Whatever budget bill the Cabinet submits to Parliament, it will eventually pass in the first, second, or third reading. Lawmakers will shout, beat their breasts, pose for the cameras, and thus show their constituencies can see they really do work for their money. The government will face-lift the text and that will do. The audience will applaud almost unanimously. And there is only one reason for all this. The legislators are loath to vacate their cushy seats. Where else can they expect to make such money? What about all those campaign funds, donations to grade schools, old-age homes, private citizens, etc.? Will anyone believe that they can afford this with what they describe as their “miserable” parliamentary pay?
Just consider the money spent on food (our lawmakers look healthy enough), housing accommodations (no one would agree to live in a two- room apartment, and no one does), municipal services, electricity, tuition and maintenance of children abroad, not to mention vacations.
People’s Deputy Leonid Chernovetsky says a seat in Parliament costs $1,000,000, give or take $150,000. Every businessman knows that every hryvnia invested here has to produce at least 50% profit.
At present, we have two categories of state subsidies: social and economic expedience; four principal types of budget spending: domestic and foreign debt, social protection, national economy, education, science, culture, etc. Of course, social protection, education, science, and culture require state support. The same is true of the bureaucratic machine and the military and security ministries and agencies. It is also true, however, that we have quite enough bureaucrats at all levels. In fact, a new bureaucratic body is formed as soon as we are faced with a new problem.
I simply cannot understand why we should support the national economy. Our motto, Support the Domestic Producer, is sheer nonsense in market economy terms. Has it ever occurred to those concerned that, by supporting our domestic producer, we are destroying our consumer? Again, this motto is not only erroneous, but also harmful. Moreover, it is a time bomb planted in the very foundations of our economy, barely alive as it is. If no one can afford to buy anything, why bother producing goods? Common sense states that the state budget should be aimed at increasing the population’s buying power.
The budget should be geared to boost social consumption. We must decide ourselves whether to buy and from whom, and it takes very little: making every possible — even impossible — effort to really care for the people.
As for protection of the domestic producer, price and quality are the main criteria every consumer applies when purchasing goods and services. Now tell us, gentlemen, why do you include subsidies in the budget?
There is a hidden budget deficit. You are not going to return them to the municipal, energy, or transport sector. This is a fact well known to the cabinet, Parliament, and practically every man in the street. For this reason the ordinary people do not care much about what kind of budget they get.
Would it not be better to count the money needed by the population to have enough food? If people have money and can buy more and better food, an impetus will be given to agriculture and the food industry. We ought to know exactly how much to spend on utilities, electricity, gas, water, and heat. Who wants debts? So we must determine precisely how much to money to have in order not to have to wear clothes and shoes bought fifteen years ago. If people have enough money, light industry will be grow, producing (and selling) refrigerators, televisions, and other things. Money produces market demand, making the producers expand output, meaning more jobs. This is what protection of the domestic producer is all about.
The budget must not be worked out using two arithmetical operations: subtraction (by the Tax Administration) and division (by the cabinet).
The budget must be worked out based on all four arithmetic operations: multiplication (increasing per capita income), addition (bringing the shadow economy into the light of day); subtraction will be eventually discarded (tax evasion will no longer be worthwhile), and division will be clearly designated: maintenance of the government machine, military and security ministries and agencies, fundamental sciences (the applied sciences should develop on their own), and culture.
At present, we have 15 million pensioners and 28 million formally employed (with 19 million actually on payroll). All are taxpayers. Statistically, there is over one unemployed person for each employed, meaning that the said 19 million have to work for themselves and those out of work.
The people do not need concessions. They need normal (average European) wages and pensions, allowing them to live rather than struggle to survive. Wages must be enough to pay at least 50 rather than 8 percent of the cost of goods. In other words, the current budget is aimed at starvation rather than economic growth.
One can only laugh, listening to cabinet people talk about GDP growth and budget surplus. There is no GDP growth. Instead, there is consumer price growth and the budget surplus is self-delusion. It is bitterly disappointing to hear them talk about achievements that simply do not exist.
