You're reading: Austerity in action: Ukrainian government strives for Hr 90 billion more in savings

Austerity keeps driving the Ukrainian government's initiatives as Economy Minister Pavlo Sheremeta and presidential staff deputy chief Dmytro Shymkiv on Aug. 13 unveiled a new set of measures aimed at saving nearly an additional Hr 90 billion for the country's Hr 380 billion budget. 

“Overall we want to get an
additional Hr 88 billion – Hr 64 billion from eliminating corruption
schemes and Hr24 billion by lowering state expenditures,” the economy minister’s
chief policy advisor Danylo Pasko said. “This is the same size of our current
foreign exchange reserves. Imagine that we can double it and this does not
account for new foreign investments.” 

Deregulation, a policy geared
toward simplifying doing business, is seen as a key part of the initiative. This
ambitious program aims to kill two birds with one stone – fight corruption and
adopt Ukrainian commerce to European Union standards in order to be more
attractive for foreign investment. 

Resolving as many as 800
problems or “pain points” as the Economy Ministry’s Pasko put it, which
would eliminate many economic growth barriers, are listed as policy priority.
The initial emergency measures can save up to Hr 9 billion for the budget,
while also improve the business environment, Pasko added. 

Most of them deal with
issues that relate to obtaining the licenses and all kinds of business permits.
“We realized from the very beginning that we cannot simultaneously adopt all
800 changes,” explained the presidential administration’s Shymkiv, “therefore,
our first task was to prioritize the most urgent tasks we have to deal with.” 

Overall, the plan
includes halving the number of mandatory licenses, while the number of regulatory
bodies is expected to be cut from 79 to 32. Moreover, the country’s byzantine
22-duty tax system will shrink to nine taxes and duties. The government hopes
this should stimulate businesses to pay taxes instead of engaging in corrupt
schemes with regulatory bodies. 

For instance, the construction
business is regarded as one of the most corrupt due to the overcomplicated
system of getting official permissions, while simplifying the legal mess in the
sector could bring an additional Hr 3 billion. The World Bank believes Ukraine
has already chosen the right path. “In the past year Ukraine made the
biggest improvement in the ease of dealing with construction permits,”
reads WB’s Doing Business 2014 report when former President Viktor Yanukovych
was still in power. 

Eliminating the State
Agriculture Inspection is among key deregulation measures, a move that might
add another Hr1 billion to the budget. 

However, the Economy
Ministry still sees many problems in bringing the program to life. “If the Verkhovna
Rada is going to be as resolute as the president, the first stage of reforms
can be completed within one year,” Pasko reassures. But parliament’s indecisiveness
seems to be the main problem, from his point of view.

The fear is that the
legislature is loathe to vote for the bills because threaten crony practices
that have a long track record of being lobbied there. 

Moreover, despite the
announcement to reduce the number of taxes, an Ekonomichna Pravda analysis concluded
that the old taxes would simply be regrouped in new ones, leaving most of the
tax burden intact. Sheremeta’s business-focused version of the tax reform,
which implied lowering some of the taxes were sidelined in favor of the version
submitted by Igor Bilous, a former investment banker and head of the State
Fiscal Service, according to Ekonomichna Pravda. 

Another Economy Ministry
initiative is to cancel certain export licenses as well as launching special
insurance for exporters, Sheremeta told the Kyiv Post. 

Taras Varava, a lawyer
at Baker& McKenzie law firm, says that relying on the previously projected
figures of tax revenues in planning current policy is wrong as it puts more
pressure on business. 

Meanwhile, CMS Cameron
McKenna law firm’s expert Vitaliy Radchenko takes a pro-Sheremeta stance in
evaluating the reform initiatives. “We were in touch with the Ministry of
Economy and expressed our thoughts on deregulation initiatives, particularly in
the oil and gas sector. It is pleasing that some of our suggestions, such as
the liquidation of permission to export geological data, were taken into
account,” he says. 

However, more should be
done and on a larger scale by entirely changing the rules of nation-wide gas
business as part of the reform policy. “Oil and gas investors are very
much expecting… changes to the Land Code that ease the process of land allocation for exploration and
production.
The recent hike in the gas production tax does not make them more confident,” Radchenko
explains. 

Such uncertainty is
understandable in light of the political turmoil and the ongoing war in eastern
Ukraine. Nevertheless, the deregulation program is a part of a dialogue between
the government and business community as well as civil society through the
easybusiness.in.ua website, run by the Economy Ministry’s Pasko. 

Kyiv Post staff writer Oleg Naumenko can be reached at
[email protected].