Weekend Economists Second the Notion! December 12-14, 2014

[MattSh]

35. Well, here's your European future for you, Ukraine. Hope you enjoy it!

Journalist Olga Shelkova analyzes how the new Cabinet of Ministers’ program to reduce social spending will affect the daily lives of the Ukrainian citizens

Within 10 months of the Maidan protests, the Ukrainian people have experienced a lot of hardships from the civil war to a decline in living standards, the devaluation of hryvnia, wage cuts, rising unemployment, and skyrocketing retail prices and utilities bills. Apparently, this is just the beginning of difficulties and troubles for the Ukrainians because they will now have to live under open control of the Ukrainian government’s policies by the International Monetary Fund.

The IMF mission will work in Kiev from December 9 to December 18. According to IMF Resident Representative in Ukraine Jerome Vacher, the mission "will begin policy discussions with the Ukrainian authorities in the context of the Fund-supported economic reform program."

The Cabinet took time to prepare for this meeting.

Having appointed foreign nationals to its government, Kiev outdid even Georgia and the [post-Soviet] Baltic countries that are known for their status of voluntary Western colonies. Whereas in these countries members of higher public authorities include only representatives of the titular, as they say there, nation, though with foreign citizenship, there’s only one Ukrainian – a widely publicized "successful businesswoman," Natalie Jaresko, the Finance Minister of Ukraine – in the Kiev government formed with foreign nationals. ( Not exactly true. Possibly mis-translated? There are three foreigners with ministerial positions. Natalie Jaresko is one of those three. The rest are Ukrainians).

The official reason for inviting foreign ministers is the need to combat corruption and conduct reforms which will supposedly bring Ukraine closer to European standards. The nature of these reforms can be clearly seen from proposed budget cuts submitted to the Cabinet by Natalie Jaresko.

Falling exactly in line with the warnings issued by opponents to the Euromaidan, the European integration will be conducted at the expense of regular citizens of Ukraine. First of all, the Ukrainians are in for the abolition of the constitutional provisions on free education and healthcare, as well as the reduction of the period of compulsory school education from 11 to 9 years. The finance minister is citing the European experience, where compulsory education ends when students reach 15-16 years of age. Good thing they haven’t gone the Georgian way, where secondary education ends when children turn 12.

Regulations prohibiting the reduction of the number of medical and educational institutions are being cancelled, as are the provisions for mandatory budget financing of healthcare and education in the amount that is no less than 10 percent of national revenue. Food in hospitals and schools will become a paid service, as well as classes in children's and youth sports schools.

Students of higher educational institutions, just like schoolchildren and teaching staff, will lose their stipends and their entitlement to free use of transport services. To make things worse, teachers’ workload will increase. Stipends will no longer be adjusted for inflation and will from now on be paid only to people with disabilities and students from low-income families. Teachers will lose additional payments for their academic degrees and titles.

The Chernobyl residents are in for many surprises as well. The government plans to cancel the zone of increased radiation monitoring. The people who were affected by the Chernobyl disaster will lose their entitlement to special medical treatment, increased Category 4 stipends, compensations and benefits, monthly allowances to families with children, extra payments for work in contaminated areas and compensations for lost property.Payments to deportees for completing individual housing construction, increasing seniority for pension-payment purposes, entitlements to subsidized medicine supplies and compensations for housing and other property lost to deportation have been canceled. This concerns, primarily, Crimean Tatars, who left Crimea in order to stay in Ukraine. Proper reward for showing patriotism, to be sure.

Public organizations will no longer be supported, and cash rewards to athletes have been halved.

Retired people will be hit hard. The retirement age will be increased by 10 years for women and five years for men. The length of service that makes employees eligible for receiving retirement pensions will increase by seven years. With ongoing decline in output, sliding economy and ensuing rise in unemployment, getting such length of service may be a difficult task. To ensure "social justice," average wages for calculating pensions will be frozen at the 2014 level.

Further allowances to complement retirement pensions will now be determined by the Cabinet of Ministers, and the pensions will not be adjusted until "the economy of Ukraine is stabilized."

There’s more.

