The arguments in favor of an immediate reduction of the social insurance tax are seemingly convincing: payrolls will come out of the shadows, wage funds will increase, and consequently the volume of social insurance contributions will grow. But what if the payrolls do not leave the shadows? And where is the limit behind which social insurance tax rates will overcome the employer’s temptation to pay black money? The Human Development Department at the Ministry of the Economy proceeds from the assumption that easing the tax burden on the wage fund is an urgent matter, but priority should be given to maintaining social welfare standards. Social benefits are currently far below the minimum living wage level. According to Vasyl Khara, chairman of the parliamentary Committee on Social Welfare Policy and Employment, unemployment benefits come to 24.7%, child support benefits to 21.9%, and minimum old-age pension to 51% of the minimum living income. He further stressed that for the social benefits to reach the minimum living income level the unemployment insurance tax would have to be raised to 8.9% from the present 1.9% and the temporary disability insurance tax to 5.9% from 2.9%.
Meanwhile, even the present level of social benefits could be at risk if social insurance receipts fall short of their targets. Economists suggest that to offset the reduction of the social tax by merely five percentage points, over UAH 12 billion would have to be brought out of the shadows. According to Ruslan Doroshkevych, deputy director of the Human Development Department, proposals for the reduction of the social insurance tax at the current stage seem to lack substance. In his view, the other proposal to shift part of the tax burden from employers to contract workers is also unacceptable. According to the State Statistics Committee, nearly 80% of Ukrainians live from a number of incomes, with each of them below the minimum living wage level. Such a measure would negatively affect their welfare. Thus, we are caught in a vicious circle, where wages cannot be legalized because this could negatively affect the social insurance system, while it is impossible to raise social benefits without increasing the wage fund. Perhaps one should lend an ear to the opinion of Oleksiy Miroshnichenko, chairman of the Ukrainian Association of Employers, who has proposed a major improvement of the social insurance system by way of revising the number of social insurance funds and their management. Despite the fears concerning social guarantees, the issue of easing the tax burden on the wage fund and its legalization has not been taken off the agenda. The problem has proved to be more complex than it seemed at the outset, but the search for solutions continues.
