The speech of Minister of Finance Oleksandr Danylyuk on the occasion of the Week of Structural Reforms devoted to Kakha Bendukidze, held on April 21, 2016

4/22/16

One week has passed, since the new Government was inaugurated. The topic of my speech today is what I am going to do in my position as the Minister of Finance.
All of us want to live in a well-developed country with its economy growing at a fast pace. We all want to see a lively competition for the workforce, we want to see adequate salaries and prosperity for all citizens; we also want to live in a country with a sophisticated infrastructure and proper public services.

I am sure that most of you, just like me, are convinced that it is private investments which must be the main driver for economic growth instead of the public expenses which imply the major share of the nation’s GDP being distributed through the state budget.

To attract private investments, we must deliver up to a number of requirements:

1) predictable economic situation;
2) simple rules of the game in regard to taxes, customs, courts etc. – they must be the same for everyone;
3) acceptable level of the tax and administrative burden for taxpayers which must be at least equal or rather much better than that in neighboring countries.
The Ministry of Finance is responsible for most of these three components, and I want to tell what, in my opinion, is needed for further progress here.

The most dangerous enemies of public finance are:
- populism;
- lack of transparency;
- efforts to please everyone;
- deliberate self-deception.

A vivid example of populism is the statement that Ukraine can do without the IMF. This is populism, since the IMF means not only money, but, first of all, reforms. Those who say that Ukraine can survive without the IMF imply in fact that Ukraine can survive without reforms (without privatization, without market prices for resources and without the reform of public finance). If we discard reforms, a new economic crisis will hit us in several months and we will have to ask the IMF for help again.

Our cooperation with the IMF is also a signal to the world that Ukraine is changing for the better. Without the IMF we would have no assistance from all other donors, no access to global markets, no chance to repay our debts etc.

What are the results of populism, of deliberate self-deception among politicians, lack of transparency and the efforts to please everyone’s vested interests? They lead to a huge misbalance in public finance and hence to a deep economic crisis. In 2014, the total deficit of the public administration sector (state budget + Pension Fund + local budgets + Ukravtodor + refinancing for banks + Deposti Fund + Naftogaz) was 11.1% (in 2015 it was reduced to 4.3%).

We do have progress. But we still have a lot of work to do. As a responsible Minister, I won’t name any figures – I can just tell that a stress test has shown significant risks related to our state budget targets.

But do you think that this in some way makes the appetite of politicians more moderate? Unfortunately, it does not. I have just been assigned the Minister of Finance, and I already have people lining up at the door of my office to apply for money for their election districts. There used to be people at the Ministry of Finance which were in charge for such arrangements. I will stop this practice with funds being provided for concrete personal wishes.

My opinion is that the limited resources which we have should be allotted for concrete projects based on a transparent mechanism for the distribution of funds from the State Regional Development Fund.

I also see the extremely low efficiency of public spending for education, healthcare and social welfare. My observations are confirmed by the practices of other countries. For instance, I can’t accept the irresponsible management of public funds and the obviously cynical attitude to children who need medical treatment. Since 2011 we have been financing the construction of the Okhmatdyt hospital, so far we have spent more than 500 million hryvnas, but we only have 13% readiness, and we will still have to spend more than 2 billion hryvnas till 2019 to have the works completed. These funds should have been used in a targeted way for the treatment of children. Instead, the medical treatment for children is provided by the charity foundation “Tabletochky”, and the state is converting this money into concrete.

My first key task in my position as the Minister of Finance is the reform of public finance. We must change the spending philosophy for our budget funds. We must finance services, not buildings. Each public body must formulate its mission. No mission – no money.

The Ministry of Finance must become a driver of reforms in education, healthcare and social welfare contributing to them by a radical change in the funding mechanisms. One of our steps here should be the implementation of a system aimed to check personal income and property situation (means testing) among receivers of social welfare payments and pensions. We must continue the verification of social welfare payments.

My second key task in my position as the Ministry of Finance is to continue fiscal decentralization. A striking example for issues in this area: local bodies are glad to receive additional funding from the Government, but they do not want to take responsibility for new tasks. Another issue is that the central state bodies can’t agree the simultaneous transfer of resources and powers to the local level, which results in a number of problems.

You know what problem we were confronted with in regard to the vocational training schools: their financing was transferred to the local level, but the property of these schools is managed by the Ministry of Education and Science. Thus, local self-government bodies are not motivated to finance the vocational schools. This is an example showing the way the ministries should cooperate with each other.

My third task is the reform of the State Fiscal Service including the reform of tax and customs authorities, assignment of new heads of these bodies based on open contest procedures, crackdown on corruption and simplification of procedures. Since this is now my area of responsibility, I will start practical changes in this area immediately focusing on the simplification of administrative procedures. The Ministry of Finance is now entitled to approve all regulations adopted by the tax authorities. We will revise all of them with the participation of business and citizens.

Quite a special topic is the tax police. Our expenses for the tax police are not in line with its economic effect which is negative. We will initiate the liquidation of the tax police.

In tax policy we intend to discard all tax exemptions and preferences.

My fourth task refers to the improvement of the effectiveness of public management in all areas of my responsibility.

The new law on public service will come into force on May 1. My task as the Minister in this regard is to upgrade the prestige and remuneration of public servants. I will also initiate the review of the functions and missions of public bodies. Each Ministry must clearly explain the sense of its work.

Task number five is a transparent privatization. Public finance includes not only revenues and expenses. It also comprises state assets. The state owns not only companies, but also a huge number of properties. This is the capital which in most cases does not work for the sake of Ukrainian citizens. Profits from these properties are only directed to some groups with vested interests. No Minister should manage property objects, it’s not his function. The Minister of Finance and the Government must start a comprehensive and transparent privatization.

Many of the steps which I have just listed affect the vested interests of many persons. My friend Kakha Bendukidze would say that reforms cannot suite everyone. “If it does not hurt, it is not a reform”, he said.

Yes, we do need painful reforms, but they must affect not common citizens, but those who have corruption interests. I am ready for pressure from all sides. But we have firm principles, and I believe that they will help us gain support from the society and thus resist this pressure.

These principles are as follows:

- transparency and reporting;
- zero tolerance for corruption;
- zero tolerance for political pressure on me and my team from any side;
- active cooperation with the public and members of Parliament starting already at the stage of the elaboration of our policy;
- our main principle – the interests of the country and all citizens are our top priority.

To implement everything which I have just listed, we need:

- a vision;
- a strong team;
- political support;
- support from the society.
I am pleased to say that I do not have any issues with the first two components. My vision I have already depicted, and my team I will introduce soon.
I enjoy political support from the President and the Prime Minister. I will also take all possible civilized steps to gain support for my policy in the Parliament.
I hope for the support from the civil society. The Ministry of Finance is open for dialogue.
Thank you for your attention.


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