Addressing a meeting on the 2002 state budget bill on August 29, the president spelled out three main prerequisites to strengthen macroeconomic stability in this country. They are: formation of a “realistic, balanced, and by all means deficit-free budget,” further reduction of the state’s indebtedness, and maximum stability of the national currency.
“I attach paramount importance,” he went on, “to the real stability of the hryvnia and reduction of inflation to 10%.” To achieve this, the president thinks the National Bank and the Cabinet of Ministers must draw up a joint action program to stabilize the national currency and ensure economic growth. “We must stop the pointless talk about whether monetary stabilization or growth is of a higher priority,” the head of state said, adding that “these two processes are interconnected.”
Addressing government members and regional leaders, Leonid Kuchma emphasized that next year fiscal and monetary policies should be “as tough as possible, tougher than in the previous years,” Interfax- Ukraine reports. The president vigorously demanded that the government end speculation about “preferential budgetary funding of certain industries” and stressed that the government should “learn to tell the unvarnished truth to people.” According to Pres. Kuchma, the state does not have now and is not going to have in the immediate future sufficient financial resources to fully solve the problems, including those in the social sphere, that have piled up in the years of economic crisis. At the same time, he demanded that the 2002 draft state budget show “noticeable progress” in the funding of, first of all, education, research, and the innovation sphere. Also of top priority should be, in his words, “the problem of coal miners.” Mr. Kuchma reminded the audience that, under the law On Scientific and Technological Research, budgetary appropriations for research should make up 1.7% of GDP, but this index constituted 0.31% in the 2001 budget and has gone down to 0.28% in the 2002 draft state budget. “What does this mean?” the president asked, noting that economic growth should be achieved “at the expense of new technologies rather than just a hammer and a chisel.” He referred to the Bulgarian government which, implementing its program of reforms, is going to set a zero tax rate on innovations, profit reinvestment, and the purchase of securities. In this connection, Pres. Kuchma said he wished the 2002 draft state budget had included expenditures for the encouragement of investments and the implementation of scientific and technological programs.
According to the president, the main condition is that the next year’s budget should be “fair.”
Pres. Kuchma also reiterated that the Ukrainian economy is considered “one of the most transparent in Europe,” as Ukrainian exports exceed 60% of the country’s GDP. “This is not our achievement, this is our failure,” he said, adding that such data testify to the absence of a domestic market large enough to ensure normal development of the nation’s economy.
Appraising the way the new budget is being drafted, the president accused the government of using the old tax law. “There is no reason why I should feel optimistic about work related to state budget drafting,” he said and emphasized that this document leaves unfulfilled the main and decisive requirement of the budget message, that is, assessing the next year’s budget under the new tax law. In Pres. Kuchma’s words, the Cabinet of Ministers’ fault is that it takes an indecisive stand in this issue and does not work properly.
Expressing an opinion that the Viktor Yushchenko government’s lack of constructive stand, first of all, in carrying out the tax reform was one of the reasons for its fall, the head of state pointed out that we are facing now a similar situation. Meanwhile, Minister of Finance Ihor Mitiukov explained to journalists after the meeting that the 2002 draft state budget has been drawn up under the current tax law and it is practically impossible to revamp it should the Tax Code be adopted. “There is a certain point after which it is no longer possible to compile a new budget. We’ve already passed this point,” the minister noted. In his words, this stand fully complies with the president’s instruction to make the 2002 state budget “realistic and fair.”
The president said the Ukrainian leadership has no right remain idle about reducing the tax burden against the backdrop of processes unfolding in most countries of the world, including Russia. Pres. Kuchma emphasized that the Russian Federation, while showing a far lower rate of economic growth, is still over-fulfilling its budget. According to the president, this was achieved thanks to the resolute and consistent actions of the Russian government and parliament to reduce tax burden. He stressed that Russia plans to cut its tax rate on industrial profits almost by a third (down to 24%) from January 2002. In this connection Mr. Kuchma asked a rhetorical question: how is Ukraine going to make its goods competitive on the Russian market in a situation like this? Turning to Prime Minister Anatoly Kinakh, the head of state instructed the government to work out and coordinate with Verkhovna Rada a clear plan to break the impasse on tax reform. “I will not accept explanations that the reduction of tax burden is being shelved until 2003,” he said, noting that the Ukrainian economy will not accept such explanations either.
Pres. Kuchma also announced that under conditions when the economy is growing 2.5 times faster than planned Ukraine is suffering from a “catastrophic” nonpayment of taxes. In July the budget received UAH 2.2 billion as revenues and failed to receive UAH 1.2 billion. Thus, “every third hryvnia remains outside the budget,” the head of state stressed. This statistics, he said, is “an unbiased assessment of the true performance of not only the tax administration but also of the government and the executive power as a whole.”
COMMENTARY
Yevhen KOZYK, general manager, Tiazhmashynimpleks Ukrainian National Foreign Economic Corporation:
“I think the state must surely have some priority sectors. For if you try to apportion everything to everybody, you’ll fail to do so. In my opinion, mechanical engineering should be the top priority industry in this country. This sector should be followed by all the others like metallurgy and chemistry. Although the latter does not seem to be directly linked with this, it is chemical plants that require today large expenditures for reconstruction, retooling, and modernization. All this can be done by mechanical, especially heavy, engineering. This most sophisticated and high-tech industry is on the level of aircraft and shipbuilding and can produce metallurgical, chemical, and transport items. If duly aided and supported, it can become the link in the economic chain that will pull the others up. And, naturally, priority programs, as well as their technical support, must be funded from the budget. But today — and I fully agree with the president in this — research is in a quandary, while those state- owned research institutions which so far manage to keep up their potential could be drawing up R&D projects to be implemented tomorrow or the day after. Besides, although the experience of Russia showed that inflation boosts industrial output, I don’t much like this option. Everything should be based on a stable economy. Today’s stability of the hryvnia, a generally good indicator which I wholeheartedly support, has two sides, like a coin: it raises great problems for exporters precisely because this stability was created, to a large extent, artificially.”
Mykola PEREPADIA, president, Styrol Concern:
“Our enterprise is one of the largest exporters in this country, which determines, to a considerable extent, the economic situation of here. What we want from the government and the budget is just a few things: let the budget envision funds to pay off the VAT to us and let the government and parliament finally carry out tax reform, i.e., adopt if not the Big, not Little Tax Code, which would reduce the tax on industrial profits.”