As for the cabinet’s declared pension increase, it is sheer misconception. UAH 74 of 1999 is referred to UAH 74 as of November 10, 2000 at a 10/4 ratio. Pensions, however, need to be increased 2.5 times, not by just 25%. A minimum pension should come to UAH 185 by January 1, 2000, and then rise accordingly on a monthly basis, adjusted to the inflation index, to be recalculated at the end of the year. This must be done, considering our current situation. In general, pensions should be at least UAH 600, 45% of the average wage also considering our current situation.
And what methods are used to compute the inflation rate? Compared to the dollar? But the dollar is not officially in circulation in Ukraine. In addition, one could buy 1.5 kg of fatback for a dollar in January 2000 and now it is only half a kilo. And people also have to buy bread, milk, and meat, and there are growing municipal costs, gas, electricity, and so on. A dollar should sell now at not less than 10-11 hryvnias, but we keep it in check, for the sake of the IMF.
In other words, the level of inflation the cabinet is talking about differs from actual living standards. This reminds me of an anecdote about a bookkeeper. When asked what two times two equals, he replied, “How much do you want?” The IMF wants 13-15, so it will be 13-15 and we say nothing about the money stock having almost doubled this year. So are we back to the money printing presses?
Then let us consider industrial output growth. Say, an enterprise manufacturing 1,200 machines in 1991 put out one such machine in 1999 and two in 2000. This is immediately followed by exalted industrial output growth reports conveyed nationwide: a 100% increment! Who are we trying to fool?
During Soviet times all statistics were based on comparisons to 1913. Perhaps we should follow suit and adopt 1991 as the statistical basis. Then all pieces of the puzzle would fall in place. We would have to count not our money (as the hryvnia sinks every passing day), but the amount of goods produced and sold, in terms of real cost. If we do we will surely know what is what and who is who.
How many years have we talked about the administrative reform? And the result? Nothing. Why? Because the very concept is wrong. Who worked it out? We should have a single Ministry of the Economy. Or a Ministry of the Economy and Finance. It should include departments responsible for the analysis and prognosis of industrial development, advancement of agriculture, food and light industries, transport, communications, finance, privatization (instead of the State Property Fund), treasury, taxes (instead of the Tax Administration), and fuel-and-energy sector, with a Vice Premier at the head. This would secure reliable centralized control.
The border guard troops and customs should be included in a single structure. All issues should be settled on the spot, at the frontier. As it is, goods cross the border but the final customs formalities are performed at the point of destination. This is ridiculous. In other words, a shipment is allowed across the frontier and can then be qualified as unlawfully imported by local customs authorities. Who is to blame?
Who benefits from this and how? Our law enforcement authorities, military, along with our security ministries and agencies. Each has the same structural subdivisions. The militia, SBU, Prosecutor’s Office, and Tax Administration have investigators. Why not form a single investigative body? Let the militia take care of law and order, the SBU of national security, and Prosecutor’s Office of observance of the law. Criminal as well as economic wrongdoing should be investigated by a single authority. And administrative cases should be dealt with by courts of law. What do we have instead? The central bureaucratic apparatus could have ten times fewer people on payroll.
And how many times could we reduce the local bureaucratic staff?
Indeed, financing should be left at the same level or increased. What kind of performance can one expect from a civil servant paid 160 hryvnias a month? Why should such a person receive 2-3 times more, after serving 10-12 years, than one just starting a bureaucratic career? Is this why young and talented people do not want any jobs in bodies of authority?
Many governmental structures receive money in return for their services, like statements, references, even signatures, and God knows what. Why? They are paid for these services from the budget, meaning taxpayers’ money. If their services are to be paid for, why not make them pay for themselves? This would ease the burden on the budget and people would receive pensions like those elsewhere in the world.
Our legislature is very interesting. We have Verkhovna Rada. It passes bills and we would be better off if it drew them up as well. But what do we need all those regional, district, and village councils for? What kind of bills do they pass? They adopt local budgets elaborated by the executive after adopting the central budget. Who knows best how to use budget funds? Usually the one working out the budget program. A budget must be formed from bottom to top, not the other way around. That way both local authorities and businesspeople will have a stimulus; the better they work, the more money is left for regional business.
