On December 11, 2006, President Victor Yushchenko vetoed next year’s budget and sent a letter to parliament with a request to revise the country’s major financial document, according to the President`s press-office. No other president had vetoed Ukraine`s budget before but Mr. Yushchenko decided to exercise his constitutional right to initiate a constructive discussion.

      The President was actively involved in the formation of the country’s financial law for three months. He detailed his suggestions and critical comments on the draft budget in three letters to the Verkhovna Rada Speaker and the Prime Minister, which were published and explained by Secretariat representatives. Mr Yushchenko’s professional team cooperated with MPs and ministers, which resulted in significant improvements.

      For example, the law no longer contains clauses that greatly reduce the funding of social, structural and innovative programs, creating opportunities for non-transparent management of budget funds and government interference in the economy. The President characterized the removal of the mechanism of vouching for private companies as a “great compromise.” The government increased spending on courts, aviation, space exploration, agriculture and small and medium business. It also increased subventions to local budgets, as well as allocated funds to buy a Gamma Knife, build a Holodomor Memorial Complex and fund other cultural and humanitarian projects.

      Tax changes proposed by the government were a part of the draft budget. The government thought the financial consequences of such changes would be the lion’s share of next year’s revenue. However, the President vetoed that bill. The government demonstrated a constructive approach and agreed with the President, who later approved the tax changes. This helped remove ‘black holes’ from the draft budget, such as free economic zones with an unregulated status or tax privileges for the rich.

      At the same time, the proposed budget fails to include many of the President’s proposals. He thinks the forecasted rates are inconsistent with reality. The actual rate of inflation is already 3% higher than expected in 2005. Experts claim that next year’s inflation rate will be considerably higher than that on which the budget is based.

      The President cannot sign the budget because consumer prices and utility tariffs have grown significantly in the past several months and so the budget might have affected the most socially vulnerable citizens. The budget says the living wage for the disabled will be UAH 395 only on October 1, 2007. In fact, the minimum wage is already equal to UAH 390. This means retired people will lose UAH 25 every month, and this sum will be growing.

      The President is worried about the slower growth of the minimum wage, which will affect the majority of workers, for their salaries are calculated in accordance with the minimum wage. Given the rising inflation rate and the increased cost of the so-called consumer basket, salaries will not, in fact, grow.

      In his proposals to the budget, the President says the government cut defence spending. He insists that it is important to eliminate the discrepancy in payments to those serving in the Armed Forces and members of other military formations.

      The President also objects to the decision to give local budgets interest-free loans, which can result in non-transparent use of funds. The President suggests removing this item from the budget because most of such loans are never paid off. The President also suggests changing taxes imposed on energy importers, which will give an additional UAH 4.5 bln

      The President vetoed the law on the day he received it in order to avoid criticism and accusations that he deliberately delays the procedure. Ukraine’s parliament and government have enough time to revise the document and resubmit it to the President, particularly by finding additional funds in non-transparent investment projects.

      The President urges the Verkhovna Rada to consider his proposals. He hopes parliamentary forces whose programs are aimed at improving social standards will support him.