Budget awaits revision
The emerging budget crisis still remains one of the main points in the relationship between the cabinet and parliament. Last Thursday the parliament passed the government’s bill on changes to the 2003 national budget by a majority vote in the first reading, albeit on the second try. Yet, the voting failed to clear up the main question of the current budget debate — whether the new law’s clause on raising the minimum wage to 237 hryvnias a month in the second half of the year will be put into practice.
Verkhovna Rada had twice quashed the cabinet’s bill (with 167 votes the first time and 171 the second). The same happened to the Verkhovna Rada Budget Committee’s draft resolution, which calls for passing the cabinet’s bill in the first reading provided the latter is stripped of the clause that cancels introduction of the UAH 237 minimum wage on July 1. This was followed by a majority leaders’ meeting with Verkhovna Rada Chairman Volodymyr Lytvyn. Maybe they set in motion a mechanism of cooperation and discussed what will happen if such cooperation fails. As Stepan Havrysh, leader of the Democratic Initiative faction, announced after the meeting, the majority leaders worked out and signed a draft resolution. Moreover, according to Mr. Havrysh, the cabinet had undertaken to solve the 237 hryvnia minimum wage problem and a number of other issues before the second reading on May 22. Nevertheless, the bill voted upon calls for suspending the statutory minimum wage rise scheduled for July 1, 2003.
It will be recalled that, scraping the bottom of the barrel, the government has found UAH 1.424 billion to increase social spending, support farmers, set a UAH-185 minimum wage, and gradually restore natural remuneration proportions (in plain English, when, say, a doctor earns more than a paramedic). This can be done by, for example, improving the current tax law, which will make it possible to boost this year’s budget revenues by UAH 535.6 million. It is also suggested that some excise duties be increased to earn UAH 234 million. It is planned to raise is oil and gas rental as well as to introduce similar payment for gas condensate. On the aggregate, the government proposals will boost 2003 national budget expenditures and revenues by UAH 2.4 billion.
Commenting on the budget amendment vote, First Vice Premier and Minister of Finance Mykola Azarov noted that, by voting for the cabinet’s proposed resolution, the deputies thus supported the state’s efforts to substantially increase its social functions. Mr. Azarov emphasized that “the brunt of raising budget revenues will be mainly borne by industries that get superprofits by tapping the resources of almost the whole state.” According to him, the main idea of the cabinet proposal is “to find an additional financial resource” for this purpose, for example, “by imposing new excise duties on such items as wine, vodka, cigarettes and beer.” Still, the bulk of the money will be found, Mr. Azarov claims, “as a result of [increasing] oil and gas rents, where we make superprofits. We take this money from enterprises that make good profits and take advantage of the specifics of rent and mineral deposits. This is the state’s right.” He further added that the government considers it unreasonable to raise minimum wage in Ukraine to UAH 237 a month in July. “No matter how unpopular it sounds, 237 hryvnias is unreasonable because it will draw us into an inflationary spiral. This index, now inadvisable, will be possible when the budget has sufficient financial resources,” he said. He maintained that President Leonid Kuchma also shared this view.
However, Petro Poroshenko, chairman of the Verkhovna Rada Budgetary Committee, says that he will do everything he can to keep intact the provision introducing the 237- hryvnia minimum wage. In his opinion, the committee “will find resources and do its best” to stick to this figure, Interfax-Ukraine reports. The only question is whether Ukrainian taxpayers will benefit from this. Will this touch off a new wave of inflation?
The Alcohol and Tobacco Traffic Association has already lodged a strong protest against raising excise duties, predicting an upsurge in smuggling and imports. Gas and oil companies have also warned there might be heavy losses. Yury Zmiy, an Institute of Reforms expert, told The Day that, as far as fuel is the main factor that determines the costs of Ukrainian goods, the rise of oil and gas rents will also contribute to inflation. In essence, the problem of the minimum wage remains to be settled: there is no money to raise it, while a frantic search for this money could in fact depreciate the raised pay. There still are two options: to tell the electorate bluntly that the 237 hryvnia minimum is unrealistic or to adopt a different budget.
