Oleksandr Shlapak, the newly appointed head of the Secretariat Social and Economic Office, told reporters on Wednesday Victor Yushchenko hoped the government and the Verkhovna Rada would consider his critical remarks and suggestions when approving next year’s budget, according to the President`s press-office.
The President believes the document is full of drawbacks, such as “overly optimistic” macroeconomic projections, inopportune tax changes, non-transparent mechanisms of distributing investment funds and the plan to give the government the right to issue financial guarantees.
“Unlike in 2006, we are seriously worried about how macroeconomic plans for 2007 are being formed,” he said.
Mr. Shlapak added that independent experts and Secretariat economists saw no reasons for “very optimistic inflation expectations” and claimed next year’s inflation rate would be 11-13% - not 7.5% - because of the raised energy prices.
Independent financial organizations also project that Ukraine’s GDP will only be 4.2-4.5%, not 6.5%.
“We urge the government to carefully analyze the components of such growth and explain why they are so optimistic about next year’s GDP rate,” he said.
The Secretariat is also apprehensive about the projected deficit of 2.55%. Mr. Shlapak said it would not only double Ukraine’s debt but could also have other negative consequences. The President is convinced the optimal deficit rate to balance the budget is 2%, he added.
Mr. Shlapak said the budget committee had included most of the president’s social proposals in the draft but failed to correct the most important drawbacks: an insufficient increase of the minimal salary (by 12% from 1 December 2007) and the low living wage. He said inflation could thus outpace the growth of real incomes for the first time in 2007.
The President is also anxious about tax innovations. Mr. Shlapak said the cabinet agreed with the Head of State and was now going to approve tax changes as a separate law. However, according to law, they can change taxes not later than August 15, he said.
Mr. Yushchenko is worried the government wants to recover its right to distribute investment funds. The President believes the Verkhovna Rada and the budget committee should decide how to spend this money in the regions. He thinks state banks can help the government to optimally use investment resources.
“We think we should increase capitals of state banks and later permit them to fund projects which the government considers to be attractive for investment. Otherwise, the government can become a direct creditor, which is colossally risky” he said. “As a person that worked in the banking business, I am convinced we will have no guarantees at all.”
Mr. Shlapak said the Secretariat was going to propose a detailed analysis of the 2007 draft budget this week.