You're reading: New social policy minister plans to cut into pension deficit, automate

To see how Social Policy Minister Andriy Reva wants to change the country, go to Vinnytsia.That’s what Reva advises.

Reva moved to Kyiv in April from his hometown of Vinnytsia, a city of 370,000 people 268 kilometers southwest of Kyiv, to lead the Ministry of Social Policy. He made the move at the request of his former boss, Prime Minister Volodymyr Groysman, who was mayor of Vinnytsia for eight years until 2014 with Reva as his deputy.

But Reva comes to a ministry that has not been a leading reform light. Independent analysts from VoxUkraine analytical platform gave the performance of former Social Policy Minister Pavlo Rozenko a “-1” grade on a scale from “-8” to “8.”

As an interview with the Kyiv Post starts, Reva is on the phone, planning a meeting with the mayors of Kharkiv, Odesa, Lviv, Dnipro and Kyiv. He plans to bring them to Vinnytsia to show its administrative service centers, which unite the bureaucracies of the pension fund, state subsidies, state benefits and other services all under one roof.

In the future, he wants every city to have such integrated administrative state service centers.

Ukraine’s pensions are low in general, averaging $68 per month, but some categories of people, namely judges and military personnel, qualify for higher pensions. The retirement age for men is 60, and 57.5 for women.

Pension abyss

But that promising idea move down the ministry’s agenda as there is a more pressing problem: The state’s pension fund deficit has almost doubled since 2014, reaching Hr 145 billion ($5.8 billion) this year – an unsustainable sum in a nation with a gross domestic product of only $75 billion and a state budget of less than $40 billion.

Unsurprisingly, Reva blames that on the previous government. In December, the Cabinet reduced the single social payment tax from 38 percent to 22 percent and canceled a deduction from wages of 3.6 percent to lessen the tax burden for business.

“If nothing is done today, then next year the deficit will be Hr 200 billion ($8 billion), and it will be the end,” he said.

Reva’s plan to cover the shortfall in the pension fund includes increasing the minimum number of work years before qualifying for a pension. Currently, there is no minimum. But his plan is to require 30 years of work from women and 35 years from men to qualify for a meager pension that currently averages $50 a month.

“We shouldn’t pay a pension to those who have no right to get one,” Reva says.

According to Reva, half of the 300,000 citizens who retire every year haven’t met these requiresments.

If a citizen wants to retire early, they should still pay the single social payment tax every month left to the required time.

Another idea is to introduce a regressive single social tax of $24 for those earning between the minimum monthly wage of $58 to $116. Now earners in this tax bracket pay 22 percent, but Reva believes the majority of employers mark down the official salaries to pay just $13 in tax, while paying the rest of the salary in cash. The new tax rate would double the tax for such employers and motivate them to declare real salaries.

Once a person earns over double the minimum wage, $116, they will still only pay a 22 percent rate.

Monetization of benefits

Another task of Reva is to replace all state benefits with monetary compensation payments.

For example, Kyiv residents who currently use public transport for free would have to pay for the ride and claim the money back from the government as compensation. The compensatory payment wouldn’t be taxed, as it wouldn’t be counted as income.

Social protection reform

Benefits paid to single parents of newborns are an area where Reva sees opportunities to economize.

Today, single parents receive a birth benefit payment of Hr 41,280 ($1,650) along with monthly payment of Hr 1,228 ($49). But according to Reva the single parents benefit is simply encouraging couples not to register their marriage.

The figures seem to bear that out: The number of single mothers has risen by 22 times over the last 13 years. Some 600,000 women are now receiving the benefit.

“We’re encouraging families to go into the shadows,” he said of the practice he wants to stop.

He suggests canceling the benefit, and instead obliging mothers to identify the father of the child, who will have to pay child support.

“If one avoids paying child support, then we can pay benefits to a single mother,” Reva said.

Assistance paid to families with lots of children is another budget expense that should be paid differently, according to Reva. He said sometimes parents have children just to get state financial support.

In December, the Cabinet of Ministers adopted a resolution to base the size of the payment on family income, not number of children.

“So if you don’t work, you get more assistance. Which idiot came up with that?” Reva said.

Reva suggested introducing a testing system to determine whether a family needs assistance or not.

In 2015, the pension fund deficit reached $5.8 billion, a huge financial burden for a nation with a gross domestic product of $74 billion.

Digitalization

Reva is also working to create a unified registry for citizens with tax exemptions and a registry of Ukraine’s 1.7 million internally displaced people.

According to the law, the aid payments to the displaced payiments (Hr 900 per month) have to be canceled for those who stay more than 60 days a year in the areas of eastern Ukraine that aren’t controlled by Ukrainian government. But the border officers need a registry to enforce this.

Meanwhile, Reva wants to modernize the IT system within the ministry.

In his first days at the ministry, he had a problem printing out a letter due to the outdated software used in the ministry. The World Bank has agreed to provide Hr 10 million ($400,000) to upgrade the ministry’s computers and software. By the start of 2017, the ministry plans to start using electronic documents only.

Until then, Reva will have to continue signing a stack of documents on his desk every day.

“No one was bringing me papers in Vinnytsia, as everything worked electronically,” he said.