Timoshenko vs Yanukovych: fiscal policy in the presidency

instruments of fiscal policy in transition economies are more efficient than other mechanisms of government regulation …

Candidates promise ...

parameters of fiscal policy should ideally be displayed in the election programs of candidates, but electoral demands are forcing members of the presidential race to say what the voters want to hear rather than tell, what problems do they consider priorities. In this regard, and Yanukovych, Tymoshenko and declare the number 1 priority for improving social standards for the implementation of which will involve the tools of fiscal policy. In particular, Viktor Yanukovych in his program promises to "increase the average monthly wage in 2-2,5 times", "to raise the minimum pension to the level of subsistence," "significantly increase the social benefits to vulnerable populations," "necessary to introduce targeted subsidies to poor families "etc.

Yuliya if he wins the election promises to "increase the statutory minimum wage in the structure of the cost to international standards, to raise the pension of not less than 60% of the average wage," "aid to families with disabilities to increase at least until 2000 UAH per month, "" continue its program of returning the deposits of Sberbank of the USSR "," to bring the size of scholarships to the level of subsistence. Particularly interesting idea Tymoshenko create a personal account for each person, which will accumulate pension. This unused pension money will be inherited.

programs in each of the candidates have also their own creative social mega-projects, for example, the "Territory of quality of life," Tymoshenko, or program "Construction of social housing and the provision of state support for young families in the construction and acquisition of housing" Yanukovych.

Apart from the directions, the presidential candidates declare a broad range of other commitments that require expansion sotsstatey budget.

Besides

bloated social part of the election programs of presidential candidates together and the fact that none of them did not give mechanisms for the implementation of their promises and did not explain the sources of their funding. This is natural, since those at the moment simply does not exist. In this case, the one who becomes president, the first two years will be difficult to even keep the social standards at the level of 2008-2009. Cooling of the economy resulted in reduced revenues of the consolidated budget, the possibility of increasing fiscal pressure have been exhausted, and the government because of the drag down the practice of tax collection and refund of VAT has become the largest debtor of the Ukrainian business. In addition, in the past two years, Ukraine has established a fairly substantial portfolio commitments, maintenance of which in 2010 would strain the state budget. The growth of income in the current state treasury would be minimal, even with the positive dynamics of the GDP.

taxes on a new style

In contrast to the budget unit, the fiscal sector in the programs of candidates devoted much less attention. But it is precisely in this respect they profess radically different approaches. In the Yanukovich can clearly be seen on the support vector of domestic business. And even there is no doubt that he will be a priority for him in the event of his presidency.

The election program of Yanukov1000ych said on clear objectives:

- introduction of tax holidays for small business for five years;

- reducing VAT to 17% in 2011;

- reduction of income tax to 19% in 2012, followed by a decrease of 1% per year - up to 16%.

In addition, the comments Mr. Yanukovich promised to introduce tax incentives (incentives) for companies that use environmentally friendly and energy-saving technology, eliminate some taxes, including market-based collection, release of investors in setting up new production facilities in ten years from taxes when importing equipment, technologies and components, which analogs are not produced in Ukraine, to freeze the single tax rate, reduce the tax burden on payroll, etc.

total tax cuts, which offers a presidential candidate, against the background of his promises to increase social spending looks fantastic, although this problem for the Ukrainian economy is sverhaktualnoy. In addition, the concept of reducing the fiscal pressure in the proposed version - is not realizable. Regarding income tax, then the world is indeed observed persistent tendency to decrease its rates. Only last year it carried more than 20 countries. For example, Canada - from 22,1% to 19,5%, Czech Republic - from 24 to 19,5%, Denmark - from 28% to 25%, Germany - from 25% to 15%, Albania - from 20% to 10%, Bosnia and Herzegovina - from 30% to 10%, Georgia - from 20% to 15%, Macedonia - from 12% to 10%. Ukraine actually froze the reform of the tax system, and therefore the nominal, and the implicit rate of tax in our country is now among the highest. There is no doubt that this issue is very urgent task, but keep in mind that lowering the tax rate from 25% to 19% would reduce revenue by more than 10 billion UAH.

on reducing VAT, which in Ukraine become a tax on consumption, then the rationality of such a step is ambiguous. If the government reduces taxes alone, the other should improve, or at least freeze. It all depends on priorities. State may borrow money or income, or from consumption. But since incomes are small, but business still quite weak, the state budget is filled with VAT and excise taxes. For Yanukovych"s priority is likely to - support for industry, therefore, as a minimum, income tax and charges for the use of natural resources just will not grow. Accordingly, the object of taxation should be shifted to consumption. Domestic VAT performs fiscal function, it is normal for a developing economy.

On

fiscal platform Tymoshenko"s program said very little, but it was done enough to evaluate the priorities of its fiscal policy. The current Prime Minister in recent times, which coincides with the objectives of her opponent, was more emphasis on business support. This is obviously related to the fact that in the faces of her supporters to large Ukrainian businessmen. Even with the sharp drop in tax revenues in 2009, she avoided a direct amplification of the fiscal pressure on business, but relied heavily on indirect instruments (the collection of advance payments of taxes, non-payment of VAT).

However, Tymoshenko, realizing utopian such initiatives, does not promise a sharp reduction of fiscal pressure on the economy. Moreover, she even proposed to introduce a special tax on luxury, which is very popular in developed countries. In the case of Y. Tymoshenko will be elected President, the projected solutions are:

1. Raising taxes (charges) on consumption (excise) and property.

2. Indexation of fixed taxes (charges), including market data collection, the single tax, fees for special use of natural resources, etc.

3. Strengthening the fight against tax avoidance schemes, which may complicate the w1000ork and legal business.

course, come up with such proposals to the voters is unwise, therefore Tymoshenko prefers not to talk about these initiatives. To some extent this was a rational decision, because, unlike the opponent in the fiscal sector did not take a priori unrealistic promises.

Even in the case of a significant improvement in the economic situation in the short term, none of the candidates will not be able to realize the vast majority of budget and fiscal initiatives. In order to begin to translate their promises, the future president will need a strong budgetary resources, effective mechanisms for the formation of which has not offered any of them. However, in the medium term, as the situation in the economy begins to improve, the differences between the approaches of Tymoshenko and Yanukovych are all clearly visible. Yulia Vladimirovna Presidency will be characterized by more rapid expansion of social spending, rather than Yanukovych. This will stimulate the development of so-called "catering service", ie those industries which are focused on servicing the population (light industry, food industry, transport, utilities, commerce, education, etc.). This is a positive trend, but this sector is very fragile foundation of the economy.

Yanukovych will focus more on business as such, especially heavy industry, which is the frame Ukrainian economic complex. Reducing the fiscal burden on businesses will help ensure that the economy rebounds faster than with his opponent. The problem is that citizens will feel these positive changes only partially, since the software business support of Yanukovich will cost very expensive for the budget, which will require the containment of social expenditure.

Alex Moldovan, Center for Crisis Studies
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