The Cabinet of Ministers approved the draft budget for 2023 – half of the money for defense

The Cabinet of Ministers approved the draft state budget for 2023. Now it must be approved by the Verkhovna Rada.

So, the document provides that almost 50%, which is more than UAH 1.1 trillion of the entire budget, will be directed to the defense of the country, which is 4 times more than in 2022.

According to Ilya Neskhodovskyi, the head of the analytical department of the National Interests Advocacy Network “ANTS”, the draft budget for the next year shows that Ukraine has secured financial support from partners.

“When we consider the state budget’s revenues, 50% are internal revenues, taxes, and other payments to the state budget, and the remaining 50% is the state budget’s deficit, 97% of which will be paid from external sources.” He emphasized that this demonstrates that the Ministry of Finance has appropriate agreements with our partners and creditors. “First and foremost, I am convinced that the IMF has already provided adequate guarantees that such a sum will be transferred to Ukraine. As a result, the Ministry of Finance created such an unusual budget. After all, a budget deficit in terms of actual revenues is a significant challenge, and if there is no external support and only internal sources of income, this is simply a provocation of inflation and, as a result, an unstable macroeconomic situation. As a result, in this situation, this is a sign that we will receive external support from international partners.”

Neskhodovsky says that there is no increase in tax pressure in the draft state budget.

“Traditionally, taxes are raised during wartime because expenses for the war and the social sphere rise, and the state is forced to fill the budget. On the one hand, it takes loans, and on the other, it directs efforts so that Ukrainian citizens directly fill this state basket. In our case, international assistance has prevented an increase in tax pressure on businesses. This is already a plus, – he says. – The world helped us during the war, and I am confident that it will help us again during the reconstruction. Following the victory, there will be investments, international aid, and so on. As a result, our economy will grow.”

The expert warns against lowering taxes in 2023.

“This can have a negative impact on relationships with international partners. Certain concessions should be made for businesses that suffered and will be restored in previously occupied territories, but not for businesses throughout Ukraine, as this would create a negative image for us. Why? Because other countries’ governments will be forced to explain to their citizens why they, as taxpayers, are forced to pay while Ukrainian taxpayers do not. Everyone understands that Ukraine needs assistance because it has suffered significant losses. I’m sure they’ll be ready for other types of assistance, but not this one. As a result, no changes to tax legislation are required. Of course, some things can be improved to make it simpler, clearer, and have fewer bureaucratic moments, but the stakes remain the same. It will be beneficial if we continue to operate under the current tax system. It is better for us to change the business conditions – cheap loans, investments, and so on.”

The analyst disagreed with the government’s stance on the minimum wage freeze. According to him, this will result in a mass exodus of Ukrainians abroad in search of work.

“I believe the government chose the incorrect strategy in this regard.” With inflation of 30% this year and another 30% forecast for next year, freezing the minimum wage will actually mean that Ukrainians will be a third poorer. This approach is incorrect and will force many citizens with open borders to leave for work. And, after the war, even those who did not have the opportunity will do so. Taking into account the set rate, the minimum wage will be around $150. This item is tax-free. And if prices rise by a third this year and by the same amount next year, Ukrainians will be unable to meet their basic needs. As a result, action is required to correct the situation. Instead of freezing the minimum wage, it would be necessary to limit civil servants’ pay. You can still, for example, increase the taxation of high salaries while decreasing the taxation of low salaries. It was the most logical and correct decision under these circumstances.”

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