You're reading: Jaresko proposes reforms along with $34 billion budget in 2015

Ukraine Finance Minister Natalia Jaresko today presented the state budget for 2015 to parliament alongside a package of 44 reform laws intended to form the basis of this and all future budgets. Urging lawmakers to approve the entire package, Prime Minister Arseniy Yatsenyuk said the success of the budget depended on support for reform.

“The budget can only be adopted after you support all the legislative initiatives above, because it is built on a new tax base, new budget relations, the regulation of shadow incomes, business and taxation of big business as well as a change of approaches to social payments,” Yatsenyuk told a packed session hall.

Member of parliament have decided to work seven days a week until the budget and associated bills are passed, which they aim to do before the New Year. They plan a first reading of the budget on Dec. 25, to vote for it in the second reading on Dec. 28 and to adopt it by Dec. 29, just two days before New Year’s Day. 

Jaresko said that she had based the budget on a forecast that real gross domestic product will decrease by 4.3 percent and inflation will reach 17 percent. 

Budget revenues are expected to be Hr 475 billion in 2015, allowing for Hr 543 billion in government expenditures – about $34 billion — with a deficit of 3.7 percent.

“We are looking at a difficult year in which 30 percent of our expenditures are planned for defense and debt repayments,” Jaresko said, adding that defense and security is Ukraine’s number one priority in the face of Russian military intervention in the country’s east. 

Almost Hr 83 billion – or roughly $5 billion – from the state budget in 2015 will be spent on defense, along with Hr 6 billion in state bonds and Hr 1.5 from the special fund. Yaresko emphasized that every day the county spends Hr 100 million on the military operation in Donbas. 

The government has been working round the clock to submit the budget, only just managing to print copies in time for today’s session.

“It was just brought in and handed out. It is still warm,” Borislav Bereza, a spokesman of Right Sector and an independent lawmaker, wrote on his Facebook. “No exaggeration. It is really warm.”

Initially the government had hoped that the budget would be passed quickly, but in the end the final vote was postponed until next week. 

Speaking for the first time in parliament since she was released from prison in February, former Prime Minister Yulia Tymoshenko called for the government to be ambitious in the coming year.

“I am strictly against the idea that the next year will be called by the representatives of the government a year of survival,” she told parliamentarians. 

“I consider that we as a nation should set more ambitious and stronger goals,” she said, adding that the next should be a year of reforms, changes, renovation and the start of integration to the European Union and NATO.

Budget 2015 – Key takeaways

• Despite significant inflation and devaluation this year, salaries, pensions and other social payments aren’t planned to be indexed in 2015, meaning Ukrainians will see only a small increase in social payments, and only from December 2015.

• New proposed rules on transfer pricing aim to prevent companies from trading at unrealistically low prices with affiliated companies and off-shore accounts, thereby forcing them to pay accurate taxes.

• The government plans to renounce an agreement with Cyprus that has allowed Ukrainian companies to route shady payments through the country, bringing an end to the “off-shore era.” 

• New taxes are suggested for luxury cars and jewelry.

• A proposal to legalize gambling in licensed casinos, forbidden in Ukraine since 2009 but still operating illegally anyway. The government aims to collect and additional Hr 2 billion in income tax and license fees from the industry.

• The government hopes to generate more revenue by decreasing fiscal and administrative pressure on business and creating equal rules for everyone, reducing the incentive to dodge taxes.

• The number of different kinds of tax should be reduced from 22 to 9, simplifying and streamlining the taxation process. The number of categories for single tax (a flat tax paid by small businesses and entrepreneurs) will be reduced from 6 to 4, determined by the type of business or income.

• To bring more salaries out of the shadow economy, the government plans to decrease compulsory social payments from 41 percent to 25 percent in 2015 and to decrease the tax rate to 15 percent over the next two years. This new rate will be applied if monthly income exceeds two minimum wages.

Kyiv Post staff writer Oksana Lyachynska can be reached at [email protected]