Ukraine has eliminated a dangerous hotbed of domestic tension: last Tuesday the Verkhovna Rada finally passed the 2006 budget by a minimum majority of 226 votes. Unfortunately, the main refrain of the participating sides — the cabinet and parliamentary leadership and Budget Committee — was the formula that has been repeated year after year: “A bad budget is better than no budget at all.” Still, the Party of the Regions, the communists, the Yulia Tymoshenko Bloc, and SDPU(O) factions abstained from voting because they came up with a counter- formula: “Better no budget at all than a budget like this.”
At first, these three opposition wings were supported by other factions, and the budget bill was quashed three times, with only 214, 224, and 219 MPs, respectively, voting in favor. Before and after each of the votes, Speaker Volodymyr Lytvyn had to muster all of his eloquence to try to persuade the MPs to stop politicking and approve the state budget. Urging the parliamentarians to vote, he predicted that a new coalition would be formed after the parliamentary elections, which will in turn form a new government and revise the state budget.
The number-two person on the pro-budget team was Liudmyla Suprun, Lytvyn’s fellow party member and deputy head of the Parliamentary Budget Committee. She warned that if the new budget were not passed, “we will completely unbalance the economy,” the bill will not be sent back to the cabinet but will “remain in the Verkhovna Rada, and the law on the 2005 budget will be applied again.” In this event, the UAH 30 billion that the 2006 draft budget provides for development will go down the drain, and the regions will receive no money to finance social programs and the construction of new subway lines in Kharkiv, Kyiv, and Donetsk. Suprun also stressed that the next year’s draft budget lays down “a new principle of funding the agro-industrial sector, whereby the countryside will be financed directly.” Rural areas are supposed to receive a total UAH two billion in direct subsidies. Expenditures for villages in general and their social needs in particular have been raised by UAH 1 billion, which is more than 10 percent of budget revenues.
The budget bill was finally passed when the reconciliation committee of factions and groups decided to vote a fourth time.
What kind of budget did we get? Finance Minister Viktor Pynzenyk commented that the document included proposals to boost injections of cash into local budgets, and the agrarian and coal mining sectors. As a result, local budget resources have gone up by UAH 9 billion, expenses for agrarian development projects account for about 11 percent of total budget expenditures, and the coal mining sector has received an additional UAH 0.9 billion. Pynzenyk claims that the 2006 budget will enable the government to keep its promise to ease the tax burden: the hard currency sales tax is being reduced from 1.5 to 1.3 percent; customs duty is to be canceled as soon as Ukraine joins the World Trade Organization; and wage allocations are being cut by 1 percent. At the same time, the finance minister warned that the draft budget, which has provided for increased expenditures, as the parliamentarians had demanded, has a critical deficit and presents certain risks for the economy. Suprun does not agree with this. “As an expert, I do not think that the budget has a critical deficit,” she emphasized, noting that the economy will not face any risks in connection with this budget.
Prime Minister Yuriy Yekhanurov is also satisfied with the happy ending. He stressed that all the MPs who voted for the budget were aware that “this country should have a budget” and that parliament has stood the test of patriotism. The prime minister pointed out that with the ongoing election campaign and Ukraine negotiating gas problems with Russia, the adoption of the 2006 budget is of paramount importance, for it will shape the normal economic situation in the country. Yekhanurov added that “the cabinet agreed on all kinds of compromises.” He also praised the Verkhovna Rada, which, together with the cabinet, for the first time solved some very serious problems concerning the funding of local budgets, and the agrarian and coal mining sectors.
Experts are also happy that the budget has finally been passed. Yet they cannot help pointing out its inherent risks. “The draft state budget does not take into account the impact of a likely gas price hike. Therefore, the optimistic macroeconomic scenario on which the budget is based and which suggests a 7-percent economic growth is rather unrealistic. This calls into question the possibility of earning the projected revenues without a new jump in inflation,” says Natalia Leshchenko of the Institute for Economic Research and Political Consultations. In her opinion, although a budget deficit of 2.5 percent of the GDP does not run counter to European Union budgetary policy criteria, it is still a factor that may lead to price increases and destabilize the fiscal situation in the years to come.
