Ukraine Cabinet submits revised budget to parliament

Ukraine’s Cabinet of Ministers published on Nov. 9 a revised 2017 budget after the prime minister announced a proposal for a doubled minimum wage. The draft, approved by the Cabinet on Nov. 3 and submitted to parliament, proposed that the deficit remains unchanged at UAH 77.5 bln, or 3.0% of GDP, with spending and revenues increasing equally by UAH 15.1 bln. Extra spending on a higher minimum wage in the state sector amounts to UAH 25.8 bln. In return for the higher minimum wage, the budget saves UAH 14.8 bln in subsidies for the Pension Fund and UAH 3.2 bln on utility subsidies. Extra revenues are expected to arrive from VAT (UAH 7.0 bln), personal income tax (UAH 5.5 bln) and more dividends from the National Bank (extra UAH 4.0 bln). Collections from enterprise profit tax are expected to fall by UAH 3.0 bln as compared to the previous draft.

Alexander Paraschiy: Groysman’s claim of “no impact” of the new minimum wage on the budget deficit isn’t reliable, to say the least. Even if we can agree that revenues from personal income tax might increase (some companies will start paying more), potential growth from VAT looks just as much as wishful thinking. The Financial Ministry says estimated income will increase, which will stimulate consumption and extra VAT collections. Though, in our understanding, VAT collections should at least be the same or even might fall after the wage hike. The idea of increasing NBU dividends is amusing considering the central bank is supposed to be an independent institution. All in all, the new spending plan figures do nothing to inspire confidence in securing a loan tranche during the current talks being held in Kyiv with the IMF mission.