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Ukraine's 2021 state budget in indices and figures

Author : Kateryna Odarchenko

Source : 112 Ukraine

Ukraine's 2021 state budget is particularly optimistic
22:04, 16 December 2020

Open source

Readers who carefully studied it must have noticed a number of record figures and loud statements.

Indeed, a number of planned values ​​for the next year inspire, if not real optimism, then the reason for hope. These are, first of all, the record state budget revenues, which will amount to 38,5 billion USD, and the increase in the minimum wage to 230 USD, and the expected GDP growth to 4.6%. At the same time, the budget deficit for 2021 will be at a high level (6% of GDP), but still less than in 2020 (7.5% of GDP). At first glance, all is well: the economy is growing, wages are rising, debts are falling. But is everything exactly as stated on paper?

Related: Vulnerable populations to be vaccinated against Covid-19 at state budget expense, - Ukraine's Health Minister

Deficit

In 2020, the budget deficit amounted to a record 10,7 billion USD, and 10 billion USD is expected in 2021. In relative terms, this is 7.5% and 6% of GDP, respectively. These are extremely significant sums, especially considering that budgetary rules prohibit setting the level of the state budget deficit in excess of 3% of GDP. But at the same time, exceptions were made for 2020 due to the coronavirus pandemic that swept the whole world, including Ukraine, which led to an almost complete halt of the country's economy. Obviously, they decided to leave the exception for 2021.

Where will the income come from?

The planned growth of budget revenues for 2021 will be 9.4%. By what means?

The good news here can be considered the statement of Minister of Finance Serhiy Marchenko, who decided to draw the government's attention to the fight against VAT schemes. According to the head of the Ministry of Finance, they see significant potential for de-shading through effective VAT administration, as well as the fight against twists and other minimization schemes.

In my opinion, here it is worth asking a question about the reasons for starting the fight against VAT twists only in 2021, although this minimization scheme has been working in the country for a long time. At the same time, the government is clearly at odds with its words and deeds. Under the slogans of combating shadowing and avoiding tax payments, we have been observing for quite a long time how our government plans to once again "puzzle" small and medium businesses with fiscal registrars and heavy fines.

By the way, they did not forget about the "common people" either. An increase in the minimum wage is planned for next year. If now it is 5000 UAH, then in two weeks it will be 215 USD, and from July 1 – 230 USD.

Related: EU leaders reach agreement on budget, coronavirus recovery package

Great news for hired employees and not good news for employers. According to current legislation, 3 types of taxes are paid from salaries: military tax (1.5%), personal income tax (18%), and a unified social contribution (22%). In total, 41.5% of taxes are withheld from the salary of each employee.

Thus, if in 2020 to pay the minimum wage you need to pay 75 USD in taxes, then from January 2021 this amount will be 90 USD in taxes, and from July 1 – 97 USD. That is, the amount of taxes withheld is increased by 30%. Some of them are personal income tax, which is the second-largest revenue item in the budget. Surely a 30% increase is provided in case the VAT fails. It is not clear how the business will compensate for the growth of wages and taxes in conditions of extremely low purchasing power, as well as periodic "lockdowns" in various forms.

The Ministry of Finance sees another source of revenue growth in a significant increase in revenue from excise and rent. This is due to an 11.6% increase in the excise rate on alcoholic beverages. The list of tobacco products will be expanded to include e-liquids. Ultimately, an increase in excise tax will lead to another increase in prices for the final buyer, that is, for you and me.

The environmental tax will also be increased. For carbon dioxide emissions – three times. For discharges into water bodies – ten times. The increase in the environmental tax will take place in stages and will be extended until 2024 for air pollution and until 2029 for discharges into water. But in any case, this will create additional tax pressure on Ukrainian producers.

Summing up the revenue side, we can say that next year, government spending will be paid primarily by ordinary citizens, small and medium-sized businesses. Secondly, manufacturing enterprises. Well, in the end - government agencies. Thanks to its efficient work in the fight against schemes. Probably.

Related: US Senate approves 2021 defense budget with military aid to Ukraine

What will our money go to?

The main cost items are social protection, law enforcement agencies, education, medicine. It is worth noting the record growth in spending on sports: they will almost triple.

The positive news here is the rise in spending on education and medicine. At the same time, healthcare costs increase by a third, to 4,4 billion USD. Of these, 93 million USD are pledged for the purchase of a vaccine against coronavirus. The vaccine is being purchased in the amount of 7.5 million doses and only for risk groups. The rest will buy it at their own expense. It is difficult to say how many people would like to buy the vaccine, but in the conditions of total lack of money, there are probably few.

The rather weak support for business in 2021 is upsetting. A total of 72 million USD was allocated for the famous program of 5-7-9% and 360 million USD for portfolio guarantees. How much this will help business can be judged from the current statistics of the same Ministry of Finance: since the start of the program, 6,599 loans have been issued in the amount of 539 million USD. There are 1,885 million sole proprietorships in Ukraine. It is obvious that support for business in the country is being phased out, even not the most popular "5-7-9%". It is unclear why the government expects GDP growth of 4.6%.

Related: Ukrainian Parliament passes state budget for 2021

Conclusions

In September, Serhiy Marchenko, finance minister, said the draft budget was as realistic as possible. In my opinion, there are very few opportunities for development, and we all need only hope. Hope that the business will withstand the increased tax burden and find opportunities to continue working in the next year.

Hope that the government will nevertheless begin to actively fight against VAT twists, and not with private entrepreneurs.

And, of course, hope that the IMF will give us another tranche to cover the budget deficit.

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