Speculations on the state budget: Interesting details about Ukraine's budget for 2017
Some interesting details about the national budget for the upcoming year
On September 15, the drop-dead deadline provided in the Budget Code, the 2017 Budget Bill was registered the Verkhovna Rada after having been approved by the Cabinet at an unscheduled session just days before. And so, the budget race was on. This is the perfect moment to analyze the country’s main financial roadmap and for civil society and the public to debate its merits: what should be in it, and what shouldn’t.
A QUALITATIVE BREAKTHROUGH
First of all, the Government deserves a medal. It did not take the bill back for revisions right after registering it in the legislature, the way its predecessors had done for the last few years. That’s already a good sign. The overall impression is that preparations for the 2017 Budget have been going on for some time in a fairly systematic fashion: the budget resolution was passed back in June and, judging by the notices that appeared from time to time in the press, MinFin worked continuously with all the government agencies on the actual draft.
Most likely this budget bill was ready even earlier, along with a number of variations depending on how events unfolded, but the Government had to wait for the IMF to make up its mind whether to carry out a second review of the Extended Fund Facility (EFF) and issue the third tranche of Ukraine’s credit. If its decision was positive, it meant that Ukraine would be able to use at least US $3.5-4bn from the IMF and other international donors, enabling a positive outlook for next year. If things had gone the other way, based on current indicators, the country would have had to tighten its belt considerably in the last few months of this year, which would have had a negative effect on economic growth in 2017—and hence on 2017 budget figures.
On September 14, the IMF ended up making a positive decision, announcing that this was a kind of advance, exactly a day before the deadline for submitting a Budget Bill to the Verkhovna Rada. The Cabinet met the deadline, the process was launched, and shortterm expectations based on the latest portion of foreign loans are positive. For this, the Cabinet deserves to be praised.
But let’s not get carried away with its merits just yet. 2016 appears to have marked the end of the country’s crisis and its sharp economic decline, so 2017 should be the first year of statistically significant growth since 2011. Or are we living in Greece? Yet this requires a completely different approach to putting together a budget—and far less time and effort spent on the process itself. When an economy is stagnating or in decline, there is no certainty where and when it will bottom out or in the tax base, so the Government has to look for various means to expand it, using measures that are often questionable and artificial, to raise rates and fees, and increase tax pressure. When an economy is in a growth phase, things are very different: the tax base is predictable, budget revenues don’t tend to decline, and no painful moves are necessary, such as spending cuts.
This leads to a number of conclusions. Firstly, the fact that the previous budgets were approved just before the New Year may have been embarrassing, but it was largely justified by the crisis and made it possible, to some extent, to establish the most realistic and freshest forecasts and indicators in the bill. This reduces the level of blame on the post-revolutionary predecessors, as well as the merits of the Groisman Cabinet. Secondly, since we’re talking about a budget in a growing phase, its weak points will not be where to find revenues but how to most effectively distribute them across expenditures. This is what needs to be considered when analyzing the bill.
THE REVENUE SIDE
In the current Budget Bill, 2017 revenues are expected to be UAH 706bn, which is 17.3% more than was planned in the current year. Tax revenues, which con-