On taxes and the exchange rate. Interview of the Deputy Minister of Finance

О налогах и курсе. Интервью замминистра финансов

Deputy Finance Minister Sergei Marchenko

Deputy Finance Minister Sergei Marchenko — about taxes, the hryvnia, on the costs and revenues of the state budget.

In No. 35 of the journal Correspondent published an interview with Deputy Finance Minister of Ukraine Serhiy Marchenko.

Valery Litvinski asked the Deputy Minister on taxes, the hryvnia exchange rate, on the costs and revenues of the state budget of pre-election requests and dialogues with recipients of budget money.

EXCHANGE RATE AND INFLATION

The draft state budget for next year based on the average annual rate of 29,3 USD for dollar, to 30.1 UAH — at the end of the year. Why sufficiently high devaluation of the hryvnia?

The Ministry of Finance deals with the macroeconomic forecasts. Is the Ministry of economy, which predicts, we can only forecast this to use for our budget calculations. The course is used primarily to calculate payments on external debt. We will need to buy the currency, and for this we set the indicative rate. The figure for us is purely technical. I emphasize that this is not a forecast, not a landmark. These figures may now have created some tension. We initially lay the course is quite pessimistic to execute payments on the national debt. I think what to say, how much to lay to the Ministry of Finance for 29.3 or 30.1, or of 30.5, is the discussion purely expert. Even the national Bank is not and should not be targets for the course, because the main task of the NBU is price and exchange rate stability.

But you get along with expenditure and income are tied to the rate. Due to the weak hryvnia, its devaluation will try to fill the budget?

Yes, there is the revenues that are tied to the course. For example, a significant impact on income of having the import. But this factor has less of an impact on the budget compared to debt risks.

In the budget the rate of inflation for 2018 — 7%, this is 8.1%. Obviously, in the end, inflation will be higher. This will prevent the execution of the budget or, conversely, help him? If inflation is above target?

— If the inflation rate was set to 7%, and was 21% indeed, some inflationary impact on the budget would be provided. [2017] of the year so far we have not exceeded the rate of inflation. The annual average is exceeded, but the rate by December no, because inherent rate by December, and 11.2%. Today — about 8%. So, to say that this year we exceeded the rate of inflation for no reason. I don’t think we expect price spikes to the end of the year.

Well this year, you exceeded income?

Exceeded, but due to import VAT.

The devaluation helped?

Well, what devaluation is, look: if we compare the course at the beginning of the year and now is a small devaluation. It was not the main indicator. You need to dig deeper, to look at the structure of imports, why do we have import VAT exceeded the performance compared to the previous year.

And why?

There are several answers to this question. First — in the preparation of the draft budget for 2017 we macro took in the summer of 2016. The situation by the end of the year has changed, the level of imports was correct. The economy Ministry is rather pessimistic set of indicators of the imports. In turn, we underestimated the expectations for import VAT.

The second is the customs experiment. Customs officials today left a 10% over-fulfillment of customs for its development, and 50% for the development of local roads. It was a factor as shadowing and additional motivation from the point of view of budget revenues.

But there is still a large overrun on the revenue from the tax to incomes of physical persons (the largest) and a large fulfillment by ERU?

This is a story about raising the minimum wage to 3 200 UAH, and existing economic factors that motivate to pay wages “in the white”. In particular, local authorities are interested to ensure that wages were paid in large volumes is their main source of income. So I would attribute the increase in personal income tax and ERUs well as decentralization and improvement of tax administration.

 

BUDGET REVENUES

Revenues more than 27% will be increased in 2018. Due to what?

— Consolidated budget grows by 14.9%, including the state budget — by 13.2% — to local budgets by 21%. Primarily due to the tax to incomes of physical persons. In the local budgets will increase by 20% of the revenues from this tax. We look at the dynamics of this year, we have local budgets are overfulfilled by an average of 50%. Increasing the minimum wage at RS 500 it is quite important, if you take in terms of personal income tax. Another question of the wage Fund [the total economy, the wage Fund of employees, his value depends on the revenue of personal income tax and ERUs]: its growth in 2017 suggests that it will continue next year.

Do you plan to increase in 2018 taxes, excise taxes?

There will be changes to the Tax code, but we are talking about bringing in excise taxes to inflation. Perhaps the excise tax will increase our liabilities, which we take to the EU. For me, the question of tobacco and alcohol is very simple: the main thing is to keep the balance of the excise tax to prevent the flow of contraband into the country, and so it is possible to increase.

Traditionally there are high hopes for privatization. In 2017, expected to receive UAH 17 billion from privatization — they are not close. The new budget lays more — UAH 22.5 billion. How do they take? Why should there be a breakthrough in privatization?

For privatization this year, we have a substantial income, when compared with the previous three years. Have already received up to 4 billion UAH. Another increase in revenue. It is hoped that with the adoption of a new law on privatization the process will be reformatted. Possible division of enterprises into groups: strategic, small, those are subject to privatization, those that can be saved in the state property — this will allow you to unlock the privatization process. The idea is that all enterprises small-scale privatization to apply for ProZorro. And it is hoped that before the end of the year a draft law on privatization in the new edition will be adopted. This will allow significant progress in the issue of privatization next year.

