Costly benefits?

Government wants to stop handouts to those not in need

Government officials figured they were restoring social justice when they granted generous discounts for public services to millions of Ukrainians in the early 1990s.

A decade later, those very handouts are being blamed for crippling the country.

Analysts and managers at state‑owned companies say that relatively well‑off Ukrainians are grabbing a big chunk of the benefits, often forcing the poorer to subsidize the richer. The system of extensive privileges has undermined the country’s infrastructure, hampering development of public services, they say.

Viktor Falkov, spokesman for Ukrzaliznytsya railroad, said his company lost around Hr 1.5 billion in revenue last year to discounts provided to veterans, students, tax police and others.

Falkov said his company is by law required to grant discounts to 29 passenger categories, with reductions ranging from 50 percent to 100 percent of the ticket price. The categories include World War II veterans, retirees and a number of occupations, such as tax inspectors, police officers, judges, prosecutors and parliamentary deputies. Government agencies whose employees receive free train travel are, by law, supposed to compensate his company. Most of them, however, never do, he said.

“They always say they will pay when they get the money from the budget,” he said. “But there is never money in the budget for that.”

Ukrzaliznytsya’s problems started in the early 1990s when the government sought to halt a fall in living standards by granting benefits to those most affected by rapid economic decline.

The benefits were meant to supplement quickly devaluing wages. Regulated by an array of laws, presidential decrees and government resolutions, the system of benefits stretched into the millions and covered a wide spectrum of public services, including communal services, transportation and health care.

A recent government study revealed that about 17 million Ukrainians, or 33 percent of the population, are entitled to free rides on municipal and local transportation.

The study, compiled jointly by the Economy Ministry, Finance Ministry and the Cabinet’s Secretariate, found that nearly 6.5 million people (13 percent of the population) enjoy free rides on inter‑city transportation, while 4 million (8 percent) receive discounts for communal services.

Hlib Vyshlinsky, an economist at the International Center for Policy Studies, said the system has proven to be totally ineffective. Instead of targeting people with low incomes, Vyshlinsky said the system grants benefits according to social status and occupation.

The list of occupations whose representatives are eligible for extensive social benefits includes police officers, tax officials and judges, while ignoring, for instance, teachers and doctors.

Viktor Sidorenko, spokesman for the Interior Ministry, whose employees are entitled to free use of municipal transportation and discounts in communal services, said social benefits aren’t a privilege but compensation for police officers’ meager wages and difficult working conditions.

“You call this a benefit?” he asked. “It’s just token compensation for the hardships of our job.”

Sidorenko said the average salary of a police officer is Hr 450 ($90), compared to more than $2,000 in Germany. That wage leaves an officer only about $10 leftover after paying $80 in rent ‑ the average rate

for a one‑room apartment in Kyiv.

“When journalists hear the salary for a position in our press service department, they refuse immediately,” he said. “So we have policemen rather than PR specialists working there.”

He said a police officer’s average working day lasts for about 12 hours. Unlike teachers and doctors, police officers are forbidden by law to moonlight to supplement their salaries, he said.

According to a government report, about 70 percent of all benefit recipients are “not poor.”

Anatoly Krasylshchykov, an expert on social policy reform in the Cabinet, said “not poor” means a recipient can afford to pay for those free or reduced services.

The study found that the average wages of those getting discounts on inner‑city travel and phone bills is higher than the national average salary.

Vyshlinsky said Ukraine’s pervasive system of social benefits has also created a breeding ground for corruption.

In the case of passes to sanitariums there aren’t nearly as many slots as there are people granted vouchers. So only those with connections get the coveted places.

“When you have a million people entitled to free treatment at a sanatorium, the only ones who get it are those who have access to the people who distribute the benefits,” he said.

Vyshlinsky said the high number of non‑paying customers also hampers development of state‑owned companies, such as Ukrzaliznytsya and Ukrtelecom, reducing the service value for paying customers.

Ukrzaliznytsya’s Falkov said his company could purchase 150 new train cars ‑enough to replace seven obsolete trains ‑ with the money it lost in benefits last year alone.

Vyshlinsky said the country needs to overhaul the social protection system.  Benefits should be given to the poor and not to those with certain occupations and social status.

That’s exactly what Krasylshchykov said the government has been trying to accomplish. Earlier this year, the government created the position of social inspector to determine who is truly worthy of benefits.

Krasylshchykov said social inspectors examine the homes of families with three or more children filing for social benefits as large families.

“They see whether the family has a car, how the members are dressed and what kind of furniture they have,” he said.

Krasylshchykov said the government is also meeting with government agencies, trade unions and employers trying to convince them that drastic changes are needed. But the talks, particularly with trade unions, have been difficult, he said.

“When you raise this issue, people start buzzing like bees in a hive,” he said.

But it is imperative to get the support of these entities, Krasylshchykov said.  Without the support of trade unions and lawmakers, changes would likely be mired in legal complications. When the government of Viktor Yushchenko canceled some of the benefits in 2001, more than 50 parliamentary deputies appealed to the Constitutional Court, which ruled the decision unconstitutional.

Despite opposition, Krasylshchykov said he is confident the government will push through the changes.

“I’m sure reform will take place,” Krasylshchykov said. “But when it will be and in what form, it’s difficult to say.”