State budget 2018 and decentralisation: expert analysis

Since the beginning of 2018, all 665 amalgamated hromadas (AHs) switched to direct interbudgetary relations, said Yanina Kazyuk, financial decentralisation coordinator of the Central Reform Office under MinRegion, commenting on the issue of the State Budget of Ukraine for 2018.

“All amalgamated hromadas, including those where the first local elections took place at the end of 2017, switched to direct interbudgetary relations. Indicators of interbudgetary relations for AHs were provided for the formation of their budgets at the beginning of December, thus substantially simplifying the process of drafting and approval of local budgets, especially those of the newly established AHs,” noted Yanina Kazyuk.

According to her, the experts of the Financial Monitoring Group of the Central Reform Office under MinRegion analysed the main provisions of the major financial document of the country.

The expert noted that an important direction of the budgetary policy is the continuation of decentralisation and on this basis – establishment of a capable local government with expanded powers and areas of responsibility.

In general, in 2018, 1288 local budgets will have relations with the state budget: 24 oblast budgets, 148 budgets of cities of oblast significance and the budget of Kyiv, 450 rayon budgets and 665 budgets of amalgamated hromadas. 930 local budgets will receive the basic subsidy, and 223 – a reverse subsidy.

Levels of budgets

Basic subsidy

Reverse subsidy

number of budgets

sum, mln UAH

number of budgets

sum, mln UAH

 

Budgets of cities of oblast significance

52

647.3

66

3 668.0

 

AH budgets

498

1 897.6

107

503.1

 

Rayon budgets

363

4 598.2

45

503.4

 

Oblast budgets

17

1 039.6

5

732.0

 

Total

930

8 182.7

223

5406.5

 

 

 

 

 

 

 

 

 

In 2018, the size of the minimum salary will increase to UAH 3723 (+ 16.3% vs. 2017), and subsistence minimum will grow up to UAH 1700 from 1 January (in 2017 it was UAH 1600), UAH 1777 – from 1 July, and UAH 1853 – from 1 December.

According to Yanina Kazyuk, this data is important both for determining the volume of expenditures of local budgets and formation of revenue sources, the rates of which depend on these indicators (for example, the rates of the single tax, real estate tax, different from the land plot, administrative fees, etc.).

As for the innovations in terms of local budget revenues, the budgets will receive 5% of rent payment for the use of subsoil for the extraction of oil, natural gas and gas condensate (Law of Ukraine “On Amendments to the Budget Code of Ukraine Regarding the Inclusion of Rent Payment for the Use of Subsoil for the Extraction of Oil, Natural Gas and Gas Condensate” No 1793 dated 20.12.2016). Relevant provisions are reflected in Articles 64, 66 and 69 of the Budget Code. Inclusion of rent payment to local budgets will be carried out in the following amounts:

  • 3% – to the budgets of the cities of oblast significance, amalgamated hromadas
  • 2% – to oblast budgets,
  • 2% – to rayon budget,
  • 1% – to the budgets of villages, rural settlements, and towns of rayon significance.

100% of the single tax payable by taxpayers of the fourth group (agricultural producers) will enter the local budgets, while in 2017, it was only 86%.

A new type of revenue is added to the income sources – revenue from approval of Licensing for economic activity on issue and holding of lotteries and establishment of fees for the issuance of licenses for economic activity on issue and holding of lotteries. The licensing procedure will be determined by the Government resolution.

The expert informed that the state continues to provide financial support for the implementation of investment and regional development projects:

  • UAH 6 billion – at the expense of the State Fund for Regional Development,
  • UAH 5 billion – subvention for the implementation of measures on social and economic development of separate territories,
  • UAH 1.9 billion – subvention for the infrastructure formation in amalgamated hromadas,
  • UAH 1 billion – subvention for the implementation of measures aimed at the development of the healthcare system in rural areas.

In addition, within 2018, the local budgets will use UAH 4 billion of subvention to implement the measures aimed at healthcare system development in the countryside, received at the end of 2017.

From 2018, the State Road Fund in the amount of UAH 37 billion is being established in the special fund of the state budget (in accordance with the Laws of Ukraine “On Amendments to the Law of Ukraine on Sources of Financing of the Road Economy of Ukraine” Regarding the Improvement of Funding of the Road Industry” No 1762 and “On Amendments to the Budget Code of Ukraine on Improvement of the Mechanism of Financial Provision of the Road Industry” No 1763).

