Five relatively honest ways of money seizure replenishing the budget
Where to get financial resources for a state that is at war and which Western partners are already a bit "tired" of supporting
Mind keeps publishing pieces in the Nota Bene section. This format implies a slightly more emotional connotation, which, however, is outweighed by the depth of the author's expertise in the issue in question. Today, Denys Bezliudko, Mind's special correspondent and editor of the #GDENGI project, reflects on how to replenish the state treasury during the crisis without resorting to overly populist or repressive measures.
War with russia, Republican antics in the US Congress, “orban's” and “fico’s” escapades in Europe, tricks by r̶u̶s̶s̶i̶a̶n̶ ̶i̶n̶t̶e̶l̶l̶i̶g̶e̶n̶c̶e̶ ̶s̶e̶r̶v̶i̶c̶e̶s̶ Polish "farmers" to reduce Ukrainian exports force authorities to ponder the "Where to get money for the budget?" question. The increase in defence spending, the impending major mobilisation, and the raise in the military salaries only fuel the search for excess funds from the population and businesses. And then there's the all-Ukrainian presidential cashback, which also requires money.
In general, there is a huge need of money, and the government is increasingly looking towards tax hikes, much to the delight of Danylo Hetmantsev,the head of the relevant parliamentary committee. Although there are other ways to fill the treasury, to avoid adding unnecessary drama to our already difficult situation in the country.
Public Sector Reform
While it's only announced for now, it's good that the state is going down this path. They won't be reducing officials, of course. But they promise to "cutdown" vacancies – by 20 thousand. That's also a step forward.
Budgeted salaries for "ghosts" (about 25% of the staff) would be then distributed among ministries as bonuses. Bonuses would be also limited to 30% of the total salary (70% basic pay). Local authorities, however, would be allowed to double salaries from local budgets.
Salaries would be also leveled for all officials of equal status during the reform process. The scheme, however, is quite convoluted. And there are those who are "more equal than others". The Ministry of Finance, the Ministry of Economy, the Ministry of Digital Transformation, and the Ministry of Justice receive salaries 30% higher than others (this was arranged by the Ministry of Finance in the final version).
In general, they want to save 8 billion hryvnias per year.
We need to go further. Each government agency has its own service departments like accounting, IT, and other non-core staff. If they are merged, this would contribute to more savings. Audit personnel – and up to 50% could definitely be reduced without affecting their end result. Artificial intelligence and other IT solutions will further reduce the need for such a large bureaucracy. Some ministries could be merged, and some (horrors!) could even be liquidated. This is what the Ministry of Digital Transformation et al should be busy with on their increased salaries. The main thing is not as usual. Otherwise, our usual reduction of civil servants usually leads to an increase in their quantity.
Reform of the Law Enforcement
Lately, the law enforcement, especially in the economic sector and in the fight against corruption, have been sprouting like mushrooms after the summer rains. There are no more free businesses left to nightmarise to scrutinize for potential violations. In addition to the National Police, prosecutors, and the Security Service of Ukraine, which supposedly do not deal with economic offenses (who am I kidding), we now have the State Bureau of Investigation, the Bureau of Economic Security, the National Anti-Corruption Bureau, the Specialized Anti-Corruption Prosecutor's Office, and the National Agency for the Prevention of Corruption. And there's always the Tax Service, they still exist.
I'd wind down anti-corruption bodies altogether for the duration of the war. This game is for peacetime. And the General Prosecutor's Office can "fight" corruption with the same result or even better. The main thing is to ensure the so-called inevitability of punishment. And increase accountability: gave a bribe or embezzled budget funds – receive full asset confiscation and life imprisonment.
The Bureau of Economic Security’s functions could generally be performed by the State Bureau of Investigation. Sometimes I feel like these two long arms of the law spend more time competing with each other for "clients".
About the Tax Service separately. Leave the Large Taxpayers Office for control. But liquidate inspectors as a class and transfer them as consultants in a separate state-owned enterprise. And there they will, for a small fee, help SMEs, individual entrepreneurs, and citizens correctly fill in tax returns and other reports. The savings would be enormous.
