IMF will provide the details of the government’s action plan

Photo: Eugeny Musienko

Yesterday, the Verkhovna Rada approved the Action Plan of the Cabinet of Ministers. This is a step-by-step plan for the government for the next two years. The deputies voted for the document even though the plan does not contain any details about the planned reforms. The Cabinet is still coordinating them with the IMF. Due to the absence of concrete actions, the deputies supported the plan on condition that the coalition agreement will be a part of the government’s document. The Cabinet’s members did not object to that.

Vague reforms

Premier Arseniy Yatsenyuk began the presentation of the economic block of the plan with the need to reduce expenditures of the state apparatus and the public sector by 10% of the GDP. This was discussed earlier with the International Monetary Fund. Nonetheless, the Cabinet did not agree to all recommendations of the IMF.

Despite the proposal of the creditors to cancel the agricultural tax for agrarians by transferring them to the common system of taxation, Yatsenyuk promised to preserve preferences. Essentially, these are the only those preferences that farmers receive from the government.

In addition, toeing the line of the deputies, who criticized the government’s intentions to open the land market, Yatsenyuk said he will delete this clause in the plan. “If the mood changes, just say so and we will draft the law on the land market,” the premier agreed.

Presenting the plan Yatsenyuk did not disclose much of the innovations in the draft changes to the Tax Code. It is known for sure that the government is planning to preserve the system of electronic administration of the VAT, which should take force in January despite that a group of deputies representing the coalition earlier registered a bill on its cancellation.

Yatsenyuk said the government will propose changes to the current law before the end of December so that the new regulations can take force in 2015 as planned. “Four months ago, when this law was adopted we exceeded our bounds in order that the proceeds to special accounts of VAT administration would be around UAH 30 bn. I understand that this is unrealistic, which is why we will cancel this norm,” said the premier without going into detail.

In addition, the head of the government said that the action plan envisages major privatization of state property, namely the sale of more than 5,000 companies. Yatsenyuk promised to merge the companies that remain in state ownership into state holdings subordinated to the government. These holdings will be audited by international companies of the Big Four. At that, managers from abroad will be hired as senior officials of the state holdings, according to Yatsenyuk.

There are fewer questions to the plan of the government to reduce the rates of the Unified Social Tax. Earlier, the Ministry of Finance and the State Fiscal Service presented the concept of lowering the tax from 41% to 15%. Yesterday, Yatsenyuk said the revision of the rates will be done in stages, since the IMF does not recommend reducing the rate to 15% in one fell swoop. “Our creditors point out that there is a high risk that the wages will not be pulled out of the grey market if we lower the UST rate to 15% at once. In this case, there is a risk of loss of UAH 30 bn in revenues,” said the head of the government. At that, together with the NBU limitations on circulation of cash will be introduced, he said. “It should be beneficial for companies to pay the tax, then to try to cash money through shadow schemes and pay wages under the table,” said Yatsenyuk.

Opinion of others

Despite the premier’s suggestions, not all people’s deputies believe that the plan is convincing. “The goals of the plan are too high. However, all government policies that fit into twelve pages are merely a set of declarations. There are no figures, no concrete actions and therefore no responsibility of the government for the results,” said Deputy Head of the People’s Will group Andriy Derkach.

Another thing that the deputies pointed to is the absence of calculations of the increase in social standards due to inflation, which exceeded 20% since the beginning of the year. As Capital wrote earlier, freezing of the adjustment of pensions until recovery of the economy may be one possible option for 2015.

Yatsenyuk was unable to answer many questions. For instance, he ignored the question about the hryvnia rate versus the U.S. dollar that the Cabinet will plan in the national budget for 2015. The government is also not disclosing the details on macro indicators in the draft national budget of 2015. Most likely, the agreed draft budget will become available only after December 20, when the IMF mission wraps up its work in Kyiv.

However, for this the package of the tax and budget changes must be voted for. Yesterday in the parliament Yatsenyuk let it slip that the reforms will be approved in two weeks. Therefore, there is a possibility that the draft budget will appear not on December 20, as it was announced earlier, but on December 26, right before the New Year’s holidays.