The city budget has brought no surprises. Reforms have not worked



Odessa, January 22, 2015 – Sergey Jakubovsky, PhD, Professor of Mechnikov ONU, said at a briefing on the adopted budget of Odessa.


Everything is interconnected. Events in the country also affect the situation in Odessa. The budget was adopted yesterday, is based on the laws that Parliament held before the New Year. They are characterized by formal changes in the tax and budget system. But all reforms are delayed because the government is waiting for the verdict of the IMF regarding the provision of financial assistance.


The changes that are made to the budget of 2015 fully correspond to what made in Kiev in making the country’s budget. No major changes in the budget of Odessa in 2015 happen.


Pleasant optimism of Odessa deputies because inherent parameters of the budget are very, very optimistic. Thus, the MPs said that the export of Odessa enterprises will grow this year by 10%.


The expert believes that this forecast was exaggerating the real situation. As well, according to deputies of the City Council, in 2015 will improve the business climate in the region and increase the number of 1,500 entrepreneurs. Deputies also believe that by 1 thousand will increase the number of registered enterprises in Odessa.


But, in the opinion of Sergei Jakubovsky, according to forecasts of foreign experts, the Ukrainian economy is waiting for the decline. While deputies think that everything will be vice versa.


Despite the stories of the decentralization of power and finance, the opposite happened, the centralization of these areas in the state increased.


There appeared concepts of core and reverse subsidies. The country has subsidized regions and donor regions. Basic subsidy state pays regions and cities, if the proceeds from the income tax returns in their budget by 10% lower than the national average. Then, the region receives funds from the state budget. Otherwise, the area falls into the group of regions with reverse subsidy. Odessa citizens, on average, pay 35% more taxes than the national average. Therefore, a surplus is sent to the general state budget.


This year increased the share of income tax, which the regions transfer to Kiev. Was 25%, is 40%. Instead, regions receive subventions. This is primarily educational and medical subventions. Our region will receive approximately 1 billion 600 million UAH. This situation is worse than if the region is formed exclusively from the budget of their income. Otherwise, it is possible that there will be behind the scenes agreement between members of the government and the regional administration.


$ 1.5 million – the amount of imports of last year. This year will be the import duty, the value of which can be up to 10%, which means budget can expect to enroll approximately $ 150 million from this source.


Income tax is called progressive. If scrip tax is not related to performance – it is socially inefficient. Therefore, a single tax – inefficient. The government planned to reform it, but nothing changed. Remained flat tax. 266 million UAH expect to get on it.


Property tax is economically inefficient, because it lies not value of the property, but its footage. This creates many opportunities to evade it. It’s enough to distribute ownership of large objects across multiple owners.


In the US, this tax provides 50% of local revenues. In Odessa are expected to receive 317 million UAH.


It should be noted the growth of income tax. The government has raised its level, for example will now be charged 20% of the passive income. Also, if the salary exceeds the size of 10 minimum, it will start operating a progressive scale. That could push higher salaries in the shade.


Formally, the government announced deshadowing, saying about the decreasing of social contribution for businesses if the average salary there will be 3 times higher than the minimum, and the wage fund will increase by 30%.


Most of the expenses of the city budget this year – a salary for doctors and teachers. In this case, we have 30% inflation over the past year, though, the salary remained the same. Nearest indexation will be in December, when the minimum wage will increase to 160 UAH. So in this and next year revenue growth for most residents of Odessa, working in the public sector is not threatened.


Labor costs of budget will not grow, but it will increase spending in the budget to pay for heat and utilities.


Until February 15, Ukraine may revise the state budget, and therefore may be revised and local budgets.