Dear members of Parliament! Dear guests!
It is for the second consecutive year that we have presented the draft state budget to the Government and the Parliament on time. This was challenging, since we did not only want to keep all deadlines set by the law, but also were keen to elaborate an appropriate, effective and realistic – to the highest possible extent – document which shall point the way of development for our country.
Meeting deadlines is crucial for us, since the timely presentation of the state budget for 2018 gives more transparency to the budget process and contributes to mutual trust as well as makes the participants of the process feel more responsibility for the quality of the adopted document.
Presenting the draft budget for 2018 on time also means that all interested individuals have enough time to review the document. First of all, it is about you, dear members of Parliament. Negotiations and active discussions have already started in the Parliament’s committees as well as in the media and experts community – and I think this is important. We expect to have a constructive dialogue with the members of Parliament.
Today I want to present you the key data of the state budget for 2018 as well as expound the philosophy of this document which is so important for our country.
This year we made one more important step towards the transparent, predictable and effective budget process: for the first time in the budgeting history of Ukraine we launched the true implementation of the mid-term budget planning. Its key element is the Budget Resolution for the next three years which was adopted in the summer this year.
It is a revolutionary step, since the transition from the one-year to the three-year horizon of the budget planning poses a system change in the budget policy which ensures a strategic approach in setting priorities as well as the effective distribution of resources.
This is a consistent and predictable budget policy which will deliver financial stability.
It means predictable and effective public spending aimed to increase the quality of public services.
It stands for enhancing the budget discipline and setting clear working rules which shall be respected by all participants of the budget process for the sake of our common goal – development of our country.
It also stands for the control and efficient management of the public debt.
It is important that starting from next year the mid-term budget calculation will become mandatory. We are planning to present amendments to the Tax Code soon, so that the new effective budget steering mechanism becomes irreversible.
Hence, it is logical and natural that the draft state budget for 2018 is based on the mid-term budget resolution.
For the second consecutive year, the state budget is not just an accounting document – it is a tool for development and growth which regulates funding for all key reforms and provides investments for coming generations.
This budget is realistic, well balanced and transparent; it is future-oriented, contains clear priorities and enables the effective use of the public funds.
Let’s have a look at the present condition of the Ukrainian economy.
We are back on the growth track. We forecast that the GDP growth in the next three years will total more than 11%. Inflation is expected to go down from 9.1% to 5%.
These are the results of major structural reforms which we have been pursuing for the last three years despite a challenging environment.
One more important result of our reforms is that we have returned to the global capital market. It means that investors trust Ukraine and are ready to invest.
The operation conducted by the Ministry of Finance on the capital market has made it possible to:
1) issue Eurobonds for the first time since 2010;
2) to receive USD 3b for 15 years – this is a record-high maturity term for the Ukrainian bonds and a sign of trust.
This is the result of our common efforts, and I am grateful to everyone who was involved in this process.
The benefits of these efforts will be tangible not only for the state, but also for private business for which it will be easier and cheaper to receive external funding for its development.
Our presence on the external capital markets also means:
Economic and financial stabilization;
Lower debt burden;
Possibility to receive funding from investors at favorable conditions at any time, when it’s needed;
Lower interest rates;
Improved credit ratings of Ukraine;
Effective management of external debt;
Enhanced trust of investors towards Ukraine.
However, despite our positive dynamics, we can’t just stop where we are now. We are not in the kind of situation which would let us make a stop. In today’s globalized world, one must permanently move ahead to retain one’s ranking in a harsh competition.
The financial and economic situation in Ukraine is still rather fragile; subsequently, our duty is to carry on transformations aiming to:
Strengthen Ukraine’s economy;
Achieve our final goals, since many of our initiatives have not been finalized yet;
And the main thing we must aspire is to improve the life of our citizens, because they can’t yet feel any positive changes.
That is why we continue to finance the priorities which were set by the Government last year.
A year ago, we discarded the wrong practice of scattering the state budget funds for hundreds of programs which resulted in the fact that none of the programs was properly funded, could not be implemented and did not deliver any benefits to the people and to the economy.
Tax payer’s money must be spent responsibly and effectively!
In line with that, we determined concrete areas which received most attention and funding. They include:
Support for farmers;
Energy efficiency and others.
I would like to touch upon each priority shortly.
Defense and security
The draft budget for 2018 stipulates that defense and security spending shall be in line with the requirements agreed in the relevant strategic documents. This means that defense and security shall receive 5% of the GDP which is equal to almost UAH 165b.