At the expense of the State Road Fund for the local budgets, UAH 11.5 billion of subvention are envisaged to fund construction, reconstruction, repair and maintenance of public roads of local importance, streets and roads of communal property in settlements.

Taking into account that the healthcare reform is underway, since 1 July 2018 the expenditures on provision of primary healthcare will be made from the state budget under a separate programme, as indicated in Article 30 of the Law. During the first half of the year, such expenditures will be financed from the local budgets at the expense of the healthcare subvention, which is UAH 5.2 billion.

142 higher educational institutions of the 1st and 2nd levels of state property accreditation with the status of separate legal entities (Article 24 of the Law), were transferred to funding from the oblast budgets and the budget of Kyiv. The list of such establishments is given in Supplement No 10 to the Law. The educational subvention provides for the funds to finance the teaching personnel of these institutions in terms of maintenance of expenses for obtaining complete general secondary education.

In total, the state budget envisages UAH 284 billion of subventions to local budgets, in particular, for the maintenance of budgetary institutions and implementation of the state programmes of social protection of the population the following sums are allocated:

  • UAH 61.7 billion of educational subvention (22% more than planned for 2017);
  • UAH 57.4 billion of healthcare subvention (5% more than planned for 2017);
  • UAH 73.7 billion on providing compensations and housing subsidies to the population;
  • UAH 59.9 billion for the payment of assistance to families with children;
  • to pay the difference between the actual cost of heat energy, centralised heating services, hot water supply, centralised water supply (Point 27 of article 27, article 21 of the Law). The revenue from repayment of the tax debt as of 01.01.2018 from the income tax paid by the enterprises of the electric power, oil and gas, coal industries, as well as part of net profit (income) of the state unitary enterprises and their associations, paid by the enterprises of electric power, oil and gas, coal industries, form the financial source of subvention.

Viktor Ventzel, expert of the Financial Monitoring Group paid special attention to some of the rules set forth in the Final Provisions to the Law:

a) According to the decision and in accordance with the procedure approved by the Cabinet of Ministers of Ukraine, it is envisaged to conduct a nationwide (all-Ukrainian) normative monetary assessment of agricultural land. The monetary assessment should be made at the expense of the State Budget of Ukraine (point 11).

b) The Cabinet of Ministers of Ukraine was commissioned to consider the possibility of increasing the minimum salary to UAH 4.200 per month based on the results of the 1st quarter of 2018 (point 19).

c) The Cabinet of Ministers of Ukraine was commissioned to submit proposals to the Verkhovna Rada of Ukraine on increasing the stabilisation subsidy for local budgets in the first half of 2018 (point 20). At present, its volume is UAH 200 million.

d) The Cabinet of Ministers of Ukraine was commissioned to submit proposals for the consideration of the Verkhovna Rada of Ukraine in terms of debt relief on medium-term loans provided to local budgets in 2009-2014 at the expense of the funds of a single treasury account, based on the results of 3 quarters of 2018 (point 23).

e) In the 2nd half of 2018, the Cabinet of Ministers of Ukraine has to develop and approve the mechanism for the provision  of subsidies to the population for payment of housing and communal services in money terms at the level of the final consumer from 1 January 2019 (point 24)..

f) During the year, the Cabinet of Ministers of Ukraine is commissioned to make proposals to the Verkhovna Rada of Ukraine on legislative regulation of the issue of inclusion from 1 January 2019 of 5% of rent payment for the use of subsoil for the extraction of mineral resources of national value (except the rent payment for the use of subsoil for the extraction of oil, natural gas and gas condensate) to the budgets of local self-government according to the place of extraction of the relevant mineral resources (point 25).

Yanina Kazyuk summed up that from the point of view of local finances, the budget of 2018 is aimed at further implementation of the decentralisation tasks and active implementation of the educational and healthcare reforms.

“The main task of the local self-government is to create and increase its own resource base, arrange property issues in relation to socio-cultural facilities with simultaneous consideration of issues regarding their possible functional optimisation, formation of efficient institutions for fruitful work and execution of all necessary powers and territorial development. At the same time, it is necessary to implement the provisions of the new Law of Ukraine “On Education”, in the context of which both the educational establishments and educational process need to be reformed. Another important issue is the formation of a new model of healthcare services’ provision to the population, where local governments are given one of the leading places,” said Yanina Kazyuk.

 

Tags:

budget Yanina Kazyuk budget analytics Viktor Ventsel

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