In the message of the President of Ukraine to Verkhovna Rada, “Ukraine, a Step into the Twenty-First Century: Strategy of Economic and Social Development for 2000 — 2004,” it is stressed that implementing a policy of economic growth is Ukraine’s chief strategic task over the next five years. For this purpose the mechanism of stimulating the domestic market, investment, and active regional policy are being put into practice. The special feature of the second stage (2002 — 2004) is that acceleration of economic growth rate (6.5% average annual GDP growth) will be effected on the basis of domestic production and mainly on a sufficiently market basis. The draft Tax Code to be considered at parliament’s sixth session is an important part of this strategy.
Together with independence Ukraine obtained a structurally distorted and inefficient economy. The load of accumulated past problems (including the need to liquidate the consequences of the Chornobyl disaster) and specific conditions of the transition period determined the complexity of the necessary transformations in order to create the prerequisites for the development of positive processes and stepping into the twenty-first century with a qualitatively new potential. In these conditions the country’s top leadership assumed the responsibility of carrying out economic reforms to eliminate the country’s structural disproportion and develop a mechanism of practical implementation of its rich scientific, technical, cultural, and natural (especially land as a productive factor) potential.
In the period of transition toward market relationships it became clear that stable economic growth on the whole is possible only with provision for the development of all Ukraine’s regions, which in turn made it necessary to develop and implement programs to get out of its economic crisis, make the transition toward the stable economic growth of each region, and to integrate these programs into state policy while working out the budget.
The present crisis, which has arisen during the transition period along with formulating the revenue part of the budget and decreased business activity of economic entities, has made it objectively necessary to develop principles of fiscal policy. The tax system that was applied during transition period was introduced without sufficient theoretical foundation and thorough analysis of the experience of the market economy countries in using taxes as regulators of economic growth, especially at the regional level. In this connection the need arose to develop the theoretical aspects of a new direction of economic investigations called regional economics. This discipline studies such important issues as determining the interrelationship between different types of economic activity, works out ways to increase economic efficiency, as well as determine the direction of economic and organizational transformations and environment protection in the regions. Let us consider only the final consideration.
The Chernobyl experience showed that when fixing the location of enterprises we need to guarantee the observance of environmental protection regulations, rational utilization and renewal of natural resources, and consideration of the nearby and farther away environmental and economic consequences of operating such facilities. When such considerations are factored in, it becomes clear that the “cheap” electricity from Chornobyl is the most expensive in the world. During the development of feasibility calculations issues of environmental protection require a new approach — whether the issue is building nuclear reactors, highways, refineries, oil pipelines that cut the national wealth of the country from east to west or from north to south, and that in case of accident can inflict irreparable damage on whole regions. Already many regions have such high concentrations of pollutants that they are considered ecological disaster zones. This is why we think it necessary and possible to carry out the transition to economic growth on the basis of the balanced solution to not only socioeconomic problems but also of actual issues of environmental protection in favor of future generations. World experience shows that the socioeconomic development throughout the twentieth century oriented toward quick rates of economic growth has inflicted irreparable damage on the environment, flora, and fauna. All market economics textbooks start forth from the axiom that the society’s demand is infinite while resources are limited. Humanity has already run into contradictions between the demands of an annually growing population and the impossibility of meeting its needs. Eliminating these contradictions is possible within the framework of economic growth on the basis of saving and protecting the environment, which should be the goal of regional economics.
