Experts Believe Fair Taxes and Adequate Wages Will Reduce Wealth Inequality

Addressing the roundtable, Ukraine’s Economy in 2000-2003: Setting an Investment Model of Economic Growth held at the National Institute of Strategic Studies (NISS), President Leonid Kuchma emphasized that the inequality of wealth in this country had “exceeded the permissible critical level that determines the threshold of social stability” and called for working out a mechanism to effectively address this problem. The president said this does not mean a new round of property redistribution or administrative restriction of the incomes of the affluent. What, then, is needed today to restore social balance? The Day has addressed this question to several experts, including those participating in the NISS debate.

Ella LIBANOVA, Doctor of Economics; Section Chair, Productive Forces Research Council, Ukrainian National Academy of Sciences:

“First of all, one must change the system of remuneration. It is necessary to introduce a uniform wage scale. Moreover, I think the first sector where this should be done is education. Things are very bad in our secondary schools: nobody wants to work there for pennies. This kind of pay scale needs funding. The government seems to have promised to do something. Yet, this remains just a promise.

“I do not favor endless rises of the minimum wage, especially if we do not revise the pay scale. The current situation is that almost all public-sector employees (especially those employed by local-budget-funded entities) earn what amounts to the minimum wage. Accordingly, a surgeon earns approximately as much as a junior nurse, and a teacher as much as a school janitor. I have nothing against nurses and janitors, but highly skilled work needs to be rewarded appropriately, which we do not do.

“Under the conditions of economic crisis and budgetary squeeze, we were always forced to concentrate on protecting the underprivileged. That was in fact a survival strategy. But Ukraine has been on an economic upturn for three years now. Therefore, one must concentrate on a strategy of development, that is, to create a normal middle class, etc. In other words, the problem of our inequality is not that somebody earns too much but that somebody earns too little. Those who earn little do so because nobody is interested in working better for the pittance paid in the public sector. This forms a vicious circle, which can be broken only by revising the system of remuneration. I hope recent tax cuts have partly broken this circle. Besides, it is precisely the middle class that stands to gain: it is now going to pay 13% in tax instead of the previous 30-40%. Feel the difference?

“It is also necessary to encourage people to own property and simultaneously to introduce a property tax. Most probably, we should alter our policy of combating tax evasion by individuals. It would be a good idea to put the question the way it is put all over he world: what money did a certain bureaucrat use to have a three-story cottage built? But nobody is going to do this. Today’s Kyiv is increasingly full of very expensive apartments, and I am absolutely convinced that a considerable part of them were bought for untaxed money. Let people earn as much as they please, but they should also pay taxes. That’s all. This should be a hard and fast rule.”

Oleksandr PASKHAVER, President, Center for Economic Reform:

“It should be noted that the division between rich and poor in Ukraine emerged by force of the historical circumstances of our transition to a market economy. Processes like this occur in all countries, but ours is one where the stratification is very wide.

“The government undoubtedly must consider the question of the middle class. Now that our economy is growing, this process could be taken as the cornerstone of an active policy. Yet, such actions will always be meeting the resistance of influential strata of the population. Take, for example, the property tax: a most obvious and easily collectible one, it cannot pass a parliamentary vote.”

“The question of how raises two more questions; by what technical means and in what manner can these funds become a social policy? As to technical means, this is cautious taxation that does not impair economic growth. As to the manner of putting this rational taxation into practice (so that the technical program tuns into a social one), it seems to be the problem of a mature civil society.”

Olena SYMONCHUK, Senior Research Associate, Institute of Sociology, Ukrainian National Academy of Sciences:

“Naturally, the solution is in forming a full-fledged middle class. And a full-fledged (numerous, politically active, economically independent, engaging in civic activity, and socially secure) middle class can only be formed in Ukraine under certain objective and subjective conditions. The nation’s political elite is well aware of the objective conditions. They are a stable political system; a steadily growing rate of economic development; promoting the making and activity of civil society elements; creating favorable conditions for the development of small and medium businesses and farms by giving them institutional, financial, legal and informational support; increased legislative protection of intellectual property; and fair remuneration for employees. The subjective conditions consist in constantly increasing the share of economically and socially active individuals who knowingly share common interests, in forming social and collective identity, and in establishing parties and non-governmental organizations that express the interests of precisely the middle class. Concerted modernization-oriented efforts from above and below (by the elites and the middle class) looks like the most effective path of progress.”

Yaroslav SUKHY, People’s Deputy (SDPU(O) faction), Secretary, Parliamentary Committee for Social Policies:

“I think this problem can only be solved by immediately applying the president’s proposed concept of reforming the system of remuneration. In this country, wages and salaries are often either unjustifiably high or, on the contrary, too low. There are no clear criteria for assessing pay. We have forgotten that everyone’s pay should above all depend on his/her work contribution. Raising the minimum wage to the subsistence level is a Constitutional requirement, so we must do this, but this does not mean overall leveling. Then we must engage the mechanisms of job evaluation. I drew up a bill on introducing a minimum wage of 237 hryvnias, but then I dropped this figure for the simple reason that the 205 hryvnia minimum wage provision is linked to differences in job positions. So from February 1 on, all public-sector employees should be earning wages related to their job positions, their work contribution. We all remember how long our parliament slaved over the pension reform. I think it was the right thing to do. Despite of all the faults in the pension system that still exist, we succeeded in allowing hired labor to demand that employers pay legal wages because pensions depends precisely on the latter. Paying wages in an open legal way is to a large extent the solution of the problem fair remuneration. Why are people not thinking and not analyzing why the wages of many of them do not correspond to their labor contribution? They keep silent because their wages and salaries are in the shadow, nobody knows who earns what, and all calculations are being made under the table. This in fact creates a situation where some are paid less and others far more than they deserve.”