Officials’ villas: top priority despite budget deficit

As the administration of the president recently reported to the media, the country will spend more than Hr 50 million ($13.5 million) on the maintenance of government residencies in Koncha Zaspa and Puscha Vodytsia.

The residencies in question include the mansions of the current prime minister, chairman of parliament, former presidents, as well as other deputies and officials. Whilst increasing the financing for maintaining bureaucrats’ mansions, the president and prime minister of Ukraine have also announced continued cuts to social expenses; requesting that the citizens of Ukraine understand that these are unavoidable due to the state budget deficit.

At the same time, this year’s budget provides more money for deputies mansions than for the development of local self-administration projects (Hr 26 million/$3.2 million). The ‘mansion budget’ is also equal to the sum designated for the construction of housing for soldiers and civil servants. Having secured the financing for their mansions, officials seem unconcerned about the fact that in 2012 the minimum living income has been set at only Hr 1,017 UAH ($127) per person per month and minimum wage is Hr 1,073 ($134) per person per month.

It remains to be seen whether Ukrainians will bear the cuts to social benefits in the context of uninterrupted financial support of state officials’ villas.

People First Comment: This is classic French pre revolutionary philosophy at its very best. “To hell with the people whilst we waste money on our little luxuries…” It didn’t end well for Marie Antoinette and will not end well for Ukraine’s self appointed political elite.

Ukraine maintains one of the third strictest tax regime in world

Under ‘Paying Taxes 2012,’ the annual report from PricewaterhouseCoopers, the World Bank and the International Finance Corporation, Ukraine has remained 181st in the ranking of 183 countries for three years in a row. Ukraine has demonstrated some of the worst possible results for ease of paying taxes, number of tax payments, time required to comply, and total tax rate compared to the rest of the world. Despite the new tax code, adopted with great fanfare by the current authorities and supposedly designed to improve business climate in the country, Ukrainian companies had to manage 135 separate tax payments throughout 2011, for which Ukraine is the worst in the world according to the ranking. Each company spent an average of 657 hours paying taxes (175th place) and faced a total tax rate of 57.1% (152nd place).

By comparison the tax situation in Zimbabwe, which ranks 126th, is much better than in Ukraine. In 2011 Zimbabwean companies spent 242 hours on 49 tax payments with a total tax rate of 35.6%(4). Canada meanwhile, which ranks 11th, has only 8 tax payments taking an average of 17 hours to complete. In America (69th place), companies had 40 tax payments with an average of 66 hours spent.

With ineffective tax reforms and inability of the state to establish a dialogue between the tax authorities and the business community, it is no wonder that Ukraine remains a country of unrealised economic potential.

People First Comment: This government seems to have the delusion that they can tap into any source of funding they like in order to keep their political moneymaking machine working. They seem to think that the fruits of labour belong, as they did in the Soviet era, to the government and we should all be happy to live in poverty knowing that we are maintaining their system of control and protection. Under the Soviet system this political ethos had some bearing, under this government and administration it most certainly does not.

Furthermore they don’t even seem to have bothered to study taxation systems as it is a well known fact that the more you demand the less you receive. Margaret Thatcher proved this very convincingly in the 1970’s when she cut personal taxation from 33%, a level set by the previous socialist government, to 27% and moved the tax burden over to VAT increasing the rate to 15%. Government revenue increased by 13% and stayed that way as the general public accepted that the taxes were reasonable. Ukrainian taxes are not reasonable and therefore the government are going to have to employ an army of tax inspectors to discover every loop hole and tax avoidance scheme that Ukrainian society can create. However history also proves that when you deduct the cost of the tax collection system from the extra revenue they collect the difference is rarely worth the effort.

If the government really want to increase state revenue then they should tax the superrich… the problem being that they would be taxing themselves and their families so no current politician would ever vote for the legislation.

Constitution Court rules: no public information without state approval

According to a recent decision by the Constitutional Court of Ukraine, all information regarding officials, politicians and the families thereof, about their financial dealings, real estate, holiday destinations, places of residence, religious beliefs and property relations with other people may not be revealed by the media. From now on journalists publish such information only by consent. The only exception is when the collection of information is a matter of national security. Olena Bondarenko, deputy from the Party of Regions, referred to the decision of the Constitution Court as a reminder of the responsibility for respect of official’s privacy).

Experts view the decision as legitimised suppression of information, particularly regarding cases of corrupt practices, in order that such information does not effect the parliamentary elections this autumn. This decision will doubtless contribute to the growth of corruption in Ukraine, which is already the worst in Europe.

The governing authorities of Ukraine have again proved that any steps towards positive reform are to be cancelled out by severely regressive actions. This time the government has practically torn up the law: On Access to Public Information. Meanwhile Ukrainian legislation provides no punishment for state officials who submit inaccurate information about the dealings of themselves or their families.

