Spec­u­la­tions on the state bud­get: In­ter­est­ing de­tails about Ukraine's bud­get for 2017

Some in­ter­est­ing de­tails about the na­tional bud­get for the up­com­ing year

The Ukrainian Week - - CONTENTS - Lyubomyr Shava­lyuk

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-

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