Minister of finance of Ukraine Natalie Jaresko is convinced that it is impossible to cut public spending by 25% within one year, as assumed in some models of the tax reform which are subject to a public discussion today. Ms. Jaresko made this statement in today’s press conference at the press center of the Cabinet of Ministers of Ukraine.
«I am not talking about some concrete option of the tax reform – there are several models of «radical reforms». But all these proposals result in the decrease of tax revenues by UAH 150-200bn. This means that we would have to cut spending accordingly, just like in tax reform proposed by the Ministry of Finance. The reason is that irrespective of the tax reform we have the same target – budget deficit not exceeding 3.7% in 2016», the minister declared.
According to Natalie Jaresko, such a cut in spending means their decrease by 25% a year. Cutting budget revenues by 25% can be easily done by cutting the tax rates, but cutting spending by the same 25% within a year is impossible, which is also proven by international experience.
«According to IMF studies, there have been only 10 cases in last 25 years when countries could reduce their spending by more than 5% a year. The average annual spending cut for these countries was 9.3%», the minister reported.
Thus, proposals made in some of the tax reform options regarding a «radical» cut of the tax rates demand an answer from the public: is the Ukrainian society ready to reduce social welfare for the citizens to this extent? Is it ready to reduce the number of schools and hospitals? Is it ready to cut the number of public employees? Is it ready to radically cut spending for the armed forces etc.?
«Both attractiveness for investments and social justice are important for us. And we must find a balance between them», the minister said referring to these questions.
The minister is also convinced that cutting state revenues by a quarter without cutting public spending accordingly would be a «suicide» for the country, since such a step would result in the termination of cooperation with the IMF and demand to «print money» to cover the huge public deficit.