This new move has made honest journalistic research virtually impossible. For providing information about officials without their consent a journalist can face anything from a substantial fine ($1,100-$2,100), two years community service or even a prison term of up to three years.

People First Comment: Last year the President publically announced that over $7.5 billion had been stolen from the state budget. This sum, which totals more than the 2012 budget for the Ministry of Social Policy (welfare) and the Ministry of Health combined, is known to have gone to line the already bulging pockets of corrupt state officials. This colossal theft is the result of a corrupt network of thousands of independent schemes, requiring vast administrative effort to keep the hundreds of money launderers, falsified contracts and wealthy beneficiaries, free from public scrutiny.

Evidently, whoever is influencing the constitutional court feels it is in the nation’s interest to reform and simplify this process: by simply banning all investigation into the actions of the elite, and jailing any public whistleblowers for up to three years. The timing of this decision does little to hide the motives behind it: providing the authorities with an effective media stranglehold throughout the coming parliamentary elections and giving them the ability to throw disfavoured journalists in jail for long enough to remove their comment from the next Presidential elections as well.

These pseudo-legal actions are the desperate failings of an insecure regime with a guilty conscience: It seems these particular kleptocrats are willing to sacrifice even the façade of public consent, their sole claim to legitimacy, in a bid to maintain control in their own interests.

The only reprieve offered by the ruling is for investigations into threats to national security. The authorities should understand: in the mind of the people, a regime that spends more on corruption than it does on essential healthcare and social benefits and reacts to public investigation with repression constitutes exactly such a threat.

Opposition blocks constitutional reform

Yanukovych is initiating a process of constitutional reform by establishing a Constitutional Assembly to prepare a new draft text for the Constitution, inclusive of the recommendations of the Venice Commission.

The Assembly has gathered more than 100 experts from various fields.

Under presidential order, the Assembly will include representatives from Party of Regions, Communist Party, Socialist Party as well as ‘Motherland’, ‘Front zmin’, ‘UDAR’ and ‘Svoboda’ political parties, which are currently in opposition. A number of civil organisations have also been asked to delegate representatives. These include Laboratory of Legislative Initiatives, Ukrainian Centre for Independent Political Research, Razumkov Centre, Civil Network ‘OPORA’, Ukrainian Helsinki Human Rights Union and others. Volodymyr Zubanov has stated, and the governing party of which he is a member agree, that the Constitutional Assembly must define the authorities of the President, national government and local administrations.

The majority of opposition political parties, currently united under the banner of Dictatorship Resistance Committee, have refused to support the Constitutional Assembly launched by the authorities. Instead they have made a joint statement in support of the resolution of the Parliamentary Assembly of the Council of Europe, which demands the release of former prime-minister Yulia Tymoshenko and Yuriy Lutsenko, former Minister of Internal Affairs. Yulia Tymoshenko has made a statement in which she encourages members of the Constitutional Assembly not to support the process of Constitutional change initiated by the current government. In her opinion the best way to change the government is by winning the parliamentary elections this autumn.

Political experts believe that the authorities do not care about public opinion regarding the constitutional order of Ukraine. Instead they are trying to secure their positions in office by introducing a procedure whereby it will be parliament, rather than the people, who elect the President of Ukraine. Let us not forget that such a consolidation of power would fit well with President Yanukovych’s actions so far, in awarding himself far broader and deeper powers. People First Comment: Is the presidentially inspired constitutional reform to be viewed as an expression of a willingness to cooperate with Europe: by implementing the recommendations of the Venice commission, or another attempt at consolidating power? The opposition seem to think the later as they have already abstained from any such assembly, thereby rendering any attempt at constitutional reform as potentially illegal. A recent opposition statement claimed that the only way they would cooperate would be if the government were to fulfil the recent demands of the Parliamentary Assembly of the Council of Europe; including the release of key opposition figures.

So far the only reaction from the authorities has been a letter to the EU’s High Representative for Foreign Policy and International Affairs, Catharine Ashton, pleading for her personal assistance in persuading the opposition to cooperate. This move seems tragically ironic considering that the last public comment from Mrs Ashton on the topic of Ukraine was to lament the failure of the appeals system to grant Tymoshenko freedom; citing the upholding of the rule of law as Ukraine’s critical obstacle to European integration.

The Presidential team would appear to have run out of space in which to manoeuvre. The next step will either involve the much called for freeing of political prisoners, and thereby a confirmation of Ukraine’s western aspirations, or inaction that will affirm suspicions that the constitutional reform is merely another step in the consolidation of power.

With PACE already suggesting sanctions, American diplomats suggesting visa-bans and an impoverished population just waiting for the final straw to break into nationwide revolt, perhaps the President’s advisors should suggest a pause to consider what price they are truly prepared to pay to secure Ukraine as their own personal fiefdom.

Viktor Tkachuk is chief executive officer of the People First Foundation, which seeks to strengthen Ukrainian democracy. The organization’s website is: www.peoplefirst.org.ua and the e-mail address is: [email protected]