What should be the General directions of the budget policy for 2018-2020?

On June 14, at a regular meeting, the Cabinet of Ministers of Ukraine approved the draft General directions of the budget policy for 2018-2020. However, "in accordance with regulatory requirements," the Government is planning to finalise the text of this document for the next three days before it is finally submitted to the Verkhovna Rada of Ukraine. Although the Budget Code requires submission of this document by June 15.

In 2017, this basic document for the formation of state and local budgets is being developed on a new methodology for three years to implement the previously adopted decision to conduct an experiment for the introduction of medium-term budget planning.

What should be the new Budget Resolution 2018-2020, so that it would become the first brick in the fundamental changes in approaches and responsibilities for the formation of budgetary policy, experts of the Institute of Social and Economic Research explain.

The General directions of the budget policy is a normative legal act that determines the directions and guidelines of the policy of the government and local authorities in the formation of the draft state and local budgets. It should be based on the strategic vision of the development of the state and the forecast of its economic and social indicators.

So, all these three components – strategic goals, accurate macroeconomic forecast and specific budget indicators, which should ensure the achievement of public policy objectives along with the instruments – should be integrated and reflected in the new document.

What do we expect from the new document in the sphere of budget policy? 

1)    Compliance with deadlines. The project should be submitted on time. It must also be ensured of its adoption by the Verkhovna Rada of Ukraine. Unfortunately, the Government has already determined the possibility of further refinement. Therefore, we hope that this week the document will be submitted to the Verkhovna Rada of Ukraine, and the Parliament, in turn, will make the necessary efforts to adopt it. Unfortunately, the practice of the past years shows both the violation of the terms of its submission to the Verkhovna Rada by the Government and the violation of the terms of its consideration by the Parliament.

2)    Qualitative analysis and macroeconomic forecast. The project should contain the current analysis of the economic situation and the expected implementation of the 2017 budget, as well as the main forecast macroeconomic indicators of economic and social development and budget indicators for the next three years, possible risks and proposals for their elimination.

3)    Clarity and comprehensiveness. The document should contain both directions of state policy, a list of reforms requiring funding, a clear definition of its volumes, and the distribution of this funding over the years. After all, the main managers of budgetary funds, local authorities, enterprises and individuals after getting acquainted with the document should get a clear idea of the government's policy in the area of public finance, in the near future. They must understand what reforms will be carried out in the sphere of taxes, what branches of the economy will receive state support, what changes will be expected by local authorities and ordinary citizens in terms of social standards and creation of new jobs. At the same time, such policy measures should be clearly delineated by year, and not be generalised.

4)    Quantitative indicators. In the draft General directions of the budget policy, there is no place for general formulations and meaningless statements. Any measures of state policy should have a clear and understandable quantitative confirmation as a nation-wide nature (budget deficit, debt policy indicators, the share of GDP redistribution through the consolidated budget) and within the limits of the volume of financing of the main administrators of budgetary funds.

5)    Qualitative criteria and expected results. The draft document should demonstrate the predictability of macroeconomic and fiscal policy widely announced by the Government and earlier by the Ministry of Finance of Ukraine, which will allow for systemic and profound reforms, increase the investment attractiveness of the country and show citizens the positive results of those reforms, which today they may look unpopular.

Based on the provisions of the presentation of the draft General directions for the budget policy for 2018-2020, it should be sufficiently substantially filled with both national-scale figure data and certain areas of work.

Thus, when preparing the draft General directions for budgetary policy, the Government proceeds from the planned growth of real GDP in 2018-2020 by 3 %, 3.6  % and 4 %, respectively, and further reducing inflation to 5 % per annum in 2020. The public debt will decrease from 66.8 % of GDP now to 55 % of GDP in 2020, and the deficit of the state budget – from 3 % to 2 %. The strategic objectives of the Government will be the tax policy, debt policy, regulation of intergovernmental fiscal relations, support for defence and security, implementation of medical reform, pension and land reform, agro-industrial complex development, road infrastructure financing, and a further increase of social standards.

Through the continuation of decentralisation, the financial resource of local budgets will increase to UAH 533 billion in 2020. The expenditures of the Road Fund for three years will amount to UAH 154 billion, and the expenses from the general budget fund to support the agro-industrial complex will amount to UAH 6, 7 and 8 billion, respectively.

The volume of expenses for medical reform will increase from UAH 55.5 billion in 2017 to UAH 65.7 billion in 2018, and UAH 81.2 billion in 2020.

For today, the wishes and promises to form an extremely effective draft of the Budget resolution "fascinate". We would like to hope that such wishes will come true, and, in the Verkhovna Rada, we will see a really high-quality and acceptable document, the implementation of the provisions of which both the government and the parliament will adhere to when forming the draft state budget for 2018, and not the "formal piece of paper" that will be forgotten in three months.

Anatolii Maksiuta – Chairman of the Board of the Institute for Social and Economic Research
Antonina Deshko – Expert of ISER on Financial Policy