State lands will attempt to move towards privatization, because to them there really is the demand?

The Ministry of Finance is preparing to land reform. We have pledged certain funds in obudget the 2018 inventory and the valuation and revaluation of land which is in state ownership. This technological tasks that we will perform in 2018. We have laid more than 300 million UAH. While beneficiaries of this are local budgets, but I think in the future when it made a political decision to launch the land market, it will be prepared for the fact that the land we have will be assessed according to more modern criteria.

If expected revenues in 2018 from special confiscation?

While the budget 2018 specefication not provided, but this does not mean that it will not appear on the stage of its consideration in the Verkhovna Rada. We had no reason to turn it on, and we have not included.

If not executed the plan for privatization, due to which it will compensate? Will cut some costs?

Today there is the opportunity to carry out the plan of borrowing. This was done in previous years. As a rule, part of the costs under-funded. There is an understanding that about 5% of budget expenditures in different years physically underfunded, that is, the money remain in the budget. Any risks from not be done privatization, we do not see.

About borrowing: planned the placement of those 3 billion, which now report to the budget in 2017? They were planned in the state budget, or it was a situational decision that has to do with the opportunity?

Definitely, it was planned to enter foreign markets when we were drawing up the budget for 2017. It was recorded in the document. In addition to the EU macro-financial assistance, in addition to programs of cooperation with the world Bank, there are funds that were provided from external borrowing.

Next year $3 billion already planned to borrow through Eurobonds is the maximum amount, or may be more?

— There is a certain amount of external borrowing. If not met by external borrowing, they will be blocked by the inner. If it is possible to enter foreign markets, it is a good situation, there is demand, we will be able to borrow at low yields, I think the government will take this opportunity.

О налогах и курсе. Интервью замминистра финансов

Correspondent

Sergey Marchenko

 

BUDGET EXPENDITURES

Spending budget is constantly growing, 2018 is no exception. The government is going to reduce the cost at least something?

At the beginning of the Ministry of Finance I felt it appropriate to cut costs. In particular, according to the Academy of Sciences, Academy of medical Sciences and other areas. But when you optimizarii costs, cutting off their corny, you find yourself in a trap. Initially, you think that forcing people to move, to stir, to optimize, to find solutions and somehow get out of the situation. This does not work, unfortunately, right. That is, you need to come up with a more complex mechanism. You can get them to dialogue, to try to encourage reform by reducing costs. But we must understand that the next step will be to increase spending in this area in General. Reform through spending cuts do not lead to anything good, except the political noise on TV and so on. Because it is the people and salaries. For example, Academy of medical Sciences, it is now we are with them in partnership, a pilot project to promote. And it is hard, but at the beginning of the year the situation was the following: they said: we do not have enough money, a Finance Ministry money is not provided, and went to mass stories on TV that MOF is so bad, what is bad. Show people in hospital beds who say they lack medicines because the Ministry of Finance.

If simply to cut costs or something to freeze them, this results in subsequent political aggression, and use it all. There is another mechanism: we want to buy your services. And through a dialogue trying to persuade them to optimization. Here are four of the clinic of the Academy of medical Sciences — Ramazanova, Shalimov, Strazhesko and Amos — they are implementing a pilot project to purchase the services. Everyone understands that these establishments all know their budgets, but nobody raised the question of how they should interact with the state. Corny them to cut back on money is a problem, and when you say: let’s expose, the package of services that we you will buy, services you can provide. Because we are well aware that if such clinics are to provide services that any clinic can implement, the government will find where to buy them cheaper. This is a difficult question, not all so smoothly with this project. But in this way, through the rejection of financing the maintenance of institutions and the transition to financing services, we can make a change.

What about the subsidies to big agribusiness, which feels good, profitable, cost-effective, can raise capital on foreign markets, why are we subsidizing? One thing — subsidies for small farmers, there is a social problem, but why these? And there billions.

When there is a budget discussion, if you even remember last year, the question before the Ministry of Finance is very tough: back to us preferential VAT treatment, it from 1 January 2017 is no longer valid. The question was posed very harshly, we had the risk that we will not pass through Parliament with the budget, generally, no initiative will take place. Because traditional agrarian lobby in the Parliament is very strong. And then as the compromise had been proposed mechanism of quasiactuarial when the amount of VAT which was supposed to return to the company, they were paying, and then we are subsidizing those areas that pay more VAT. To say that this mechanism of redistribution is fair, I can’t.

Will something change in this mechanism?

Already changed in 2018, and the amount and direction distribution. We are talking about the support of cattle breeding and small farmers. There has been a significant redistribution.

On the growth of spending in the state budget: what are the priorities of the government for the next year?

