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8 February, 2012  ▪  Andrii Duda

Shot In the Foot

The current government is incapable of improving social justice even as it scrambles to imitate efforts to do so ahead of the autumn parliamentary election

When the press service of the Ukrainian Cabinet of Ministers announced that Prime Minister Mykola Azarov wanted to declare 2012 a “year of social justice,” you could not help but feel the irony. In the past year, the number of Ukrainian citizens who sank below the poverty threshold increased by more than 2%. Even having a job is not enough to save many people from poverty. According to the Razumkov Centre, 23% of Ukrainian families in which all members are employed and 37% with one working member were poor as of November 2011. And this with one of Europe's lowest poverty lines – a little over UAH 1,000 per month. One in four Ukrainians have a monthly income that is lower than the minimum subsistence level (around UAH 1,000), but even with this amount in hand, it is difficult to make ends meet.

A poll carried out by the Ukrainian Democratic Circle in October 2011 showed that a mere 3.6% of citizens felt that their lives improved last year, 40.7% felt they were worse off and 44.8% did not see any changes. The respondents admitted that one in 10 Ukrainian families (10.5%) lacked money even for food, while 41.6% of households had enough but found it difficult to buy clothes and shoes.

In contrast, key figures in the Party of Regions added to their riches after Viktor Yanukovych came to power. According to Forbes, Rinat Akhmetov was worth $1.8 billion in 2009, $5.2 billion in 2010 and $16 billion in 2011. Other various estimates show that the gap between the richest and poorest Ukrainians has increased many times over the past few years. There are 40 poor Ukrainians per one wealthy individual. These are the results of the oligarchic model of Ukraine’s economy.

But now a parliamentary election is just around the corner and it is again the time when politicians find it customary to speak about fighting for social justice. Votes in parliament and the government's actions in 2010-2011 show members of the Party of Regions have given barely a thought about these issues until now. Social justice was not on their minds when they failed to cancel indecently high salaries for MPs and certain categories of government officials or when they stripped a number of socially unprotected groups of their privileges, a slight which led to mass protests. Moreover, when the Party of Regions rose to power, its representatives disregarded the constitutional definition of Ukraine as a social state – starting from the president’s extravagant estate in Mezhyhiria which sets people’s teeth on edge, to the Minister of Internal Affairs who decided to ride to work in a Cadillac. Zhytomyr Mayor Volodymyr Deboi explained the need to spend UAH 600,000 of budget money on a car for himself by appealing to a “position of principle”: “No official walks to work or rides in a Tavria worth UAH 60,000.” In order to balance the budget, the government curtailed social programs and increased expenses on itself.

This time around, the idea of restoring social justice Azarov-style came unexpected: he announced at a meeting of the Cabinet of Ministers that rates of pay (rather than salaries) would be raised for government employees six times a year, which would secure a 19-percent increase over a 12-month period.

SEPARATING THE GOVERNMENT AND BUSINESS: AN OLD SORE

One of the main obstacles on the way to overcoming social injustice in Ukraine is that large, oligarchic capital has monopolized power and views government policy as a tool with which to conserve the status quo, which is “capitalism for our own guys.” Ukraine’s Cabinet of Ministers consists of millionaires and multi-millionaires. Deputy prime ministers and most ministers come from large business. Likewise, over a third of top officials in central executive bodies either have a business of their own or are closely linked to business groups. At least 16 regional governors have their own businesses. A similar situation is in the legislature – at least 300 of the 450 MPs in parliament are millionaires.

However, separating the government from business means not only hindering its businessmen in obtaining government authority. Another part of the equation is that government office should not be viewed as a way to riches.

In a rule-of-law state, an official is normally not among the richest 10% of the state's citizens. In Ukraine, where corruption is commonplace, high-ranking officials are indeed on this list. The infamous description of Dmytro Tabachnyk as a “cheap clown and embezzler” given to him by Deputy Prime Minister Borys Kolesnikov reflects the mental conflict between businessmen who took government offices and managers who generate income for themselves by using their authority. A large number of MPs also “earn” by lobbying special interests, participating in privatization schemes, etc. A vivid example is the Communist Party leader Petro Symonenko who, despite espousing the ideals of communism and having the salary of an MP, was able to build an estate for his family on a hectare of land near Kyiv. The value of this piece of property has been compared to the cumulative budget of the Communist Party over the last five years.

THE INSTINCT FOR SELF-PRESERVATION

The fusion of government and business in the executive and legislative branches has already demonstrated what corporate solidarity can accomplish. The parliament took a very telling stance on the real estate tax which was to be introduced under the Tax Code. Municipal authorities pinned special hopes on this tax, because it is a significant source of receipts for local budgets in a number of countries. However, because it would directly affect them, MPs greatly lowered the tax rates and limited the breadth of their application. Consequently, nearly all elite apartments and buildings in Kyiv will either be exempt from the real estate tax or their owners will have to pay a minimum rate. For example, Mykola Azarov, who owns a huge, 190-square-meter apartment in Volodymyrska Str. in downtown Kyiv, will pay a mere UAH 751 per year.

As a result, the earlier expectations that the well-off would contribute at least UAH 2-3 billion to local budgets after the introduction of this tax were replaced by much more modest forecasts of UAH 300-400 million. But high-ranking officials and MPs do not want to pay even these small amounts: on July 7, 2011, the Verkhovna Rada passed Law No. 3609, sponsored by Party of Regions MP Vitaliy Khomutynnik, which put off the introduction of the real estate tax until July 1, 2012. And it will be no surprise if the law is delayed further.

The state of the bill on luxury is even more revealing. The thrust of the law is to tax expensive cars, yachts, brand items, diamonds, and so on. Despite announcements made by Deputy Prime Minister Serhiy Tihipko, this bill, which is viewed as an additional source of receipts for the Pension Fund, does not have a high chance of being passed according to information obtained by The Ukrainian Week. And even if it passes parliament, the taxable basis will be greatly reduced.

SOCIALLY IRRESPONSIBLE

The problem of the current government is not only that the rich do not want to share with the poor but also that there is a lack of efficient programs to restore social balance. I am not talking about subsidies to the underprivileged. Rather, the government should above all facilitate self-employment and thus new jobs, micro-loans to small businesses, business incubators, simpler registration and reporting procedures for small enterprises and so on. Overcoming social imbalances and solving the problem of poverty boils down to creating new jobs.

Instead, the government is merely imitating such steps. For example, the National Program for Fostering Small Business, adopted under President Leonid Kuchma, is still operating in Ukraine. On January 12, 2011, the Verkhovna Rada passed the Law “On the Development and State Support for Small and Medium Businesses in Ukraine” (to be signed by the president) which is supposed to replace the existing act on government support for small businesses. But any efficient support is out of the question as little more than UAH 3.5 million is allocated in the 2012 national budget for this program.

Moreover since first taking office, the Azarov government has launched an active onslaught against small business, primarily entrepreneurs who were using the simplified system of taxation, which secured employment, incomes and salaries for around 1.2-1.3 million citizens. The existence of these small businesses provided jobs and thus greatly reduced social tension. After the government's so-called tax reform, the number of entrepreneurs taking advantage of the simplified system fell nearly 50%. As of January 16, just 475,000 entrepreneurs had submitted applications for registration, and many simply shut down their businesses. So, contrary to the purpose of reform, the new Tax Code actually stimulated increased social inequality and social degradation.


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