The Ministry of Finance estimates figures to survive in 2016

Author : Pavel Ivanov

Source : 112 Ukraine

The main problem of the proposed draft budget is that it was calculated on the basis of non-existing tax base
10:23, 4 December 2015

112 International

the Minister of Finance Natalia Yaresko

The government presented the budget to Ukrainians. If you look at numbers with detachment, on the whole, it looks not so bad. The next year an increase of the budget revenues is expected up to ₴598 bln., expenses - up to ₴674 bln .with a deficit of ₴84 bln. The hryvnia’s rate allowed for at ₴24.1 per dollar.

For comparison, the current’s year revenues estimated at the level of ₴502 bln., expenses – ₴567 bln. Thus the deficit is ₴64 bln.

Problems begin to appear if one asks, from where will money flow and of course from where they flow now, the money. In addition, for review only the text of law on the budget is available without traditional appendixes, where it’s stated the direct use of certain amounts.

If we take current budget as a starting point, it becomes clear that all the next year figures will grow by the size of the expected inflation in 2016 and fluctuate at level of 10-12%. As per government calculations, the price increase in the next year to slow down from current 40% to 12%, this corresponds to the IMF projections, though experts often tend to expect higher level of inflation, at around 14%.

The social benefits planned to increase at the same amount. The draft reports the cost of living from January 1, 2016 to be ₴1330 and over the year will reach ₴1496. Minimum wage grows from ₴1400 to ₴1550.

Traditionally, the deficit of the Pension Fund will be a weak spot that in 2016 increases from 30% to 50% and the dotations for pensions from budget are planned at the level of ₴165 bln.

In general, to conclude, that there is not a single word about the increase of the personal incomes in 2016, in the best case the situation will be as it was on a current level without significant deteriorations. In case if all proposed figures are met.

It is no secret that this high level of inflation allows the government to perform or even overfulfill budget figures of the current year, due to the so-called "inflationary income." If the inflation forecast for next year is correct, the question arises, where the government is going to borrow money to fill the budget?

To compensate for possible shortage of funds could be due to the growth of GDP, but it is expected, according to Yatsenyuk, at 2%, which makes it unlikely to improve financial performance. Slightly more optimistic forecasts of the NBU, according to the Head of the National Bank, Valeria Gontareva, Ukraine's GDP in 2016 could grow by 2.4%, which does not change the overall picture. To put it simply - this means that the tax authorities will try to ensure budget revenues and implement indicators of tax collection from businesses "more effectively".

The second largest item of expenditure in the next year will be the defense. For this purpose, it was planned to spend about ₴100 billion, or almost 4.5% of GDP. It is worth noting that despite the impressive figure for Ukraine, the increase in defense spending over the current year is relatively small - about 10% since in 2015 it was planned to spend ₴90 billion. And taking into account the depreciation of the hryvnia and inflation in 2015, then we can talk about a real reduction of financing of the defense sector.

But the main problem of the draft budget proposed by the government is that it was calculated on the basis of non-existent tax base. Draft of Tax Code, which became the basis for the calculation of government, has not yet considered by the Verkhovna Rada, and the prospects for its adoption in its current form is quite doubtful.

While the Ministry of Finance insists on lack of options to their offerings both in the budget and the Tax Code, explaining that the two documents agreed upon and approved by the country's main creditor - the International Monetary Fund, which loans allow Kyiv to stay afloat for the second year in a row. In view of this fact, it becomes impossible to ignore the position of the IMF.

At the same time, Verkhovna Rada has prepared long time ago an alternative draft of the tax reform, which enjoys a considerable support among the deputies and experts. Its main difference from the government's graft in a significant reduction in tax rates, while the Draft of Ministry of Finance proposes to increase it significantly.

In talks with journalists, the majority of deputies incline to the possibility that as a result of disputes over tax reform a third option of the tax reform may appear which would entail the need to revise the budget for 2016 fully. With an eye to the fact that the Verkhovna Rada will start its plenary work only from December 8, only around three weeks left, which gives the government reason to insist on yet cram down the version of tax reform by the Ministry of Finance.

In any case, no one promises Ukraine, it would be easy. It is obvious now that to execute figures of the budget, in any of final versions of the tax reform, will be difficult. The only difference is that the deputy's version may be slightly worsen the situation with current revenues, but to improve the business climate in the country and, accordingly, to give a push to economic growth in the future. But it also gives rise to additional risks, as deviation from the figures agreed with the IMF could lead to another problem with the creditors and reduce revenue in 2016. In this case the Ministry of Finance gives the answer to the question of how to live over the next year, but doesn’t outline the prospects for the future, apart from the regular loans from the mentioned IMF.

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