Budget in a new way. What to expect from the new rules of planning the main financial document of the country?

Last week, the parliament approved a bill that introduces medium-term budget planning.

MP Roman Semenukha explains why this step is important for the Ukrainian economy and whether the current government will be able to plan expenses and revenues in a new way.

“Medium-term planning is a step forward in reforming the public finance system, a new approach to assessing the effectiveness of public spending,” says the MP. “After all, today there is an inconsistency between the actions and intentions of the Cabinet of Ministers. This is confirmed by the unfulfilled promises regarding the deficit of the Pension Fund, the non-fulfilment of the planned privatization proceeds, etc.”

What will change?

  1. Marginal costs are set. That is, there will be limits of spending on government departments, in particular, the Ministry of Internal Affairs, the National Guard, the Security Service of Ukraine, the Prosecutor’s General Office and some other bodies, because the expediency of spending record-high amounts of money on them can in no way be justified. For example, in 2019, 83.1 billion hryvnias are provided for the Ministry of Internal Affairs. This is 25% more than in 2018. Financing for the Prosecutor General’s Office will grow by 1.5%, for the State Security Service of Ukraine – by 17%.
  2. The number of budget managers will decrease. This will increase the efficiency of using funds and will put an end to the practice of shifting responsibility for using public finances from one manager to another.
  3. Budget planning will be carried out in an electronic way. This means that all stages of the budget process will be more open and transparent.

According to Roman Semenukha, today there are very few government projects aimed at developing the economy; the government cannot effectively solve the issue of increasing revenues. That is why the government is increasing taxes for Ukrainians and businesses every year.

Will the implementation of the medium-term planning correct this situation? Unfortunately, there are very many discrepancies between the principles of the adopted law and the figures present in the 2019 budget in fundamentally important things that demonstrate the state of the country’s economic stability.

First of all, the question of where to get money for the payment of pensions still remains there. So far, the government has not come up with anything better than to cover the deficit at the expense of other programs (in 2018, more than 7 billion hryvnias were withdrawn from the subsidies for low-income families to cover the Pension Fund deficit).

Secondly, the inflation rate is different from the expected one and provided for in the budget. In the budget for 2018, it was expected that the consumer inflation would make 6% and would continue to decline. In fact, we have 8.9%.

Thirdly, the planned indicators of budget filling are increasing annually, however, unfortunately, not due to the emergence of new taxpayers or jobs. Indicators of the revenue side of the budget are not fulfilled (for example, planned revenues from import duties, privatization, etc.)

“Being able to plan and to spend – this is the key to a positive effect from the introduction of planning. Unfortunately, the current government has repeatedly proved its inability to do so. The law will work effectively only when these will be professionals implementing the budget philosophy of the country’s main financial document.”

Roman Semenuha
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