Dear "Сelebrities-For-Hire"
There's another category approximating civil servants – management and supervisory boards at state-owned enterprises. I'm not against high salaries for CEOs in the public sector, but they should be tied to KPIs, not just to make them work. Otherwise, Naftogaz failed to increase production, but it didn't affect the multimillion-dollar incomes of the board in any way. I won't even mention bonuses in Naftogaz.
But supervisory boards are a distinct category. Mantras about "corporate governance" don't work in our neck of the woods. Usually, our supervisory boards consist of various "respected" individuals. They are either former officials of international organisations or simply useful people for the authorities who need to be taken care of somewhere. Some even sit idly in several supervisory boards.
The main function of these "celebrities-for-hire" is to cover up management during various shenanigans. The Cabinet of Ministers can handle the supervision function perfectly. If our international partners like this circus so much, let them pay for it, not us. The average salary of a state-owned enterprise supervisory board member is around 1 million hryvnias per month – on par with a major fundraiser for the Armed Forces or 10 average ones.
By the way, the Ministry of Economy plans several pilot evaluations of state-owned enterprise supervisory boards in 2024. And they want to increase their accountability for the results. Let's see how it ends.
And the need for state-owned holdings is greatly exaggerated. The main task of Naftogaz of Ukraine and other state-owned enterprises is to accumulate funds for projects needed by the authorities. Naftogaz, for example, was created to finance elections. Industry-specific enterprises can cope with their tasks even without the holding, and their control should be under the ministry.
Import Restrictions
Ukraine's trade balance deficit last year amounted to just over $38 billion (total by goods and services). We import a lot. Mainly weapons, energy resources, components for critical infrastructure, goods for army supply. But, on the other hand, the import of expensive cars, household appliances, and even food is breaking records. It's time to stop this unprecedented generosity show. Everything that can be produced in Ukraine should be produced in Ukraine.
Government also announced steps in this direction, while President Volodymyr Zelensky went even further, promising cashback for the purchase of domestic goods and services. But these are just promises for now.
There are two paths that need to be pursued simultaneously. The first is import restrictions. There is a wide range of possible tools here: quotas, increased import duties, or even a complete embargo on imports. The second is to seek risk-taking investors who are capable of establishing production in a war-torn country. For example, the same inexpensive SUVs for the army. All of this, in essence, will support domestic producers, about which we have been talking for over 30 years.
Dealing Wth the National Debt
Ukraine's national debt in 2023 grew by 30.4% to a new historical high: to $145.32 billion (5.5 trillion hryvnias). At the moment, this is 85% of the country's GDP. This is normal for a nation at war. In non-wartime conditions, the United States has a national debt of 137% of GDP, France – 117%, and Japan – a staggering 255%.
In 2023, Ukraine spent 700 billion hryvnias on servicing the national debt (including repayment) – a colossal resource. It's time to do something about it. The Ministry of Finance is resisting with all its might, maintaining the status of a responsible debtor. They fear that if any steps are taken towards restructuring, creditors will no longer provide funds. But in vain.
Now is the time to shift the focus from loans and borrowings to financial assistance. For a moratorium on payments, for debt restructuring, or forgiveness. Or even bankruptcy. Some steps are being taken in this direction. For example, the G7 countries have agreed to defer Ukraine's debt payments until 2027.
We need to go further. And no one looks at the citizens of Ukraine (including refugees) as borrowers. When was the last time anyone saw an advertisement for war bonds? But they exist. And this is also a huge resource. Plus support for the population. Unlike donations, bonds pay income. And the money goes to the same purposes.
***
Overall, things are slowly moving in the right direction. But very slowly indeed. So we won't gather cashback anytime soon. And the President said that we need to "try" to do it this year. Unless officials stop "siphoning off" the budget. But that's already a pipe dream.
The OpenMind authors, as a rule, are invited experts and contributors who prepare the material on request of our editors. Yet, their point of view may not coincide with that of the Mind editorial team.
However, the team is responsible for the accuracy and relevance of the opinion expressed, specifically, for fact-checking the statements and initial verification of the author.
Mind also thoroughly selects the topics and columns that can be published in the OpenMind section and processes them in line with the editorial standards.
