Parliament Thursday July 3 cast doubt on the fate of tax reforms next year by approving a set of requirements the Cabinet is to follow in drafting the 1998 budget.
By a margin of 247-18, deputies approved a 1998 budget resolution stipulating that the spending plan be based on legislation adopted no later than when the Cabinet begins drafting the budget.
With Parliament scheduled to recess from July 18 to September 2, and the Cabinet required to submit the draft budget to Parliament by September 15, there is little prospect that any new tax legislation will find its way into the draft budget.
Deputies have been sceptical about their ability to quickly approve tax reform bills, saying that the Cabinet has done a poor job drafting them. We cannot debate draft laws which the Cabinet submits incomplete and badly justified, said Parliament Finance and Banking Committee Chairman Viktor Suslov.
Recriminations have flown between the Parliament and Cabinet since last November, when the Cabinet submitted a number of sweeping tax reform bills as part of its Economic Growth 97 legislative package. Criticizing the package as inadequate, deputies have approved only two tax reform laws. But even these on valueadded tax and corporate income tax are already on Parliaments list of economic laws to be amended.
Other bills in the Western-backed Economic Growth 97 package, including draft laws on personal income tax and property tax, remain stalled, with Parliament and the Cabinet having kicked them back and forth for more than half a year.
Under a 1996 law, deputies are required to pass a resolution allowing the Cabinet to begin preparing the following years budget. The conventional wisdom among deputies is that failure to deliver the resolution on time, however flawed it might be, would invite political attack from the Cabinet.
Volodymyr Pylypchuk, a noted economist, was among the deputies who were not satisfied with the quality of the resolution.
If the current taxation system is not changed, the budget will never be what we want it to be, he said. If the Cabinet adheres to Parliaments requirement [to base the budget on existing legislation], we can hardly expect any changes in tax policy next year.
There is a legal way, however, for the Cabinet to sidestep Parliaments requirements. In the event the draft 1998 budget contradicts the budget resolution, the Cabinet is to provide an itemby-item explanation of why it did not follow our requirements, said Finance and Banking Committee member Volodymyr Piehota.
The budget resolution sets objectives for all points of the 1998 budget. In it, deputies name support of domestic producers, especially in the agricultural and energy sectors, and social protection measures as overall priorities. To that end, deputies demanded that the Cabinet make payment of back wages a priority, and that public health services remain free of charge.
The resolution orders the Cabinet to find savings by continuing administrative reform. All budget-financed organizations, including the Presidential Administration, Cabinet, and Parliament, are barred from purchasing imported commodities if equivalent goods are domestically produced.
The resolution includes only two numerical targets: a maximum budget deficit of 5 percent, and a requirement that budget expenditures constitute no more than 31percent of GDP. Many deputies said the lack of specific targets could offer the Cabinet the loopholes it needs to draft a budget to its liking.
The Cabinet wont have trouble ignoring the resolution, said Deputy Serhiy Teriokhin of the Reforms faction.
The resolution struck some deputies as more politics-as-usual.
The Parliaments budget resolution ought to be drafted after an analysis of how the current budget is being implemented, said Pylypchuk. The 1998 resolution lacks this analysis, because it was drafted before Parliament even approved the 1997 budget.