From now on, pensions will be recalculated using the percentage of the contributions made to the Pension Fund rather than actual wages, which will significantly reduce the amount of pensions, because due to inflation, there’s a huge difference in pension contributions in the 1990s and the 2010s.

The fact that the existing amounts of pensions will remain unchanged even for those who are already receiving pensions is not warranted.

In its quest for ways to minimize the length of service and reduce the amount of pensions, the Ukrainian government is studying the "advanced" experience of the Baltic states.

A delegation from the Ministry of Social Policy and the Pension Fund visited Lithuania, where the parties discussed the possibility of revising social security pensions to the recipients who receive pensions for their years of work in Lithuania and Ukraine.

The issue is about a new principle of counting the years of work in the Soviet Union, according to which each state should calculate the pension and pay it only for the actual work in that particular country. In Lithuania, when calculating pensions, they first consider the service after 1990, whereas the work during the Soviet period is covered at a much lower rate, because then the people were "working for the occupier country." Given the rhetoric coming from Kiev, a similar approach can be adopted by Kiev as well. The pensioners will lose their entitlements to free use of transportation, reduced utilities bills, reduced prices for solid fuel, gas and telecommunications services. The targeted financial assistance in these cases will be provided only to 6 million low-income pensioners. The state pilot project for controlling prices for the hypertension treatment medicines will be suspended. Of course, this will affect pensioners more than anyone else, depriving them of access to inexpensive essential medicines.

However, being sick and giving birth to children is not a good idea in the new "Europeanized" Ukraine, either. Payouts for sick leaves will be reduced from 60-100 percent of the average wage down to 45-80 percent. As she proceeds to cut payments for temporary disability, the minister with an American passport cites European experience whereby employees in France and Italy receive 50 percent of their respective salaries during the first 20 days of their sick leave, and 70 percent subsequently, whereas Slovakians receive only 25 percent and 55 percent, respectively.

Plans are in place to reduce the insurance fund covering accidents and occupational diseases. From now on, payments to employees with work-related injuries or members of their families will not exceed 100 minimum wages and compensation for moral damage is waived altogether.

IMF requirements deprive the majority of single mothers of their entitlements to child support. Payments for child birth will be provided only under means-tested programs. Parents will have to forget about state funding for children’s summer camps, free children's and youth schools and New Year gifts. Recreational institutions and health resorts will no longer be funded from the budget.

However, there’s even more to it. Every Ukrainian will pay taxes under a new taxation system, the introduction of which is part of the requirements included in the Association Agreement with the EU. Now, the customers will pay 30 percent of the purchase price of expensive goods, if they can’t prove the origin of their income. Under the new law, which takes effect on January 1, 2015, buying goods worth more than 10 minimum wages, i.e., 12,810 hryvnia, (about $800 at the current exchange rate) will be done only by bank transfers with a passport and an identification code. Tax authorities will be entitled to charge the amount of tax of their own accord, and will also have the right to seize the property of physical persons and to use tax police for the paper-based verification of income and spending of the Ukrainians.

Thus, the income tax rate for unconfirmed income will by far exceed the amount of tax paid on confirmed income. Currency transfers by people working abroad and remitting money to their families will be hit hard by the discriminatory tax rate. In addition to opening wide the door to abuse and corruption, the negative effect of such "European" measures will also apply to sales of cars, real estate, household appliances and other expensive items. In turn, it will lead to a fall in business revenue and result in shrinking tax base.The fact that consequences of the coup and signing an Association Agreement with the EU will be exactly like the ones we are seeing now was known long before Mustafa Nayyem called on the Ukrainian people to take to Maidan. However, deceived by sweet-voiced propaganda, the Ukrainians failed to heed the many warnings. The collapse of the economic and social spheres, as well as isolated protest rallies, are there for everyone to see.

So far, these rallies have been of isolated nature.

To cure a disease, one has to understand its causes. This one was caused by thoughtless destruction of the national economy in favor of the provisions of a colonial association agreement, with no prospect of ever joining the EU, as was repeatedly stated by EU representatives.

The future fight by the people whom anti-human reforms performed by foreign henchmen has made destitute, must finally focus not on consequences but causes.

Complete story at - http://en.ukraina.ru/analytics/20141210/1011445635.html

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