From this perspective the author has analyzed tax revenues by oblast to the national budget, which provides indirect evidence on the development of market relations in the regions. The first group was shaped by the regions that contribute up to 2% to state coffers — Vinnytsia, Volyn, Zhytomyr, Transcarpathia, Kirovohrad, Rivne, Ternopil, Kherson, Khmelnytsky and Chernivtsi. The second group is composed of the regions that contribute up to 3.5% in taxes — Ivano-Frankivsk, Kyiv, Mykolayiv, Sumy, Cherkasy, and Chernihiv. The third group is made of the regions that contribute up to 5% in taxes — the Autonomous Republic of the Crimea with the city of Sevastopol, Zaporizhzhia, Luhansk, Lviv, and Odesa. The forth group consists of the regions that provide between 5 to 10% of tax revenues — Dnipropetrovsk, Donetsk, Poltava, and Kharkiv. The Fifth Group includes Kyiv that contributes in taxes 15% of the nation’s budget. Of course, every reader will make different conclusions on the basis of these data but the author directs your attention to the fact that the lion’s share of tax revenues are provided by the regions with a developed industrial sector and high level of environmentally harmful production. In these very regions another important problem is connected with the aging of the population, the increased number of retirees, which requires, on the one hand, qualitative improvement of the system of social protection, and, on the other hand the guaranteeing the stable and increasing return of financial resources into the state financial system.
The economic policy of the nation’s leadership and the draft tax code are aimed at solving these problems.
Under conditions of economic crisis decreasing the tax burden becomes one of the elements of state policy, especially for enterprises with environmentally harmful production, while environmental excises become an important factor of mastering ecologically clean production.
The transition of agriculture to progressive technologies, economic transformations in agro-industrial complex, implementation of steps on the increase of soil fertility will promote not only to the decrease material expenditures but also to the increase of agricultural crop yields (for example, sugar beets up to 800- 1000 c/Ha (centners per hectare) and grain crops to the 80-100 c/Ha, achieved in other countries with less favorable natural conditions); creation of a social protection system for the rural population will guarantee the growth of tax revenues from the major breadbaskets of Ukraine.
Contemporary regional economic policy is to provide for the structural reconstruction of the economy with an eye to environmental protection in the regions. Lowering the tax burden and increasing the tax base by reviving now idle enterprises to work will accelerate economic growth and automatically increase fiscal revenues for the state.
An environmental tax will provide funding for steps to bring harmful levels of pollution emission into conformity with international standards .
In order to get out of economic crisis one of the elements of state policy has to be reducing the tax burden and the lowering tax rates on individuals, which will increase the personal disposable income and, consequently, consumer spending, increasing aggregate demand, and the growth of business activity. Part of this revenue will be invested in securities or the production development, which will become the major component of developing aggregate supply.
The draft tax code does not cover all the unsolved issues. For example, market economy countries plant trees to be used as fuel for small ventures and household demands. The draft tax code provides for the tax rate for the plots of agricultural assignment from hectare in percentage of the monetary evaluation in the following amounts: fields, hay making plots, and pastures — 0.1%; perennial plants — 0.03%. It would be good to set up preferential rates for the plots to grow perennial plants for local demands, thus some of the problems related to the energy crisis would be assuaged.
A similar situation is created also with the issue of using biological gas on the basis of farming and agricultural waste. China built about 1.5 million biological power units to produce biological gas and high quality fertilizers and solved its energy problems in agriculture. Over twenty years ago Sumy’s Frunze Enterprise demonstrated experimental units for waste processing and producing of biogas but it did not proceed further. But in China they have worked out special stoves to burn such gas. Meanwhile we continue pushing the government into a corner with a series of energy problems instead of solving them at the regional level.
Regional economics must answer a whole series of burning questions. For instance, it was only very recently that Vinnytsia oblast was called a sugar Donbas, while now it is in a mournful state. The region does not create the economic conditions for the sugar plants to overcome the economic crisis — less sugar beet is sown, plant personnel is falling apart, and the equipment (both for growing the raw material and for its processing) is becoming decrepit. The conditions are destroyed not only for expanding production but for production as such, the proportion of unused capacity is growing, infrastructure is not developing, interregional and international links are being downsized. This explains why Vinnytsia oblast contributes so little to budgets at different levels.
Each region should develop its own way to overcome the economic crisis. The regional programs of economic growth for Donetsk and Transcarpathian oblasts are different. The tax code should provide for the regions a system of tax relief for the production of the new critical goods, duty-free import of certain kinds of equipment needed to support the necessary rates of economic growth in the regions, and deferred tax payments until such time when the production capacities of new enterprises are mastered that would facilitate getting the regions out of economic crisis. So far the draft code does not provide for this.
