By December 28 the parliament has to approve next year’s budget. Despite the fact that experts evaluated the state draft budget for 2011, adopted in the first reading, as “realistic,” a number of specialists already started ringing the alarm bell. There was talk of overstretching, of ensuing stagnation and even calamity. Therefore they expect that the next two weeks will be “hot”: letters with comments have been prepared, meetings with deputies and “influential” officials have been initiated, etc.
The Day asked specialists about the positive and negative aspects of the state budget for 2011.
JOB TITLE OF DESIGN ENGINEER CAN DISAPPEAR, AS THEY CONTINUE TO UNDERFINANCE THE MILITARY SYSTEM
Volodymyr HREK, president of the Ukrainian Defensive Technologies association:
“Only 350 million hryvnias are planned for the development of military equipment (for purchase and development). This figure promises us stagnation, failing to execute plans, lame-duck enterprises, non-payment of salaries, etc.
“This financing in no way solves the problem of the defense complex and providing the armed forces with military equipment. Already today the state has committed over 1.5 billion hryvnias to conclude contracts between the Ministry of Defense and enterprises of the defense industry. These are scientific and technical products, which are developed and produced at enterprises today. Thus, in 2011 we need between 1.5 to 1.8 billion hryvnias without embarking on any new projects.
“Moreover, there is a presidential resolution dated 2004 on approving the state program for military equipment development until 2015, in which the expected expenses for the defense complex are determined. Overall, this sum constitutes 23 billion over six years, that is about four billion per year. This resolution was not canceled, it is simply ignored. This is an ungrounded inconsistency of our state.
“I feel sorry to say it, but in 2010 seven million hryvnias were allotted for purchasing weapons. This is equal to one and a half ‘Bulava’ tanks and a half of an ‘Oplot’ tank. And eight million were allotted for the development of new equipment — the amount required by one project, while there are 50 ongoing.
“I’d like to stress the particular risk of the situation which exists today in our defense industry. Such a specialty as development engineer will soon disappear in Ukraine. The absence of government orders leads to an absence of jobs, and, correspondingly, higher education institutions will not prepare students of this specialty. Already today graduates of our leading polytechnic universities work on the market or abroad. No one works in his or her specialty. If this persists, Ukrainians will soon be unable to be involved in space, rockets, aircraft construction, shipbuilding and so on.
“Therefore, in order to direct the government’s attention to the explicitly destructive road it took for our defense industry, we are now preparing an open letter to Prime Minister Mykola Azarov.
“By the way, we repeatedly addressed the president, prime minister, deputy prime minister, and ministers. But all our appeals are ignored. We hope that during the preparation of the 2011 budget our open letter will finally be considered.”
LOCAL BUDGETS WERE GIVEN 3.5 BILLION HRYVNIAS LESS THAN LAST YEAR
Iryna SHCHERBYNA, general director of the Institute for Budgetary and Socio-Economic Research:
“The budget was prepared based on the new Tax and Budget codes. It is precisely owing to the Budget Code that the structure of the document improved considerably and it became even shorter. On the face of it, economic indicators generally correspond to the real development of the country and they are rather conservative, that is they were not overstated or understated.
“The only thing that raises concerns is the amount of financial resources given to local budgets. In 2011 the unfunded mandates of local budgets considerably decreased compared to that of this year. However, in view of price increase for energy, local budgets should be given about 3.5 billion hryvnias more to completely pay all the salaries presupposed by the budget.
“So far there is no middle term planning in the 2011 budget, because the new Budget Code just entered into force. Hopefully, it will appear already in 2012.
“One of the main risks of the budget lies in the part about financing, which states that the state budget should get 10 billion hryvnias from privatization. These 10 billion hryvnias are included in the budget plans for four years in a row already, but less than one billion has been found.”
BY THE END OF 2011 THE NUMBER OF FARMS WILL DECREASE BY 15 PERCENT
Alex LISSITSA, president of the association “Ukrainian Club of Agrarian Business”:
“The 2011 budget is a real catastrophe for agricultural producers, for its actual financial support is much lower than expected — about 2.2 billion hryvnias. It’s nothing for the agrarian sector. This kind of state care for the agro-industry is appalling. Subsidies for meat and milk (in the form of preferential VAT taxing) were decreased. Agrarians, in fact, were deprived of everything. The prices for mineral fertilizers, seeds and means of plant protection increased by 30 percent in only a month, while, for example, for grain they dropped by 10 percent. There is an imbalance between expenditures and revenue of farmers. Therefore, in my opinion, by the end of 2011 about 15 percent of all farms will cease to exist.”
THE BUDGET WILL BE TOUGH ON SMALL AND MEDIUM BUSINESS
Natalia KOZHEVINA, president of the Ukrainian Association of Business-Incubators and Innovation Centers:
“Next year’s budget will be tough on small and medium business, as it raises more questions than answers. There is complete indefiniteness regarding the structures that will get the fixed tax from entrepreneurs working on the simplified tax system. It’s not clear who will register business and how they will do this, who will track the cooperation of business and local government. All these factors will not help increase tax re-venues from small entrepreneurs.”