I want to emphasize that despite the economic situation in the country and the situation in the East funding for the build-up of the Ukrainian armed forces is the first and foremost task.
What is important here is not only proper funding, but also the reform of the forces which shall be able to protect our territorial integrity and security of the citizens as well as to save the life of civil individuals and soldiers whose life is priceless!!
For 2018, we provide almost UAH 4.5b to enhance the protection of Ukraine’s interests internationally;
With Ukraine being exposed to the hybrid aggression and threats as well as given the re-orientation of our economy towards new markets, the role of diplomacy becomes extremely important;
This funding will be used to implement the Euro-integration and Euro-Atlantic course of Ukraine, to improve the positive image of Ukraine, to promote the national interest of Ukraine globally and to protect the interests and rights of Ukrainian citizens abroad.
The draft state budget for 2018 is set to provide almost UAH 123b for social welfare and subsidies to those who are really in need;
First thing, this funding will be used to provide targeted subsidies to cover the costs of the housing utilities – these are UAH 55b.
The draft budget for next year includes the implementation of the pension reform which I kindly ask you to adopt as soon as possible;
Allotments for the Pension Fund are kept at the level of 2017 and amount UAH 141.3b.
Salaries and living wage
The living wage in 2018 will be increased by 9% compared to 2017 (December vs. December);
It is also planned to increase the minimum salary starting from January 1, 2018, to UAH 3723 (+ UAH 523).
The education spending for 2018 is planned to be approx. UAH 218b which is 18% higher compared to 2017 (by UAH 34b);
Also, the salaries of teachers shall be further increased by 25% in 2018; for this, UAH 6.7b have been alotted additionally;
The above points are really important and shall be the integral element of the education reform;
However, raising salaries alone can’t deliver the desired impact – the core priority is to properly implement the new law on education which was adopted on the first plenary day of this Parliamentary session.
Science and research
To increase the research capacities of Ukraine, we have allotted almost UAH 8b for 2018, which is 24% compared to the previous year;
This funding will be used for the education of new science and research personnel (especially young scientists), fundamental and applied research, development of the scientific and research infrastructure and others.
One more priority of the state budget for 2018 is culture. The Government has discarded the old practice of considering culture as the last area worth funding;
We have transformed the funding mechanisms making possible not only the more rational use of funding, but also the implementation of the most important projects;
For instance, UAH 500m are allotted for the development of the Ukrainian cinema production;
UAH 200m are allotted for the construction of national culture objects like the Pantheon of Heroes.
Healthcare spending is increase by 11% reaching almost UAH 114b;
The state budget offers financial resources for the implementation of the healthcare reform which we kindly ask you to finally adopt and thus to pave the way for the significant improvement of healthcare quality for the citizens;
One of the important elements of the healthcare reform is the primary medical assistance which shall receive UAH 13.2b;
Approx. UAH 6b have been allotted for the centralized purchase of medicines and medical items;
UAH 211m shall be provided for the build-up and operation of the National Healthcare Service as the only national body authorized to purchase healthcare services.
Development of agriculture and support for farmers
In 2018, UAH 7.3b are planned to be spent to support the development of agriculture and farming;
The above funds shall be spent for the development of farms, support for agriculture manufacturers, development of livestock breeding etc.
It is planned to allot UAH 44b for the development of the road infrastructure in 2018;
These are the funds of the state budget general fund (UAH 6b) and the special section of the new State Road Fund (UAH 32.6b);
It is also expected to receive funding from international donors amounting UAH 5.4b;
We consider the development of the road network as one of the key incentives for the development of the Ukrainian economy.
Finally, joining our efforts, we are launching such an important tool as energy efficiency which took us 2 years to prepare;
We plan to provide UAH 800m to the Energy Efficiency Fund as well as to receive additional UAH 800m from international donors;
This funding will make it possible to upgrade the implementation of the energy efficiency measures started in the previous years in the private sector;
Also, the implementation of the “heating loans” program will be continued enabling households to reduce gas consumption by 12-40% (by 62 to 189 cub.m. per month on the average).
Support for regions
The financial resources of the local budgets in 2018 are set at UAH 521.1b which is almost 10% higher compared to 2017 (+ UAH46b);
The state financial support for the implementation of investment programs and projects related to regional development in 2018 will remain the same as 2017 – UAH 10b.
At the same time, for the reforms to succeed, the funding must be used effectively and in a result-oriented way. That is why we are changing the focus of the budget planning from financing public institutions to financing their services. High-quality public services must be the main criterion for the assessment of the effectiveness of the budget programs.
