On December 25, the draft law “On the State budget for 2016” was adopted in a plenary meeting of the Parliament. The Ministry of Finance welcomes this decision, since the new budget is set to significantly increase the effectiveness of public spending while securing funding for all public priorities.
The Ministry of Finance is working actively to stabilize the financial system of the country and to get Ukraine back on track of economic growth. To achieve this, the Ministry of Finance elaborated the state budget for 2016 taking into account amendments to the tax legislation (including the reduction of the payroll tax from 41% to 22%). The key features of the new state budget comprise accelerated social and economic development, reduction of the public presence in economy as well as reduction of the deficit of the consolidated budget and total deficit of public finance to 3.7% of the GDP.
To compensate the reduction of the financial resources resulting from the tax cut and to improve the effectiveness of public spending, the Ministry of Finance elaborated a comprehensive package of amendments to the legislation meant to streamline public spending, to improve the quality of public services for citizens as well as to secure state financial aid only for those who really need it. This legislation package was adopted by the Parliament on December 24.
The draft law «On the State budget for 2016» also presumes further fiscal decentralization and delegation of more powers to the local level. At the same time, local communities – along with additional resources – should also be responsible for a part of expenses.
«Our draft law on the state budget can cover all national defense needs and all social priorities. At the same time, we stick to the total deficit of public finance at 3.7% of the GDP which means that we are lowering our need for new loans to finance the budget and lowering our debt burden for the future. This is an important step to recovery our economy and to reduce hazards for its further development», Minister of Finance Natalie Jaresko said.
The adoption of the state budget for 2016 is an important condition necessary to receive the next trance of the IMF and other financial aid linked to it. This financial support is aimed to secure stability, sustainability and economic growth for the country as well as for every citizen of Ukraine. The compliance of the adopted budget-related legislation with the principles and objectives of the Extended Funding Facility (which is the condition to receive the next IMF tranche) will be subject to a dedicated analysis by the IMF experts.
The key data of the state budget for 2016 are as follows:
• macroeconomic data: real economic growth - 2%, inflation - 12%, average exchange rate - UAH 24.1 = USD 1, exchange rate in the end of 2016 - UAH 24.4 = USD 1, nominal GDP – UAH 2262 b;
• revenues: UAH 595.1 b (+15.1% compared to the Law on the State budget for 2015);
• expenses: UAH 667.7 b;
• maximum state budget deficit – 3.7% of the GDP (UAH 83.7 b) in line with the indicator agreed with the IMF;
• social standards: minimum wage and living wage will be increased twice within a year – by 5% on May 1 and by 7% on December 1 totaling 12% which is equal to the expected inflation rate;
• all basic social welfare payments for the most vulnerable citizens are maintained and adjusted along with the social standards;
• the budget for subsidies to citizens meant to compensate the increased utility tariffs has been increased from UAH 24 b in 2015 to UAH 35 b;
• defense and security budget - UAH 113.6 b (equal to 5.0% of the GDP);
• maximum state debt in UAH – UAH 1501.5 b which is equal to 66.4% of the GDP;
• debt guaranteed by the state nominated in UAH – UAH 444.8 b;
• sovereign and guaranteed debt will be equal to 86.0% of the GDP.