrodomov said.
Public media
Public broadcasting financing was cut to $28.6 million after the second reading of the bill. The public broadcasting council website said financing was half of that expected to be allocated according to the law.
Some civil society organizations were scathing about the cuts.
“This is an assassination attempt on reform,” Vadym Miskyi, the head of advocacy at civil society watchdog Reanimation Package of Reforms and member of the public broadcasting supervisory board, said in a statement. “But there’s no hope of that – we won’t be killed by it, because public broadcasting is an idea that is embodied by a very ideological team. So, we will come through the challenges even stronger.”
According to online news media website Ukrainska Pravda, ambassadors from 20 countries, including the United States, the United Kingdom, Canada, Germany, and France, criticized the cuts in funding for public broadcasting in the budget.
Dobrodomov said the government should decide whether they will in fact develop public broadcasting, and if so, finance it properly.
