Saving on the poor

21.11.2014 | By Svitlana Popel

The prices for food products increased compared to October of last year by 19.6%, alcoholic beverages and tobacco products 24.8%, clothing and footwear 10.9%, housing, water supply, electricity and other types of fuel 27%, household goods 19.4%, healthcare 24%, transport 34.2%. At that the leaders in the hike of prices compared with last October are sewerage (+69.3%), natural gas (+62.8), water supply 44.4%. Among food products prices grew most for fruits 54.1%, sugar 52.8%, fish and fish products 27.5%, meat and meat products 23.4%


Since the heads of the two key ministries Oleh Musiy (Healthcare) and Pavlo Sheremeta (Economic Development) overseeing such socially important for the domestic consumers goods as food and medicines, were the first to resign, a conclusion comes to mind that the new officials failed to bring order to the markets of their responsibility.

For example just several months after adoption the new edition of the law on government purchases developed by Sheremet only brought a headache to the participants of the tenders instead of promised transparency and removal of excessive barriers. Judging by how the purchases of foods to the State Reserve and Agrarian Fund, let along Healthcare Ministry, it is evident that the rate of the reform of the system of government purchases has seriously stalled with the corruption ghosts of the past on the horizon.

The Chairman of the Board of Transparency International Ukraine Andriy Marusov claims that the common platform for the development of substantially new legislative initiatives on the government purchases still has not been set up. It was planned that the law adopted in April was just a temporary variant and that by the end of 2014 an absolutely new version of it would be developed that would simplify the procedure of holding tenders, introduce electronic trading and strengthen the anticorruption measures.

Instead of this the state company ZovnishTorhVydav Ukraine, which administers the web portal factually introduced a fee for publication of the tender information for all organizers of the trading. All the more, the law on government purchases guarantees free publication of information and access to it. Even the creators of the Tender Chamber of Ukraine never dared to enrich themselves at the expense of the clients so directly, notes the expert.

Former Healthcare Minister Oleh Musiy failed to cope with the medicine mafia. As a result the terms for government purchases of many vital preparations and vaccines were disrupted. Because of the protractions of the tenders the Healthcare Ministry will now have to find some way out reducing the volumes of purchased medicines nearly by half. After all following hryvnia devaluation the prices for all imported medicines automatically doubled.

Musiy also failed for uphold absence of VAT for medicines. As a result, the Finance Ministry, which lobbied this value added tax, managed to jigger the whole pharmaceutical market. First the VAT of 20% was charged on medications through the whole chain of supplies and later the rate was reduced to 7% for import of medicines and products for medical purposes. Nearly month long absence of customs clearance for already imported shipments provoked an artificial shortage and the prices for medications skyrocketed, never rolling back.

The government also failed to hold back the prices for food products. While Oleksandr Shlapak (Finance Ministry) and Ihor BIlous (State Fiscal Service) contributed to the growth of prices of excisable goods, the prices for a large part of socially important food products, which have been climbing since the start of the year faster than inflation in the country, are being ignored by the officials. Although after the decision of the Ministry of Economic Development on liquidation of the State Price Inspection, the control over prices was to be transferred to the Antimonopoly Committee, acting minister of economic development Valeriy Pyatnytskiy directed stated that artificial limitation of profitability negatively affects the economy. Soon he intends to abandon the state regulation of prices for food products altogether by lobbying the adoption of the bill on liberalization of prices for food products. The deregulation package proposed by Pyatnytskiy contains exceptions for limitation of the markup only for three commodity groups: milk, wheat and ryewheat bread. Under the current legislation, there are 21 commodity groups (meat, flour, sunseed oil, cottage cheese, sour cream, etc.).


Ukraine obtained the current anticrisis budget mainly from the spring reduction of social benefits. With the objective of economizing the budget funds Shlapaks Finance Ministry decided to freeze the subsistence level and cancelled the bystage increase of the average annual minimum wage by 8.1% compared to last year. As a result, the minimum wage will remain unchanged until the end of the year at UAH 1,218 instead of the earlier expected UAH 1,301. Due to this revision the budget workers, including teachers and doctors, fell short of UAH 6.8 bn. In addition the shortage of proceeds to the Pension Fund allowed Finance Ministry to lobby the reduction of minimum pensions at the level of UAH 949 instead of UAH 1,014. Moreover the norm on pension adjustment due to the increase of average wage, which has been in effect since 2005, has also been frozen for 20142015.

Unfortunately the 0.5% fee to the Pension Fund on purchase of hard currency did not lead to the additional UAH 9 bn proceeds due to the limitations for the purchase of hard currency in the amount equivalent to UAH 3,000, which were introduced later, and factual absence of dollars and euro at the exchange points.

Upon the initiative of the Finance Ministry and with assistance of the Ministry of Social Policy headed by Lyudmyla Denysova the size and mechanism of charging assistance at childbirth was substantially changed from July 1. Earlier, the state assistance for the first child equaled to 30 subsistence levels, second child 60 and third and each next child 120 subsistence levels. Now, the amount of the assistance is the same at UAH 41,280. In addition it was automatically merged with the child care allowance for children under three, thus leaving mothers without the additional payments. Also, with silent consent of the Ministry of Social Policy, the assistance for families with children, needy families, lifelong disabled people and temporary assistance for children was cut achieving thus budget economy of UAH 420.7 mn. Overall, the social scissors for moms and people with disabilities saved UAH 3.8 bn for Yatsenyuks government.

Denysova already has a new project in mind: to create a Social Security Fund by merging the existing Social Insurance Fund against accidents at work and occupational diseases, and the Social Insurance Fund for temporary disability starting from January 1, 2015, thus saving over UAH 2 bn.

Officials understand that they spend money faster than collect it. That is why in the draft budget 2015 they plan to continue the practice of cutting social expenditures

The numerous government officials did not manage to avoid being struck by the total economizing of budget funds. First, upon the initiative of the National Agency for Public Administration under the leadership of Kostyantyn Vashchenko, peoples deputies and civil servants of the central office were left almost with bare salaries by cutting almost all bonuses and allowances. Then Vice Premier, Minister of Regional Development, Construction and Housing and Utilities Volodymyr Groysman announced the reduction of the number of government employees by at least 10%.

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