Doubletalks of social standards: Can Ukraine raise minimum wages by 3200 UAH?

Author : People’s Procuratorate

Source : 112 Ukraine

Taxpayers, as well as the heads of the state institutions, are not ready for the sharp steps of the government
21:27, 7 March 2017

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The decision to raise the minimum wage to 3200 was calculated, state officials. For six months the experts have been elaborating this plan. But in the first version of the state budget for 2017 the minimum wage was approved at the level of 1,600 hryvnia with growth by 1762 hryvnia by the end of the year. Local budgets submitted their estimates, after which in the second version of the state budget the minimum wage was approved at the level of 3200 hryvnia. Ministry of Finance additionally allocated 28.3 billion hryvnia to cover the difference between the first increase and the second one (to 3200 hryvnia). But not all state institutions have got the extra money; some organizations declared about underfunding.

"About three million a month are not enough to pay the salaries. I mean minimal salary; the one that people should obtain, taking into account the increase," said Yuriy Usenko, the director of the National Institute of Surgery and Transplantology named after A.A. Shalimov.

A similar situation is with all medical institutions under the National Academy of Medical Sciences (NAMS). In response to the information request of the "People's Procuratorate", NAMS reported: the academy does not have the required amount of money.

Related: IMF asks to freeze minimum wages that will lead to Pension Fund deficit

The management of another budgetary organization – the largest library of Ukraine named after Vernadsky, – is forced to save money wherever they could in order to pay salaries to employees and not to reduce the staffing, said the director general of the National Library Voloduymyr Popyk:

"The dissatisfaction is growing. First of all, we have to cover all the needs of the library, which are vital, technical. And we have to do it by reducing wages. Ur employees go on forced vacations at their own expense, some become part-time workers," he claimed.

According to experts, the situation in the regions is even tenser. Such an increase will grow unevenly between the small towns and villages.

Related: Ukraine’s GDP grew by 5.1% in January, — Ministry of Economy

"Now the state budgets are heavily burdened with local budgets. As a result, people are often either dismissed or transferred to a shorter working day. It is planned to dismiss 220,000 workers in the healthcare and education sectors in 2017,” notes economic expert Olexander Okhrimenko.

The situation is ambiguous in the small towns. For example in January, Korostishivska communal service employees have got 2000 hryvnias each (instead of 3200 hryvnias). The minimum wage was not raised to 3,200, because people do not pay for utilities.

Related: Ukrainian wages more than $ 1,000: what should be done?

Korostishivska communal service refused to explain why the wages of their employees was tied to the utilities payment. They referred to the fact that it is not journalists’ competence to be interested in such issues.

Not everyone is ready to talk about minimal wages standing in front of camera. People are afraid that they could be fired. The State Service for Labor explained that since the raising of the minimum salary, only in January this year about a thousand people (from both state and private companies) complained about employers.

"We consider any arguments of this kind to be incorrect. I mean, someone will start paying, and then they will pay you all. A person is doing her job right now, she performs her functions honestly," Roman Chernega, the chairman of the State Labor Service, commented on the situation with the communal service.

Related: Raise of minimum wage in 2017 will not lead to growing unemployment, - Chairwoman of National Bank

Korostishivska Central District Hospital has not obtained money for raising the minimum wage. Director of the hospital Olexander Veselovsky said that despite the fact that salaries of the employees are paid from the state budget, they were forced to take money from the local budget.

"The wages were sharply increased in January. And you saw when the government raised the salary - after the budget was approved - as early as January. The salary was raised to 3200 in January. And we did not have enough money right away. It was impossible to find it, because there were no sessions in January. So we had an agreement with our labor collective that we would pay them 75% of wages, and in February they would get the rest," Veselovsky said.

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There is no accurate data on exactly how the Ministry of Finance decided on the sum of money to raise the minimum wage to 3200. We asked the Ministry of Finance to show how the calculation was carried out and to comment on why there is no enough money to raise the minimum wage. A few days later, we receive a written response, without formulas, only a statement of facts: 18.7 billion (out of 28.3 billion)  went for the tariff scale. And another 9.6 billion hryvnia went for raising the wages by 3200 hryvnia for those categories that do not get premiums.

