The new Minister of Economy, Valery Khoroshkovsky, made the first program statement last Friday, concerning what he saw as his immediate priorities: administrative reform, “work out a mechanism of inexpensive government machine manned by expensive bureaucrats.” The main emphasis will be on the tax reform. Mr. Khoroshkovsky stands for lowering tax rates and says this must be done forthwith. The ministry seems afraid that Ukraine’s economic growth over the past three years may stop while the current cabinet is in office. A sure sign of stagnation. This realistic approach makes the new minister stand out, as his predecessor always admitted that he tried to avoid sharing bad news, let alone discussing them in public.
Valery Khoroshkovsky counts on the tax reform to be complete before the next summer. To do so, the Verkhovna Rada must lower the company income tax, GDP rate, and adopt a new individual income tax rate scale. Considering that the idea is supported by the pro-presidential and most opposition factions, his ambitious plans look quite realistic. The only obstacle can be another round of the political crisis. After losing the last parliamentary posts the opposition will be likely to resort to demarches — as during the speaker saga. Whether his reformist plans will come to fruition largely depends on the new government’s ability to come to terms with the economists of the opposition factions.
The minister of economy stresses that the cabinet expects not only to lower taxes, but also cancel tax concessions and exemptions. Needless to say, this will expose Valery Khoroshkovsky to vicious attacks from the political-financial lobby. Tax concessions enjoyed by the joint ventures alone cost the state budget some UAH 2 billion annually. The efforts of the NSDC and cabinet to solve this problem show that a lot of people’s deputies and cabinet members have had to do with such joint ventures. As for tax concessions for the population, the new cabinet will find making headway even more difficult. 43% of the Ukrainian citizenry (among them ministers and people’s deputies) have documents entitling them to some or other benefits of civilization free of charge.
Nevertheless, Minister of Economy Valery Khoroshkovsky seems resolved. In his own words, the government plans to include the state proposed tax innovations in the 2004 budget bill, that is why completing the tax reform in the first half of the year is regarded as a strategic objective. Those opposing such blitz changes, however, will have an edge. The Law “On the Budgetary System” forbids to allow for tax changes still to be enacted when drafting a budget program. Also, if such changes are carried out in 2003, they will take legal effect in 2005. Thus reads the law, but it is also true that it has been violated by parliament on more than one occasion “in the interests of the state.”
Indeed, the interests of the state are in an urgent tax reform, for the trend of getting the economy out of the shadow has already made a U-turn. Most large enterprises in the key industries are in the red, considering their performance over the three quarters of the year. The cause is obvious: business is once again moving back in the shadow.