This is how we already finance some of the healthcare and education services.
For instance, in 2018 we will continue our pilot project for the transformation of funding mechanisms for some of the institutions belonging to the National Academy of Medical Sciences. The idea behind this project is to switch from financing the institutions themselves to paying for their healthcare services. It is proposed to extend the list of services to be paid for from the state budget (approx. 9 thousand services) and to allot UAH 600m for this task.
This pilot project is progressing at a slow pace. Many people say the reason for this is the corrupt system, but instead of searching for the guilty we must create the possibility to work in a transparent way and to earn an appropriate salary.
Also, marking the 100th anniversary of the National Ukrainian Academy of Sciences, a pilot project for the funding of science will be started in 2018. It is proposed to change from the conventional funding of scientific facilities to placing public orders for research works which are a priority for the country. UAH 500m will be provided for this project. This is the money which we will provide not to pay the utility bills, but to conduct modern research which is important for the country and which is expected to deliver clear results.
Again, this is not easy, but science should deliver results.
Despite all challenges while implementing pilot projects like this, we will carry on, because they stand for our future. And to do this, we will need to implement absolutely new approaches.
A crucial element contributing to the stability of our financial system is the incremental reduction of the budget deficit which will also enable us to reduce our debt burden. In this regard, I am surprised by critical comments about both our efforts to keep the deficit low and increasing the debt.
The task of our debt policy is to reduce the public debt from 66.8% in 2017 to 55% within the period from 2018 till 2020.
One of the ways to achieve this ambitious goal is to reduce the state budget deficit step by step (from 3% of the GDP in 2017 to 2% of the GDP in 2020).
Now I would like to speak about the budget revenues.
When preparing this budget, we paid attention to revenues and available capacities instead of expenses and spending wishes. That is why all expenses in this budget are based on existing revenues. The state budget for 2018 has no space for bubbling or hiding revenues. All revenue figures reflect what our economy can deliver in the coming year without increasing taxes. The Government is definitely against raising taxes, because our interest is to develop a favorable business environment.
The total revenues of the state budget 2018 will for the first time hit the UAH 1 trillion mark.
Of course, you and your colleagues from the Government want more spending, but we should not forget our limited resources. It is always easier to spend than to earn, especially when spenders and earners are different persons.
At the same time, to make our citizens feel the changes and our country develop successfully, we must foster our economy, and everything is in our hands here.
We can achieve it through:
De-shadowing the economy
Destroying fraud schemes
We have already made some steps in this direction.
We have already launched a register for the automated VAT refund. The transparent register makes corruption impossible, regains trust of business, creates equal conditions for all businesses and makes business in our country simpler.
Also, the automated system for the monitoring of VAT-related risks is already in place which prevents stealing budget funds and illegal VAT refund. The state budget used to lose billions of hryvnas because of that. We have stopped it. This is a revolution in the fiscal area.
And we have no right to return to the past.
Any attempts to restore the old system must be stopped, since this would mean not only direct losses in budget funds and reduction of the budget revenues, but would also indirectly affect the business climate and the trust which was so hard to gain.
We must move ahead, keep the future in mind and pursue a strategic approach in our work.
Our priority steps for the next future include, in my opinion, the full-scale comprehensive reform of the State Fiscal Service which shall completely reload the system of cooperation between tax payers and tax authorities. By the way, for this purpose we have allotted some funds in the state budget 2018 as well.
Also, we must assume this responsibility and submit the Government’s draft law on the Financial Investigation Service to the Parliament.
Creation of the Financial Investigation Service is the issue which has been overdue for quite a while already and which I have been trying to move forward since my first day as the Minister of Finance. This is a highly expected step towards business. Delaying this process affects the development of our economy.
I will be persuading you, the President and the Prime Minister to support the draft law presented by the Ministry of Finance, because:
It provides necessary powers to fight economic crimes against the state;
It secures the independence and high qualification of the personnel in charge;
It is based on the international practice.
The draft law is prepared, approved by the Government and agreed with our international partners.
I put so much emphasis on this, because all these decisions impact the quality of the state budget, the effectiveness of the use of public funds and the overall economic development of the country.
This is our common responsibility. We must together bring the processes forward and initiate positive changes.
In the end, I want to stress once again: the budget for next year is realistic, well-balanced and future-oriented.
This is the budget of development and growth.
This budget is our investment for future generations.
I am grateful to the team of the Ministry of Finance for its great and coordinated work, and I am grateful to the Prime Minister and all Government members for their active participation as well as for the support and unity of the Government team whose member I am so proud to be.