KIEV, Dec. 26 – Prime Minister Yulia Tymoshenko’s government approved a revised draft 2008 budget on Wednesday, steeply cutting spending on business development projects and significantly boosting spending on social needs.
The approval ends eight days of frantic work by a team led by Finance Minister Viktor Pynzenyk for revising the draft and incorporating Tymoshenko’s populist campaign spending initiatives.
The draft will be submitted to Parliament Thursday for debate and approval before the end of the year. Lawmakers have four days to debate and to approve the draft as Ukraine’s fiscal year coincides with the calendar year.
“We believe it’s not the budget’s function to get involved in business [projects],” Tymoshenko said. “Its function is to provide social security for the country, so we have fixed this.”
The cuts apparently include reducing or eliminating spending on projects such as building airports and other infrastructure projects that had been earlier promoted by the government of former Prime Minister Viktor Yanukovych.
Instead, Tymoshenko pledged to spend at least 20 billion hryvnias ($4 billion) next year to clear some debts owned to millions of people on failed Soviet-era bank deposits.
Tymoshenko pledged to pay the debts, estimated at a total of UAH120 billion, within two years, heightening concern among business leaders that the move may trigger major inflation.
The government also increased transfers to the state-run Pension Fund by UAH10 billion in 2008, and set the increased payouts to parents on birth of children.
Now, the government will pay parents UAH12,000 ($2,376) on the birth of a first baby, UAH25,000 on the birth of the second one and UAH50,000 on the birth of a third and each consecutive one, Tymoshenko said.
Such payouts were first introduced by President Viktor Yushchenko, at UAH8,500, in 2005 to encourage people to have more children as Ukraine’s population has been steadily declining for years.
“I’m happy to inform the president that his idea has been decently continued,” Tymoshenko said.
The draft sets the budget deficit at UAH18.5 billion in 2008, or about 2.1% of GDP, compared with UAH17.7 billion set by the previous government. Overall spending was set at UAH235.4 billion for 2008.
However, Pynzenyk said the revision of the draft had actually reduced the hidden budget deficit from an estimated UAH105 billion, or 12% of GDP, in 2008 after the government had incorporated higher gas prices in the budget.
“I don’t even want to comment on that terrible number,” Pynzenyk said.
Yushchenko, who attended the meeting of the government, said the budget deficit must be reduced to below 2%, but added the amendments to the budget can be made early next year.
This highlights a change in Yushchenko’s position as two months ago he has been demanding the budget deficit to be between 1% and 1.5% of GDP.
Tymoshenko said that more changes to the budget will come next year.
“Taking into account recent appointments at the State Customs Committee and the State Tax Administration, I am confident that within couple months we will conduct massive de-shadowization of the economy,” Tymoshenko said. “This will help us to seriously improve the budget revenue system.” (tl/ez)