28/12/2014 Ukraine: Daily Highlights - The Verkhovna Rada adopted a budget for 2015

28/12/2014 Daily Highlights from “Digests & Analytics Ukraine” News Agency

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The Verkhovna Rada adopted a budget for 2015, and introduced changes to the budget and tax codes. Income tax for the largest Ukrainian corporations will be tied to world market price index.

Key Events In Ukraine

• The 2015 budget was approved by very slim majority of the Verkhovna Rada deputies at the night session on December 29.  MPs from "Batkivschina", "Opposition bloc" and some members of the "Poroshenko Bloc" faction withheld their votes.  Amendments to the draft budget were adopted without compliance to the protocol. The budget is so imperfect that it would require corrections in the very near future.
• Parliament passed a number of laws serving to support the 2015 budget. A reduced rate for social contributions was introduced for businesses which pay their employees three times the salary above the minimum wage and total salary will increase by 30%.
• Parliment enacted laws governing capitalization and restructuring of banks, as well as the process how state could become a shareholder in banks capital. According to Prime Minister Yatsenyuk, these measures will help to achieve the financial stability in the banking system of Ukraine.
• Budget allocates 56 billion UAH for additional capitalization of banks and an increase in the Deposit Guarantee Fund.
• Most of social benefits and guarantees are substantially reduced, including public transportation benefits for seniors. The maximum salary for employees of state enterprises and institutions is set to 7-10 minimum wages (except war veterans, and employes of Anti-Corruption Bureau and the National Agency for prevention of corruption). There are plans to reduce the number of employes at state prosecution offices by 25%, and  the Interior Ministry - by 10%.
• The Budget Code introduces a new model of interactions between the state and local budgets and changes the financing routes for local budgets. Under martial law, Cabinet is granted the right to change the budget expenditures for defense before their approval by Verkhovna Rada.
• A law on transfer pricing that links income tax for large corporations with global stock prices has been adopted as well.
• Parliment Introduced an additional import duty on all products, except fuel oil, coal, and drugs for cancer patients according to the list approved by the Cabinet.
• MPs adopted changes to the Tax Code and other laws governing taxation as proposed by the Cabinet. The number of taxes is reduced from 22 to 9 by combining them, increasing the taxation of passive income - royalties and income from deposits and investments. Real estate tax will be charged for apartments of more than 60 m2 and of houses - from 120 m2. There are increases for rentals relating to oil extraction, excise rates on tobacco and alcohol, as well as the costs of their licensing.
• Verkhovna Rada has banned eviction from housing, which is borrowed in foreign currency, and set conditions for repayment for such loans by tying them to the currency exchange rate on 01.01.2014 - 8 UAH / USD.
• The moratorium on privatization of dormitories is extended till 2019, except if transferred into municipal property.
• The ban on sale of home-produced raw milk and meat sold on farmers markets is lifted.
• Minister of Energy and Coal Industry Demchishin stated Ukraine's readiness to sign an agreement on the import of electricity based on the terms proposed by Russia. At the same time, the company "Ukrinterenergo" announced an auction for the sale of electricity to the Russia-occupied Crimea. Ukraine has already supplied electricity and gas for $ 1 billion to the rebels controlling parts of Donbass region whithout any charges.

War in Ukraine

• Day of "silence" was violated several times. A soldier was killed as a result of the  subversive group shelling of Ukrainian army block near Mariupil. Travelling to Mariupol from the East is partly limited.

Ukraine and the World

• According to the Austrian President Fischer, the strengthening of sanctions against Russia represents a "senseless and harmful" step, since a severe economic crisis in Russia will create more problems for Europe than lifting the sanctions, and the Russian economy is strong enough.
• The oil price of $ 40 per barrel is considered critical for the economy of Saudi Arabia.

Trends

• Parliament systematically violates its own procedures when making important decisions. President puts illegal pressure on deputies representing his faction. Observers compare today's events with pushing through Parliment dictatorial laws by ex-president Yanukovych on January 16, 2014. Deputies have not seen the final version of the draft laws before voting.
• According to economists, the budget and changes to the tax and budget codes adopted by the Verkhovna Rada will not facilitate the growth of economy, but would rather increase the tax burden on businesses and common population. Innovations in taxation will lead to small and medium-sized businesses failing in legal space and force them to get into the shade. According to market participants, the adopted laws may not be sufficient for a positive decision by the IMF to allocate the next tranche of the stand-by credit in order to support adopted  "wasteful spending” budget type.
• Purchases of electricity from Russia increase the dependence of the Ukrainian economy from the aggressor.