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Saving vs. earning: Ukrainian Cabinet wants to get more funds for 2020 state budget

Author : Mykyta Sinitsyn

November 14, MPs finally adopted the state budget for 2020
23:31, 21 November 2019

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November 14, MPs finally adopted the state budget for 2020. After the presentation by the government of MP Oleksiy Honcharuk, the document provoked merciless criticism from many experts and politicians for the lack of real differences from the budgets of previous years, and most importantly - low forecasts of GDP growth. They added fuel to the fire and problems with the implementation of the budget for the current year.

After the first reading, the Cabinet of Ministers started talking about the search for additional funds to the state budget, choosing for this purpose the proposals for saving state funds as the main mechanism. In any case, in the public part of his work for the second reading.

Related: EU countries and European Parliament agree on 2020 budget

Footsteps of predecessors

Back in 2014, after the change of power as a result of Maidan revolution, the government of then-PM Arseniy Yatsenyuk began to dismiss the "extra" or compromised officials for the good purpose of saving budget funds. By the fall of the same year, the Cabinet of Ministers reported the dismissal of 25 thousand civil servants or every tenth, as well as more than 200 million hryvnias of expenses for benefits for civil servants and transportation costs.

In 2015, the Prime Minister personally announced plans to reduce the bureaucracy by another 20%, or 50 thousand people, but still, this did not save the economic crisis and the need to take loans from the IMF.

Related: PM Honcharuk discusses new expanded financing program with IMF mission

Nevertheless, the government of PM Honcharuk seems to have clearly decided to step on the same rake, however, this time the initiative came from President Volodymyr Zelensky at a meeting on preparing the 2020 budget for a second reading, which demanded to cut spending on officials by 10%.

The Cabinet immediately “took the hood” and after 6 days, Minister Dmytro Dubilet, responsible for the implementation of innovations in the Honcharuk government, announced plans to dismiss 18,449 civil servants from the states of the district state administrations.

On November 4, PM Honcharuk announced plans to reduce the number of officials "by 10% or even more" on the air of the Freedom of Speech program on ICTV TV channel. According to the head of the Cabinet of Ministers, this will happen due to the use of IT tools instead of the human factor. Such a statement also partially coincided with the transfer of public services to the online format announced by the presidential team.

Billions on beneficiaries

However, it is not yet possible to estimate the amount of budget funds saved on the announced reduction of officials, but on one of the social items.

Related: Ukraine's parliament adopts state budget for 2020

The 2020 state budget, adopted on November 14 in the second reading, provides for the financing of subsidies to Ukrainians in the amount of 1,9 billion USD against 22,3 USD hryvnias in 2019. Of course, the reduction in subsidies is not explained by the desire to save state budget funds, there are simply new ones and the rules for assigning benefits to Ukrainians will change:

1) the poverty threshold for granting subsidies from May 2020 will increase from the current 15% of the total family income spent on housing and communal services to 20%, taking into account the income of family members who do not even live together;

2) it does not give the right to receive subsidies - the presence of a house with an area of ​​200 square meters. m or apartments of 120 square meters, cars under the age of five years, making purchases in the amount of more than 2,100 USD.

All this, according to the Cabinet of Ministers, will "cut off" the subsidies of recipients who do not have rights to it and more efficiently monetize subsidies only to those who really need it.

Increasing digitalization or investing in a person?

According to Vasyl Nevmerzhytsky the financial analyst, the Cabinet’s initiative as a whole can undoubtedly be assessed as positive, a kind of beginning to the promised "digitalization" and "digitalization" of the country.

“Ukrainian Cabinet’s proposals have two directions - a complete audit of the revenue and expenditure items of the state budget, as well as the beginning of the path to reorganizing the public administration system by“ digitizing ”public services. Perhaps this also has some“ raid ”of populism in the form of a proposal to dismiss officials in this case, the remaining ones will simply increase wages and budget savings will not actually work, but the feelings of society will be satisfied,” the expert notes.

As an example of what the reduction of officials would look like and the transition to online public services, the expert described the example of the National Bank of Ukraine (NBU).

Related: State budget 2020: Better life for Ukrainian teachers or things aren't that simple?

“At one time, in each region, the NBU had regional directorates implementing the central bank policy on the ground. With their liquidation, everything that was possible was closed to the capital with an increase in the growth of central office employees and the size of their salaries, where people could be replaced by automated systems, and works requiring physical presence, such as collection, were transferred to authorized banks with regional networks,” Vasyl Nevmerzhytsky explains.

Although the social capital index is still quite high In Ukraine, it is constantly falling — some are leaving, the quality of those who remain is falling. This begs the question - will an investor want to invest in a country from which its citizens are leaving, but the quality of social capital is falling?

As expert Oleksiy Kushch emphasizes, the budget indicators for 2020 once again demonstrate that the government respects the key interests of external creditors and domestic financial and industrial circles.

Danylo Monin, the economic expert of the Ukrainian Institute of the Future, noted that in its budget for 2020 the government took into account the institute's proposals for approximately 1,8 billion USD out of a total of 3 billion USD.

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"This year, we proposed to reduce the costs of budget programs that are not implemented for the pledged amount, reducing only settlement items, which we believed had reserves plus removed programs that were not selected from year to year for the allocated amount. True on the list already at the initiative of the Cabinet of Ministers there were a number of necessary programs, financing for which was reduced, "the expert notes.

Although cumulative government spending in the 2020 budget, according to Monin, was reduced by 1.5% of GDP, this is only half the battle.

Related: Ukraine's PM Honcharuk askes Estonia to amplify its counteraction to Nord Stream-2

“On the one hand, the reduction of the corruption component - various unnecessary budget programs, the funds from which are being plundered, is undoubtedly good. On the other hand, one reduction in government spending is not enough for the development of the economy, it is still necessary to reduce the tax burden,” the expert emphasizes the importance of an integrated approach to the problem of managing the state expenses.

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