Social policy: Entrenching poverty

19 January 2020, 09:22

In presenting the draft 2020 budget in second reading, the Government announced in advance that it was expanding social spending, which appear to be the biggest item in the new budget. At first glance, the draft 2020 budget really does show a record high amount for the Ministry of Social Policy for all the years of independence: UAH 293.4 billion. By comparison, the ministry’s 2019 budget was UAH 237.2bn. But a closer look reveals that actual social spending will be even less than in 2019.

To cover up the reduced spending, the Government did some clever maneuvering and transferred funding for certain social programs for which UAH 64.8bn had been allocated directly by the Finance Ministry in 2019, to the Social Policy Ministry. This includes subventions to local budgets to pay for social assistance to various social groups and discounts and subsidies for fuel. In addition, the Social Policy Ministry’s budget for next year has been expanded by UAH 5.1bn to support the Pension Fund. When all is said and done, the ministry will have UAH 120.8bn to spend on all its programs, without counting the subsidy for the Pension Fund, compared to UAH 134.5bn it had for these programs in 2019.

In short, funding has actually been cut 10% or UAH 13.7bn. This does not even take into count inflation, which even the most optimistic forecasters peg at 5.5% this coming year. A closer look at specific spending areas at the Social Policy Ministry in 2020 (see Take from the weakest), the largest chunk will be taken from those who have the least ability to protest such action and at the same time the greatest need for government social support.

Creative math

Back during the election campaign, the new president’s team was actively criticizing the level of social standards in Ukraine, especially the subsistence minimum, for not meeting the real needs of the public. After being appointed premier, Oleksiy Honcharuk himself raised this issue. And during a major press marathon, President Volodymyr Zelenskiy announced that the subsistence minimum for Ukrainians needed “to realistically be around UAH 4,300 at the current exchange rate.” This indicator was declaratively formulated as “take decisive steps in 2020 to bring the subsistence minimum closer to its real value, which could be around UAH 4,251,” and it has made its way into the first draft of the 2020 budget that was submitted to the Verkhovna Rada in September.

RELATED ARTICLE: In the trap of luxury

But while it was still under debate, the Ministry of Finance announced that should such an indicator be established for the subsistence minimum, the budget would have additional expenditures worth UAH 366.3 billion. And so the Cabinet was faced with the question, how to carry out this promise made at the highest level to make the subsistence minimum “its real size,” without actually increasing it at all? And so ministers engaged in some creative mathematics that could have a far-reaching impact.

The new Minister of Social Policy, Yulia Sokolovska, announced a radical revision of the application of the subsistence minimum, arguing that it had “stopped being an indicator of poverty and is being used as a fiscal indicator today:” more than 150 types of benefits and financial indicators are linked to it, including, in addition to social benefits, discounts and pensions, the tourist tax, alimony and child support, license fees, administrative fees, customs fees, court fees, fines, wages, salaries, stipends, per diems, and so on. According to Sokolovska, it’s this “link” makes it impossible to raise the size of the subsistence minimum to its real value to help those who really need it. By raising this minimum, she says, “we will automatically increase costs for all these other payments, which is why it has to be cancelled.”

However, with a more careful look at the bill “On amending certain legislative acts,” drafted by the ministry to institute this change, it turns out that, under cover of this supposed decision to unlink the subsistence minimum from those indicators that really are not connected to social policy, the Government is actually trying to eliminate the role of the subsistence minimum altogether. 

Musical chairs with welfare

Possibly one of the most difficult subjects in the press these days is the rule to change Art. 10 of the Law “On state support for families with children.” The intent of this law was to restrict the number of eligible families to only those whose monthly household income per person works out to 15% or less of the total amount of such assistance, as set in the budget for the given year. This proposed rule raised quite a noise, even from UNICEF as one that could sharply worsen child protections in Ukraine. Sokolovska reacted very quickly and stated that the innovation was being discarded.

In reality, this initiative was almost harmless compared to the other social initiatives of the new Social Policy Minister. Of course, it would have become yet another hit over the demographic situation in Ukraine, it would have removed incentives for couples with a household income close to the average to have more children. However, by limiting eligibility to a monthly household income per capita at 15% or lower, which is a maximum of UAH 6,150 today, would at least have meant that such families would be supported at a level far above the subsistence minimum. Clearly, such families don’t have a single source for the child or the mother to survive, otherwise they would be eligible for this kind of assistance.

Instead, the much more dangerous consequence that will deepen poverty is the “unbundling” of a slew of social benefits from the subsistence minimum. The Social Policy Ministry has declared that the proposed changes will preserve the link to “pensions based on age and other forms of social benefits and assistance that are the main source of income for people.” Still, the actual changes written into the bill drafted by the agency will, in fact, cut most benefits that are not only the main but often the only source of income for a slew of social categories that cannot take care of themselves on their own.

It is not for nothing that Art. 5 on the basis of Ukrainian legislation regarding mandatory public social insurance excludes the rule that it shall be done based on the principle of “ensuring a standard of living not lower than the subsistence minimum established by law through providing pensions, other forms of social benefits and assistance that are the basic source of survival.”

Floataing indicators

From now on, the bill proposes not linking the subsistence minimum to government social standards for children who are orphaned or whose parents have lost parental rights, but to have the standard established in the process of approving the state budget every year. Similarly, where current legislation provides for a “minimum guaranteed size of child support for one child cannot be less than 50% of the subsistence minimum for a child of a specific age,” the proposed changes replace the subsistence minimum with an indicator arbitrarily set by the Government. What’s also hard to understand is the logic of dropping the norm for establishing assistance that is at the level of the subsistent minimum for the child of a single parent when the other parent has died.

