Even a glance at the principal macroeconomic indices in the draft 2001 budget program gives rise to a number of questions. Even more questions appeared after legislators’ comments and the President’s statement that he will not sign a budget bill relying on the old tax system.
Easing the tax burden while expanding the tax base is supposed to be the key objective of the new Tax Code. Domestic producers have high big hopes for the document. Of late, they have often complained about the great many various taxes and exorbitant tax rates. Should they receive a sympathetic ear, considering that a mere 25-28% GDP has been allocated over the past several years, compared to 30-35% in the developed countries? Also, that Ukraine’s legal framework makes it possible to collect almost as much by way of tax payments? Yet the point is that collecting this much as taxes (28.2% GDP planned for 2001), and in terms of live money, does not seem realistic; the tax authorities will not be able to do it. And so, year in and year out, the budget revenue items experience shortfalls, with expenditures following suit, of course. The point is not even the high tax rates, as some economists claim, echoing businessmen. A closer look shows that a considerable part of the budget revenues are to be provided by the citizenry, both as direct payments (income taxes and per capita duties) and otherwise, thus actually paying the taxes included in commodity prices (e.g., value added, excise, import tax, et al.). Obviously, the tax burden is as heavy on the man in the street as on the producer. Since all such payments are directly dependent on citizens’ revenues, the latter still being purposefully constrained by the government — particularly by the Cabinet’s wage and salary policy — the population’s buying capacity remains extremely low. Meanwhile, revenues are directly dependent on the commodity-money turnover, so reductions in commodity-monetary relationships, nonpayment crisis, and growing barter ratio can by no means help increase them. Thus a considerable part of the revenue never received by the budget remains in the form of unsold products or is referred to budget shortages resulting from barter and lack of payments for products consumed and services rendered.
Without solving these problems implementing the budget’s revenue clauses remains highly problematic. At the same time, the available estimates make it clear that normalizing the commodity-money turnover is the only way to get another 20-25% budget cash revenues.
The bill’s UAH 9 million estimated revenue in proceeds from the privatization of public property is also questionable. There is simply no such money on hand in Ukraine, because the amount at issue depends on the available monetary stock. This means that foreign investors are our only hope, but will they risk investing in the Ukrainian economy, considering all those many restraining factors stemming from the inadequacy and instability of the nation’s legislation as well as from sales problems? Supplying such products to foreign markets, where practically all niches are already occupied, would mean for a foreign investor competing with himself. Although there is enough domestic market demand, it is insolvent. Moreover, there are enough foreign goods and then some. Thus, the idea of working to pack warehouses would be less than attractive to foreign investors, especially considering that the most attractive sectors (in terms of guaranteed sales of goods and services) are occupied by joint ventures involving foreign capital. Even cheap manpower becomes less enticing compared to these factors.
There is, however, one macroeconomic index in the 2001 budget bill which seems most interesting and which gives rise to the biggest question. This is the predicted inflation rate, primarily because monetarist economic theory regards nation’s budget deficit as the most important factor governing inflation. Over the past several years this factor has become a pet phrase with Cabinet and Parliament economists. The budget is planned to be deficit-free in 2001 (as is allegedly the case this year). Simultaneously, the anticipated annual average inflation rate is set at 19% (28% this year, the Economy Ministry’s forecasts read). Why should a deficit-free budget cause such an inflation rate? In 1997, with a budget deficit, the inflation rate was 10.8%. Either the monetarist theory is faulty, simply does not work in our economic conditions, or still we are in the bad habit of breaking the rules of pure economic ideology, with homebred monetarists to blame. The most likely reason is that our budget can be deficit-free on paper only, and that everybody concerned knows that there is a deficit, albeit a hidden one.
Everything stated above makes it possible to state that the 2001 budget bill faces the same problems as did all its predecessors. Of course, Parliament might pass the bill the way it is, after minor clashes with the government about the reallocation of some budget items, with certain People’s Deputies or financial-economic groups lobbying for their own interests. One thing is clear: without cardinal solutions to all the many budget problems any “encouraging figures” will stay on paper only, with the budget never being one of actual economic growth and its actual implementation remaining highly questionable.
