KYIV. Oct 19 (Interfax-Ukraine) – Finance Minister of Ukraine Natalie Jaresko has called on the government and society to discuss how to reduce budget expenses in 2016.
“The ministry is ready to reduce budget expenses, but the issue of what expenses are to be reduced and what should not to be reduced requires serious discussion by the public and it also requires hard political decisions. Today, only tax rates are being discussed, and no one proposes concrete changes to expenses,” she told reporters last week.
Jaresko said that the planned tax reform should not result in the increase of the budget deficit in 2016 compared to 2015.
“The budget deficit of 3.7% of GDP is our benchmark for next year,” she said.
She said that the tax reform model proposed by the Finance Ministry includes the reduction of revenues by UAH 60 billion, and expenses should be also cut by UAH 60 billion.
Jaresko said that the structure of consolidated budgets foresees the largest sums for security and defense, servicing of the state debt is second, and social payments, medicine and education is third.
Other tax reform models foresee the reduction of revenues by 25%, but this would entail the necessity of reducing expenses by 25%.
The finance minister presented information from the International Monetary Fund (IMF), according to which over the past 25 years the global economy had only 10 cases when a country cut expenses by over 5%. The average reduction of expenses was around 9%.
“To cut revenues by one fourth as some options of the reform propose and not to cut budget expenses is suicidal for our country,” she said.
Jaresko said that this would mean the termination of cooperation with the IMF and forced quantitative easing.
“I remember that the hyper-inflation of early 1990s was caused by this approach,” the minister said.
Jaresko believes that the simple reduction of tax rates would not give momentum to Ukraine’s investment attractiveness.
She also said that the IMF insists on reducing the budget deficit in 2016 to 3.7% of GDP from 4.1% of GDP in 2015 and refuses to agree to any tax reform without realistic compensators of the reduced budget revenue.