The letter did not include any calculations or number of state employees in the various regions that would get an increase. There is no accurate data whether enough money is allocated for raising wages to 3200:

And it is specified that the heads of state institutions should consider correlation between the number of the employees and the available money.

Related: Ukraine doubles the minimum wage: qui bono?

According to the economic expert Yuriy Gavrylechko, it is possible to calculate how much money should be allocated from the budget to increase, only when local budgets submit new estimates. After all, the old ones were adopted even before the approval of the state budget and, of course, before the introduction of a new minimum wages rate.

Not only the state structures should increase the minimum wage, but also by the private sector. According to the plan of officials, this step ostensibly should lead the economy out of the shadow. Experts also argue that raising taxes will lead the economy even further into the shadows.

"Earlier the minimum amount of the single social contribution was 300 hryvnias, now it is 700. There is one way to ensure that entrepreneurs are able to fulfill the minimum wage requirement – fire the workers of shut down the enterprises. In some cases even dismissal would not help. Because increasing the minimum wage means increasing the VAT. There are some enterprises that cannot afford it, and they would be forced to close," said expert Olexander Okhrimenko.

Related: Ukraine raises its subsistence minimum to $63 per month

We asked the entrepreneurs themselves to comment on the situation. Oleksiy is the director of the bakery company in Zaporizhia. He says that he is going to fire his employees, and he is ready to pay new taxes. And the increase in expenses will be compensated in another way:

"Well, I've figured that if today I index wages in proportion to the doubled minimum wage, then I will need to additionally increase the price of products by some 7 – 10%. I do not get additional money from it. And my colleagues say: you counted 7% for yourself, and if you take the chain - I am a flier - I will do the same. The flour would become more expensive by 25%.  25% of the price, you know," said Oleksiy Puchkov, businessman.

The State Labor Service checks and finishes entrepreneurs. It initiates some examination of the company when it receives a complaint from the employee or statistics from the Pension Fund on mass dismissal or part-time transfers. The director of the department assures that verification is only a controlling function. Not all visits of inspectors lead to penalties - there are cases when complaints during the verification are not confirmed.

"Paying a fine is not the key goal here, but its function is understood as a preventive mean. An entrepreneur should understand that he can get such a fine if he does not work in the legal field," said Roman Chernega.

Related: Parliament to consider canceling raise of lawmakers’ salaries

New penalties have not yet been issued to any employer. The number of unemployed has increased after raising the minimum wage. According to the State Statistics Service, only in January this year the number of registered unemployed people increased by 38.2 thousand (from 390.8 thousand to 429 thousand people). This is only during a month. And only officially. And there is one more nuance, another, let us say, time bomb: the new minimum will affect subsidies, as early as next year. The incomes will grow. We asked experts to calculate how many times such assistance from the state would decrease.

"The salary is 1600 UAH, and there was one person living in an apartment, she paid a mandatory payment of 144.4 UAH. But if a salary is 3200, the amount of mandatory payment will be 577.4 hryvnia," says Taras Galayda the analyst of PA "Public Audit".

Related: Ukraine’s GDP grew by 5.1% in January, — Ministry of Economy

With a minimum wage of 1,600 hryvnia, the size of the subsidy was 2,355 hryvnia. With a minimum wage of 3,200 hryvnia, the aid from the state will decrease to 1922 hryvnia. Thus, the mandatory payment for the communal area will grow 4 times. If there are two employed people in one apartment, the compulsory payment will double.

What do we actually have? We have a good idea of raising the minimum wage, which turned into a nation-wide problem. Taxpayers themselves, as well as the heads of state institutions are not ready for the sharp steps of the government. A notable minus is the prospects for price increases, a reduction in subsidies, and growing unemployment. We have a new minimum wage, from which we will deduct large taxes.

Related: Economy Ministry: Ukraine needs to develop exports and tourism

We should not forget about the double standards. On the one hand, the state forces private companies to raise the minimum wage, otherwise they would have to pay increased fines. At the same time, they cannot massively fire their workers, because the inspector would come with a check. And on the other hand, the state has tens of thousands of state employees, on whom it simply does not have enough money. And these workers are actually forced to resign or seek additional "shadow" work-outs. In a few months, it will be clear whether minimum wages of 3200 would lead Ukraine’s economy out of the shadow and increase the living standards of the people.

Related: Lipetsk factory will be closed for economic and political reasons, - press secretary

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