We’re trying to keep the budget the delicate balance between what to collect with the economy in the form of income and spend in expenses. Key priorities are roads: 44 billion UAH will be allocated for road maintenance. Of these, 32 billion UAH — through the Road Fund, which should start to work. Not fully, of course — yet only 50% of the fuel excise tax has to go. There are questions on the effectiveness of the use of funds allocated for road construction. If the task was to make commitments to build specific sections of roads, despite the availability of funds, it would be easier and more efficient. Then we wouldn’t be talking about the budget for the road — UAH 44 billion or 32 billion And would say that we for three years have the task to repair such roads, which for Ukraine are key. This would avoid issues of corruption in the road sector.

Whether in 2018 to work with the customs of the experiment when a portionof the funds from customs exceeded revenues directed to the construction of roads?

We see some risks in this, but the Parliament wants to extend the experiment. We will discuss with the deputies how it is appropriate to do so.

Besides roads, what other expenditure priorities in the state budget for 2018?

Besides roads, it’s education: the growth of teachers ‘ salaries by one tariff level and 30% surcharge is up to 7 billion UAH, additional means will go on the industry. The increase in expenditure on education is not associated with the transition to 12-year education in schools — where spending will grow later.

Reform of medicine: we have substantially increased funds for primary care and laid in the draft budget for 2018 to about UAH 13.5 bn. We tried, despite the fact that the Parliament still has not passed laws to madrepore to do so in order to Finance this reform, when they are adopted.

To the question about education. Lately a lot of discussion around the University scholarships. Should we expect a reduction in the number of students who will receive scholarships in 2018?

We are still left with the plan to reduce the recipients of academic scholarships. To bring the Ministry of education to dialogue, we need to start a discussion on scholarships, we tried to reduce the amount. A separate budget program withdrew for academic scholarships. Individual — for social. To see clearly where this scholarship money.

But with the Ministry of education is not so simple, because now this is like a game. We are trying to find their arguments to advance further. For us it is important that the trend of reducing the number of academic scholarships to move on. This year 45% of students receive a scholarship, let’s say 40%, 35% — in the next. This will increase the size of scholarships.

It is important that the agreements on this issue was in December 2016, were performed, and they were witnesses to a lot. We were promised that we heard are ready to move to decrease all understand that this is correct. But so far, judging by the rhetoric of the Ministry of education, they are not ready to such statement of a question. We are not talking about changing the number of scholars in General. The problem of social fellowship is alien to us. If there are students who need social support from the state, not only orphans, the disabled and so on, let’s expand the social category of scholars, we are ready for it. For us it is more acceptable than just take academic scholarship, spread at all and say sorry, we’re leveling.

How in the budget of 2018 felt the approach of the elections? Whether it’s traditional parliamentary “wishlist”?

— For the Ministry of Finance goes through the budget process with “minimal losses”. Last year the losses were minimal. Due in large part to the Prime Minister, who was the speaker of Parliament and is now very properly communicates with the Parliament in favor of the government. Will there be any election changes — it’s hard to say. We just started the dialogue with the Parliament. Was the presentation of the project at the budget Committee — the members are already unhappy. I was told that just this year we have not trimmed. Deputies are now become smarter and better versed in the details of the budget process [laughs].

On the other hand, it is hard to argue with people, which is not quite the same interests. We have to balance the interest of all, for us the spending priorities secondary to in order to have a balance and a realistic budget. As for the deputies not so important the balance of how specific expenditure items and priorities. The amendments to the budget will be clearly traced. And someone will be trivial to bring down a budget in the millions of social-popular amendments…

ON TAXES AND THE PROSPECTS

And the story of the tax on the capital hung?

The bill is worked out, the Ministry of Finance their part of the story completed. In the near future the bill may be submitted for consideration of the Cabinet of Ministers.

Will it somehow change the situation with the avalanche release of budget expenditures at the end of the year? It finally will smooth out, because every year it occurs destabilizie course? When thrown at the last moment means there is no possibility normally to hold tenders, there is the potential for corruption. How to solve this problem?

Yes, there is a problem, I call it the”December fever”. This is a problem of all countries with economies in transition that have a one-year planning horizon, and where there is no possibility of transfer of funds, stretching them in time. If it were possible for capital construction or for some of the long investment projects to stretch the horizon of three years… so you know what you’re solving problems need such and such amount for three years. And would the possibility of transferring budget from one year to another. Yes, it’s possible the deficit, but if you limit it within some limit — this would remove lots of problems. While probably a lot of what we are not ready, including the IMF looks at how, we are ready to such innovations.

Where to begin, for example, regional development Fund. Now we are working on a bill that want to make its content through a special Fund and income tax — it will allow us to use the money frantically in December, and to carry on next year.

While we are only making our first steps in the three-year planning. Unfortunately, few of the Ministry was ready to debate on the budget for three years. The reason — a constant rotation of personnel. But we first made a budget resolution for three years in Parliament.

There also wasn’t ready to talk about it. And it also must be considered.

But you still need to move those changes. We clearly stand out: we have submitted the Budget resolution for three years in Parliament and almost from it is not rejected when submitted the draft budget 2018.

It is important for us is that we now have a balance in 2019 – 2020, we have an understanding of what to do in the next three years, that is the dirty work we have done.

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