Post Image

During the presentation of the draft State Budget for 2022 in the Parliament on Tuesday, Chairperson of the Budget Committee of the Verkhovna Rada Yurii Aristov noted that the document contained a number of other provisions and indicators requiring further elaboration.

On Tuesday, September 21, a draft State Budget for 2022 was submitted to the Verkhovna Rada. Chairperson of the Budget Committee of the Verkhovna Rada Yurii Aristov noted that the document contained a number of provisions and indicators requiring further elaboration. He also emphasized that the Rules of Procedure of the Verkhovna Rada did not provide for voting on the results of the presentation of the draft State Budget. Thus, on September 21, preparation of this Draft Law for the first reading actually started. People’s deputies and committees have the opportunity to submit their proposals to the budget committee no later than October 1.

Doctor of Economics, Scientific Director of the Growford Institute, Tetiana Bogdan has analyzed the strengths and weaknesses of the draft budget for 2022 for “Komentari”.

1) The Plan of State Budget Revenues and Forecast of the Consolidated Budget Revenues are quite realistic and are based on the need to reduce the share of redistribution of gross domestic product (GDP) through the budget. For example, the share of Consolidated Budget revenues in GDP was actually 32.8% in 2020 and should be reduced to 31.1% in 2022.

It should be noted that the deviation from the standard practice was the parallel consideration of the Draft Law No. 5600 (“On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine to Ensure Balanced Budget Revenues”) by the Verkhovna Rada and the Government’s readiness to adjust the revenue and expenditure side of the budget for 2022 after final adoption of this project. These actions and intentions violate the requirements of the Tax Code regarding the possibility of making changes to the taxation system no later than August 1 of the year preceding the planned one.

2) The positive aspect of the draft budget is that the Ministry of Finance for the first time prepared a meaningful document “Information on public policy goals in the relevant field of activity and indicators of their achievement in 2020-2024” as part of the budget documentation. Earlier, we saw a simple summary of all budget programs with their indicators of cost, product, efficiency and quality for all key spending units. Preparation and publication of the document shows that program-targeted budgeting is really operating in Ukraine and transparency of all recipients of budget funds is increasing.

The example of the National Anti-Corruption Bureau of Ukraine shows that in 2022 the agency plans to register 23 thousand appeals and notices of legal entities and individuals about acts of corruption. But the number of criminal proceedings sent to court should be as much as 69! The number of criminal proceedings in which a person is informed about suspicion of a criminal offense will not differ much – 75. At the same time, UAH 1.18 billion will be spent from the 2022 budget on the maintenance of NABU, which means that each of the 69 cases prepared by the Bureau and sent to court costs UAH 17.1 million to Ukrainian taxpayers (on the average). The information presented in this document potentially allows the state to make decisions about the amount and structure of financing for each of the key spending units.

As for transparency of budget preparation, it is also significant that the Ministry of Finance has published detailed methods for forecasting budget revenues in terms of each type of tax and non-tax sources. This allows the public to better understand the logic of forming the revenue side of the budget, and experts to assess the reasonableness and reliability of forecasting budget revenues.

3) The most important positive aspects of the budget for 2022 are the increase in budget expenditures on education and the reduction – on public order, security and judiciary. For example, there are plans to increase expenditures on education from 6% of GDP in 2020 and 6.6% of GDP in 2021 to 7.3% of GDP in 2022. It is planned to additionally allocate UAH 3 billion for healthy food and fire safety in schools, UAH 1 billion for the “New Ukrainian School” program, UAH 1.3 billion for 500 schools for the implementation of the “Capable School for Better Results”. The budget also includes some increase in the nominal salaries of teachers and student scholarships. The importance of education for the progressive economic development of the country and the high quality of human capital justify such investments.

On the other hand, public expenditures on public order, security and judiciary relative to GDP are to fall from 3.8% of GDP in 2020 to 3.3% of GDP in 2022. Such changes, in my opinion, are quite appropriate, given the low efficiency of these bodies and the high cost of their maintenance in the past.

4) Expenditures on health care in real terms are planned to increase significantly compared to 2019, but remain unchanged relative to 2020 – 4.2% of GDP. As last year showed, this level of spending does not allow citizens to count on adequate care from public health facilities in case of illness. In addition, international comparisons show that Ukraine’s public financing for health care is quite low. The latest IMF data indicate that among emerging market countries the level of these expenditures in Ukraine lagged behind the average by 0.7% of GDP. And Ukraine’s gap with the average of advanced countries was almost doubled.

Our Government has declared that the average salary of doctors in 2022 will increase by 56% to UAH 22.5 thousand and the average salary of nurses – by 34% to UAH 14.5 thousand. This is an unconditional positive of the new budget, but it raises questions about the feasibility of the announced indicators, as the total expenditures on health care according to the Consolidated Budget of Ukraine are planned to increase in nominal terms by only 13.4%.

5) The main negative aspect of the draft budget for 2022, in my opinion, is the further reduction of the expenditures on social protection and welfare in real terms (including transfers to the Pension Fund and housing subsidies). The amount of such expenditures in the Consolidated Budget in 2022 is projected to be UAH 356.5 billion, that is an absolute increase of 9.8 billion UAH relative to 2020. But as a percentage of GDP, the dynamics of social protection expenditures has a clear downward trend. In 2016 their volume was 10.6% of GDP, in 2018 – 8.7%, in 2020 – 8.3%, in 2021 – 7.2%, and for 2022 it is budgeted 6.6% GDP. This trend indicates a decline in the role of the state as a guarantor of human survival in difficult life circumstances (occupational disability), which is potentially dangerous for social stability in the country.

The main reason for this situation is the fact that in accordance with the draft budget the gap between the actual subsistence minimum and the projected minimum in budget will reach several times). For example, social benefits in 2022 will be calculated based on the subsistence minimum of UAH 2393 as of January 1, 2022. At the same time, the Ministry of Social Policy informs about the actual subsistence minimum at UAH 4525 in prices of August 2021 for able to work, and taking into account mandatory payments – UAH 5622. The existing differences between these indicators doom the majority of disabled and low-income citizens of Ukraine to chronic poverty.

6) The negative aspects of the draft budget for 2022 include the planned increase in public debt service expenditures from UAH 121.2 billion in 2020 to UAH 184.6 billion in 2022. This category of expenditures in percentage of GDP should increase from 2.9% in 2020 to 3.4% in 2022. It is interesting that in 2012 these categories amounted to only 1.8% of GDP. 

The drivers of such dynamics are high interest rates on market borrowings of the Government, gradual reduction of the share of soft loans of international financial organizations, and the increasingly active transfer of credit obligations of borrowers received under government guarantees to the state budget. For example, UAH 3.33 billion from the budget of 2021 will be paid on Chinese loans attracted by the State Food and Grain Corporation of Ukraine, another UAH 6.34 billion from the budget of 2022. Similar amounts will be a heavy burden on the budgets of 2023 and 2024.

The total amount of budget payments on publicly-guaranteed debt will increase from UAH 0.9 billion in 2020 to UAH 4.9 billion in 2021 and to UAH 6.9 billion in 2022. That is, ordinary citizens – taxpayers will again pay for the decisions of Ukrainian officials related to the generous distribution of loan guarantees (which are not in all cases driven by the state interests).