THERE IS NO BASIS FOR A BREAKTHROUGH IN ECONOMIC MODERNIZATION
Serhii PROKHOROV, the first vice-president of the Ukrainian Union of Entrepreneurs and Industrialists:
“So far one can state that the next year we will not be able to make a breakthrough in the modernization of the economy about which Mykola Azarov has spoken lately. For rapid progress one should invest in the development of science and nanotechnologies, increase the amount of investments in education. So far there are no such expenditures in the budget for 2011. Therefore, a question arises: by means of what can one reach the goal the head of the state has recently outlined? I will remind you that he set the goal to join 20 most developed countries in the world in 10 years. Therefore, we need to pay more attention to these directions in the budget.
“A lot has been said about the administrative reform and the decrease of expenses for maintaining the bureaucracy. So far one doesn’t see it either. Consequently, it would be good if the government revealed the information on where exactly the expenses were decreased. Then society’s faith in the reforms of the government would grow.”
BUDGET COSTS FOR TOURISM WILL BE ENOUGH ONLY FOR SALARY OF OFFICIALS IN THE AREA
Ihor HOLUBAKHA, the head of the All-Ukrainian Association of Tourist Operators:
“During the last two years the state allotted much more money for tourism than it plans to allot in the next year. Of course, it was good for us and produced some positive results. Since budget support, first of all, provided financing for the development of exhibit activities and promoting tourism in general. While the two million hryvnias planned for 2011 will be able only to cover expenses for the salaries of employees of the State service for tourism and resorts.
“The decrease of budget expenditures in 2011 will not have a direct influence on the development of tourism in Ukraine. However, indirect threats do take place. First we will start to save on advertisements abroad and promotion on the internal market. But we hope that Deputy Prime Minister Borys Kolesnikov, who today is responsible for both the Euro-2012 and tourism, will be able to diversify the risks connected with this and will find some money to promote tourism and our national brand.
“That’s a pity, of course, that not tourism as such, as a field, is now a priority for Ukraine, but creating infrastructure and the rest of activities connected with the soccer championship Euro-2012. But we still hope that the state will finally understand that tourism is one of the fields of the economy which doesn’t require substantial expenses of the state, budget replenishment, and creating infrastructure for its development, while the efficiency of the recreation sector is very high.”
BUDGET EXPENDITURES WILL NOT CHANGE CONSIDERABLY
Oleksandra BETLII, leading researcher of the Institute for Economic Studies and Political Consultations:
“On the whole, the budget is based on a quite realistic macro-prognosis. In particular, the expected growth of gross domestic product, foreign economy conjuncture, and currency exchange rate are close to our predictions.
“At the same time, the indicator of inflation, based on which the financial plan is actually developed, is somewhat lower than the one we predict. Therefore, there is a risk that inflation will be higher than that planned by the government. Though one can’t say it definitely: everything depends on the policy of the government next year.
“A positive moment is that for the first time in many years Ukraine has a balanced, conservative prognosis of revenues. However, unfortunately, there are no considerable changes in the budget expenditures. Though it’s still early to speak about the budget expenditures. We still do not know which precise changes will be introduced in the pension legislation, though transfers to the Pension Fund was decreased already.
“One more important change in the 2011 budget is the increase of capital expenditures. At the same time the constituent of current expenditure remains substantial as well. It is reasonable, since during the past year the government increased payments several times over. One can also welcome restrictions on expenditures for general governance, but it is still not clear whether the government will be able to reach the planned figure. How the administrative reform will be introduced is not clear either.”
THE HOUSING AND PUBLIC UTILITY DEPARTMENT WILL ONLY GET 545 MILLION OUT OF THE PROMISED 4.5 BILLION
Oleksii KUCHERENKO, ex-minister of the housing and municipal sector of Ukraine:
“On the whole, there is a plan to allot 545 million hryvnias for the housing and municipal sector. Out of them, the state wants to direct 400 million to the project ‘Pure Water.’ 100 million will go for pilot projects, which should be financed, in my opinion, by means of grants, otherwise there will be corruption. And the rest will go for the preparation of specialists in the area. That’s it, there is nothing more. Though, according to the reform program, which was adopted in 2009, over five years the housing and municipal sector should be allotted 24.5 billion hryvnias from the budget. That is 4.5 billion hryvnias per year, and we have only 545 million. In addition, in 2009 it was obvious that it was impossible to find such funds. I told the then opposition about this. And today the budget plan for the field confirms this fact. Of course, this sum will not solve the sector’s problems, for it needs several times more. This fact should stimulate the government to reform the field by means of changes in the normative legal base and the legislation, and by means of involving private investments.”
