Ukraine has just gone through another visit of the IMF mission headed by newly appointed Chris Jarvis. The Ukrainian officials did not associate the IMF mission visit to Ukraine with the continuation of talks about stand-by lending resumption. However, the conclusions drawn by the commission will make our government feel nervous and more active. Jarvis hinted that the government will have to keep the budgeted deficit within 1.8 percent of GDP of 2012 and resolve the question about higher taxation of rich people. Otherwise we will not get the next loan.
In his exclusive interview to The Day the former Ukrainian minister of economy Viktor SUSLOV told in detail about the economic and political implication of the visit of the IMF mission to Ukraine.
How would you estimate the results of the visit of the IMF mission to Ukraine? Can they be considered a “beauty parade” before the continuation of cooperation within the stand-by program since the conclusions about the economic situation in Ukraine made by this commission will be taken into account?
“The format of cooperation between Ukraine and the IMF was defined two years ago when Mykola Azarov’s government signed the new stand-by program. The main reason why the new loan cannot be received is Ukraine’s unwillingness to fulfill the agreements signed earlier. The main obstacle for lending resumption is the unwillingness to raise gas price for individuals and housing enterprises since the parliamentary election is approaching and nobody will accept this responsibility.
“In my opinion, the last visit had several peculiarities. First of all, the mission was headed by Chris Jarvis who, so to say, is only getting into the swing of things. Secondly, the IMF touched not only upon old issues (fulfillment of the previous conditions for getting a stand-by loan) but voiced the issue of carrying out real economic reforms. Interestingly, the last thesis coincides with Viktor Yanukovych’s declaration about reforms failure, so he charged the prime minister to find and punish the ministers who sabotaged them. Now the country is waiting for someone to be made responsible for failing the reforms.
“The IMF also indicated where they would like to see real reforms, first of all, in increasing the budget revenues. This position is well-grounded since stable budget revenues are questionable. According to the information from the State Statistics Committee of Ukraine, the economic growth in our country has nearly stopped. In the first few months there was a minimum growth of industry but in the period of January-April 2012 it was at zero level. The economic growth rates are slowing down which means stagnation. In all probability, at the end of the year industry growth rates may even decrease as compared to 2011. So, achieving the GDP growth by 3.9 percent by the end of 2012 is unrealistic. They will have to review budget highlights and make budget sequester. Understanding high probability of this scenario the IMF demands to augment budget revenues or cut down social payments.”
Does the wealth tax suggested by the government mean fulfillment of the IMF’s requirements or is it just a way to get the next stand-by loan tranche? Will this mechanism work to fill in the budget? Will the rich really pay this tax?
“There is no definite answer since all the attempts to make the rich pay more have been absolutely vain so far. Why? Because, at the end of The Day, millionaires and billionaires had to vote for it. They do not want it and wreck the votes. In my opinion, the government should not introduce the wealth tax but change the excise policy in the country. The excise for expensive goods such as cars should be multiplied. However, it is not the solution. Main budget revenues will grow only if the economic growth is stimulated, the investment climate improves and corruption decreases.”
Do you think the government will be able to fulfill the requirement of the IMF: fill in the budget and keep the budgeted deficit within 1.8 percent?
“If the government pays attention to the IMF’s suggestions and recommendations it will be possible. The IMF approved the idea of the Ukrainian government to introduce the wealth tax. There also was the idea to introduce the progressive taxation scale. I support this idea since the taxation system for the rich is very liberal in Ukraine. Over the past 20 yeas they have created in Ukraine nearly ideal simplified taxation system for the rich and shifted the taxation burden on the poor.
“Now the rich and the poor pay the same salary tax rate, 15 or 17 percent. However, owners of businesses receive their main income not from the salary but from dividends taxed 5 percent, deposit (non-taxable), and stocks. It is not fair. In my opinion, Ukraine is ready to augment taxes for the rich. The system of total revenue taxation with the progressive taxation scale should be introduced. All over the world individuals’ revenues are taxed in total and the principle ‘the more one gets the more one pays’ is applied. The highest tax rate in Sweden is 70 percent and 50 percent in Germany. I think, in Ukraine the maximum tax rate of 50 percent for total revenue would be relevant.”
However, there is a probability that those revenues will just be hidden. How can it be prevented?
“If the tax payment is severely controlled there will be no chance to hide. Everyone has a personal ID number used for receiving any revenues. So, there is no place to hide, everything we need is the will to control. This will should appear as soon as possible, otherwise, the country will go down the drain. The current taxation system is socially unfair. There is no minimum non-taxable income in Ukraine. Any income, even the minimum salary is taxable. The taxation accent was shifted on the poor, and the rich have the simplified taxation scale.
“I read the other day that the total income of all members of the British government is 70 million pounds which means that some of our ministers are richer than the British government. However, Britain is one of the oldest capitalist countries. Why is this difference so striking? Our government of oligarchs and billionaires in the poor country will not allow real taxation of the rich. This is a delay-action mine since further social stratification may lead to further property stratification, social polarization, and even revolution.
“Today Ukraine is a clannish and oligarchic state. The real life contradicts the Constitution reading that Ukraine is a social state. That is why Ukraine has to be fetched round as soon as possible, otherwise the catastrophe is inevitable.”
How come that we have been building the market economy over the past 20 years and have got the clannish and oligarchic system?
“There are different economic values that do not derive exactly from the economic laws. In particular, salary is a minimum needed to survive. The specific figure is defined while workers and capitalists fight. That is why it depends on trade-unions’ organization and workers’ ability to protect their rights. Over the decades of severe dictatorial and totalitarian regime people lost the ability to protect their rights and were taught to obediently accept what was imposed from the top. When the new class came to power, they easily imposed the low level of salaries and well-being to Ukrainians. The society has to learn to protect their right for descent life, descent salary level, and social justice.”
You have mentioned that now the government is looking for someone responsible for failing the reforms. When do you think this person will be found? Will the current prime minister be dismissed?
“Significant staff reshuffle is unlikely before the election. However, there will be the new government and new prime minister after the election. Mykola Azarov is the best prime minister the Party of Regions could nominate. Today the Party of Regions lacks qualified staff. I have already mentioned our government of billionaires whose revenues are higher than in Britain, the oldest capitalist country. It does not exist anywhere in the world. Look at the newly created Russian government. Russia does not lack rich people. However, the new government does not have any billionaires or oligarchs.”
However, Vladimir Putin, considered a multi-billionaire, is the main figure in the Kremlin’s chain of command.
“These are rumors that have not been proved. According to his tax statement, his is not a billionaire. The Russian government is technical, it consists of professional officials. In Ukraine we have the government of billionaires. In my opinion, creating this government was the Ukrainian president’s biggest mistake. Big businessmen at power have no time to resolve the problems of the country; they have to think about the problems of their businesses, government procurement, and orders.”