In a market economy, any business entity — an enterprise, city, region, the state as a whole — is faced with this choice:
— working at a profit (we have not managed this one for the last nine years);
— going bankrupt (the current so- called reform cabinet is tirelessly guiding us in this direction).
Unfortunately, none of the cabinets during the years of independence has been able to offer Ukraine a realistic long-term development program.
No program can be carried out unless economically justified. Hence we witness the pitched battles in Verkhovna Rada over every budget, every year, and likely to continue to do so in the future.
The budget is very far from this country’s real economic life. What makes me say this?
Financial computations are the first and foremost element of the viability of any given business entity. This element is nonexistent in the budget, at the level of enterprises, administrative units, or regions. Take the stated privatization proceeds. Every economist understands that this is a deficit in our so-called surplus budget.
Financial planning comes first when working out any budget program. This takes long-term forecasting and is possible only when we have preliminary elaboration of the prerequisites for our first steps. As it is, no such steps have been taken.
How can one plan budget receipts with practically 99% of the enterprises lacking any more or less feasible business plans for the next three to five years?
What kind of planning can one expect with the planners not knowing what will happen tomorrow, what will the cabinet (which seem not to hold in esteem) and tax collectors come up with, and Verkhovna Rada votes for?
For the past three years, our center experts, jointly with those from the ODA Chief Economy Directorate, have worked on the Concept of the Socioeconomic Development Program (Budget), relying on the bottom- to-top principle, embracing:
— every enterprise with any pattern of ownership,
— any given territorial community (village or city),
— every administrative district,
— every oblast, and
— the entire country. Today’s economic situation, due to the transition to a market economy, demands from all business entities a new approach to domestic planning, new forms and models to secure the effectiveness of administrative/managerial decisions. A new progressive method of planning, business plan, proves an optimum solution to the problem. Such business plans should be made:
— at the level of the enterprise,
— at the level of the village (consolidated business plan of all the local business entities), and
— at the level of the city (as we said),
— at the level of any administrative district (consolidated business plan of all the local rural and urban business entities),
— at the level of the oblast (consolidated business plan of all business entities of the districts and regionally subordinated towns), and
— at the very top (national business plan). While a business plan relating to an individual enterprise should be complete, only two chapters will suffice for a consolidated one, that is:
— production plan (e.g., the amount to be produced, assortment, and selling/buying prices) and
— financial plan (reflecting the receipts and disbursements, a balance sheet with profits and expenses relating to every enterprise, every territorial community, Ukraine as a whole, including long-term payments to the local and central budgets). This will make it possible to solve the following problems:
— understanding the general economic condition with regard to a given enterprise, populated area, region, or nationwide;
— visualization of the level to be achieved by a given enterprise, populated area, region, or by the whole country;
— planning the transition from one status to the next in the near future and in the long run;
— realistic assessment of the current economic status, its weak and strong points;
— analysis of the commodity and service markets;
— analysis of domestic and foreign markets;
— designation of promising regional development trends;
— alignment of the productive forces; and
— identification of labor markets, etc.
Socioeconomic development programs (budgets) worked out in keeping with such a concept will make it possible to forestall and effectively cope with most problems.
Naturally, it is impossible to provide for all contingencies when implementing a budget, yet this will allow us to consider every step and make the right administrative (managerial) decision — in other words, to run one’s business in accordance with a plan (socioeconomic development program) rather than struggle with problems as they come up.
The stated concept will make it possible for the government (whoever heads the cabinet) to effectively monitor budget implementation, make quick adjustments, and follow the course of radical reform without any deviations.
This will certainly take major organizational, financial, cadre, and research effort. We must use the money received from IMF and World Bank for precisely this purpose and not just spend it on food or keeping the hryvnia within a currency trade band no one needs any longer.
A series of coordinated efforts to analyze and forecast a broad range of issues to provide adequate conditions for socioeconomic development in the countryside, cities, districts, and oblasts, including measures to improve management, stimulate business activity, modernize the production and technological basis, restore production, secure additional job placements, etc.
Last year, we sent our work to higher authorities, that is, to Messrs. Yekhanurov and Tyhypko, and to the Verkhovna Rada Budget Committee.
Who needs a budget simply for its own sake?
