Ukraine PM proposes doubling minimum wage in 2017
27 October 2016
Ukrainian Prime Minister Volodymyr Groysman proposed doubling the minimum wage in Ukraine to UAH 3,200 (USD 123) a month as of Jan. 1, 2017 at the weekly Cabinet of Ministers meeting on Oct. 26. The current 2017 budget draft calls for only 16% yoy growth in the average minimum wage, and Groysman said the Cabinet ask parliament to amend the budget.
Alexander Paraschiy: This initiative is a real surprise considering it has been introduced after the budget draft for 2017 was approved in the first reading by parliament. In essence, this step increases the tax base for the payroll tax and targets increasing collections to the pension fund.
Authorities are saying that the increase will mostly affect the private sector to make business pay more to the pension fund and will not affect budget spending much. Only the lowest wages (those below UAH 3,200) in the budget sector will rise while higher wages will not be adjusted.
Still this looks more like a political gambit without clear estimates. Hardly anyone can tell what the potential effect will be on the real sector, which could very well respond with job cuts and tax evasion schemes.
From this viewpoint we can hardly expect economic improvement with this initiative. Most likely, the IMF will take time to study the potential consequences. However, Groysman stands to boost his popularity. Even if the initiative fails, he can at least claim he tried to do something for average citizens.