The Government has also unbundled assistance to the disabled from the subsistence minimum, which includes care provided by others, a slew of seriously sick children and mentally ill individuals. Payments for worker’s compensation for on-the-job accidents which come out of the Mandatory State Social Insurance Fund have also been unlinked to the subsistence minimum. This also affects benefits to minor children who are insured by this Fund through an insured individual who was killed on the job. 

Although the new minister promised to personally pay attention to benefits for children, changes to the Law “On state support for families with children” propose completely blurring the criteria for identifying such children and their families, and to leave the issue up to a Cabinet decision. For instance, the current version of the law states that “a poor family with children is a family that for serious reasons or reasons beyond its control has an average household income lower than the subsistence minimum.” The Social Policy Ministry proposes completely removing this definition but offers no replacement. In this way, the Government will be able to hand-manage the determination of which families and with what income level will be eligible for social welfare. This means that the approach could change every year during the budget drafting process.

Saying one thing, doing another

Social Policy Minister Yulia Sokolovska has also insisted that the link to the subsistence minimum for pensions on the basis of age will be maintained. In fact, changes to Art. 28 “On universal mandatory state pension insurance” cancel the rule that the “minimum pension for age in a man with 35 years of insured service or a woman with 30 years of insured service shall be the same as the subsistence minimum for individuals who have become disabled.” This, too, has been replaced by an indicator that is up to the Cabinet to establish.

And so, although the ministry assures everyone that in 2020 benefits for various categories will remain at the level that they would be if linked to the subsistence minimum for now, there is nothing in place that will ensure that these won’t be frozen and shrink due to inflation. After all, it was thanks to this link that all these benefits kept rising, for the disabled, to support children whose parents had lost their parental right, to help single mothers raise kids, and other groups who receive social benefits. Dropping this link and replacing it by a figure that the Cabinet can freely establish every year means that in future they could simply be cut without restrictions.

What’s more, not indexing certain indicators or indexing them inadequately is much simpler than a universal indicator like the subsistence minimum. After all, it is normally established and draws attention, precisely because it is a key indicator when debating the budget, whether by MPs or by the press. Meanwhile, individual indicators for various benefits can be indexed variously or even reduced in absolute number should there be a shortfall in financial resources. Related to this, the changes proposed by the Social Policy Ministry to Art. 9 of the Law “On wages and salaries.” Here, the discussion is about removing the rule that the minimum wage has to be no lower than the subsistence minimum for able-bodied individuals and replacing it by an unusually vague formulation, that the minimum wage is determined “taking into account” not just the subsistence minimum, but also “the financial capacities of the State Budget.”

Paradigm shifts needed

The Ukrainian Week has written repeatedly about systemic flaws in Ukraine’s social policies, especially on the fact that when these are not aimed at protecting those who cannot protect themselves, it harms economic development, reduces the national wealth, and only impoverishes the country as a whole. To constantly redistribute from those who earn money on behalf of those who don’t want to work only creates a discouraging uncertainty about how the fruits of their labor are being used, for most people, and this blocks the country’s growth.

Ukraine’s social system has long needed serious reform and greater targeting. Social policy needs to constantly work to reduce the room for fakers to abuse the system, individuals who can but don’t want to earn money for themselves and their families at even the minimum level or who engage in an anti-social lifestyle. The reform priority needs to be eliminating the numberless individuals and households that take advantage of corrupt schemes to claim privileges and discounts, such as subsidies on gas and electricity.

The energy of the poorer folks should be channeled into learning and being motivated to work in those areas where there is the most demand for their labor. This will increase the number of Ukrainians who can benefit from the results of economic growth while reducing the number of those who cannot to those who deliberately reject the opportunities offered to make their own lives better. The physically and mentally able can undertake work that is needed by the society rather than indulge in the illusion that they can live at even the minimum level on government benefits that are intended to “overcome or reduce social inequality.” These areas of work should become priorities for social policy under this or any other government that truly wishes to minimize if not overcome the scale of poverty in Ukraine.

With those who genuinely need social protection from the state, the situation is completely different. They truly do not have the means to ensure even a minimal necessary level of independent life. Here the government’s social role should be strengthened and the volume of assistance correspond to the real subsistence minimum for this category of citizens. However, it is evident that the current Government using really very much needed changes as a cover for radical initiatives aimed at mechanically reducing spending on social policy.

RELATED ARTICLE: A reality check

Interestingly, Social Policy Minister Sokolovska was director of the Ministry of Finance’s Department for Social Budget Expenditures in 2015-2016. This likely determined her approach to social policy through prism of the traditional priority of all finance ministries in the world to reduce public spending, rather than resolving this or that problem that faces the sectoral agencies. However, rolling back social support is clearly not just the course taken by the new ministry leadership, but by the entire Zelenskiy team.

What’s more, the approach of the new administration and specifically of the Social Policy Ministry in terms of reform is not so much restrict the uncontrolled inappropriate use of funding for social programs but effectively punishing those who can’t overcome poverty for objective reasons and circumstances beyond their control for being poor. The consequence of this kind of policy will be a sharp decline in the standard of living and a hand-managed style of determining social benefits and guarantees to a slew of social groups for whom these funds are the main, and sometimes even the only, means to survive. If things go on this way, Ukraine will not only not overcome poverty, but will preserve it and possibly even increase its scale and depth.


Translated by Lidia Wolanskyj

Follow us at @OfficeWeek on Twitter and The Ukrainian Week on Facebook

This is Articte sidebar