Ukraine adopts 'draconian' budget backed by IMF
Ukrainian President Petro Poroshenko was especially keen to have the measures passed by year-end.
KIEV (AFP) - Ukraine s parliament on Monday adopted an austerity budget that hikes import prices and shrinks social spending in order to balance the books under a plan backed by the International Monetary Fund.
The highly-disputed 2015 plan was rammed through by the government-led coalition after a marathon debate concluded with a 4:15 am vote that came without most deputies ever having seen a full copy of the bill.
Ukrainian President Petro Poroshenko was especially keen to have the measures passed by year-end because its pro-business provisions would likely allow the Fund to release extra assistance following a visit that starts on January 8.
The former Soviet republic s reserves have more than halved in the past year of civil conflict to less than $10 billion -- a figure dwarfed by the state s foreign debt obligations for 2015.
The new spending law tries to slash red tape and simplify life for small businesses by reducing the number of taxes they pay to nine from 22. It also looks to boost employment by slashing the payroll tax to 16.4 from 41 percent.
And it quadruples the capital gains tax rate paid by owners who register their firms abroad -- a measure designed to fight tycoons penchant to park their fortunes off shore.
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Yet the higher taxes and lower spending provisions of the law have been attracting criticism from the public for weeks.
About 1,000 people lit flares and held up angry signs outside the parliament building in protest at the additional pain the measures will mete out in the year ahead.
"This is going to be a draconian year," Samopomich (Self-Reliance) centrist party member Oleg Berezyuk warned before the 233-27 vote.
The financial blueprint was passed only after Prime Minister Arseniy Yatsenyuk promised deputies a chance on February 15 to soften some of its more unpopular points should these revisions be backed by the IMF.
Poroshenko s advisers hailed the plan as a long-overdue measure that will cause short-term pain in order to help Ukraine funnel resources better into lagging economic sectors and the army.
"Two pieces of news. One good and one bad," presidential administration member Valeriy Chaly wrote in a Facebook post.
"The first is that my salary -- along with that of all the other leaders -- has been rather seriously cut," Chaly wrote.
"And the second: the budget was adopted, and this means 90 billion hryvnias ($5.7 billion, 4.7 billion euros) for defence."
Poroshenko has vowed to boost spending on the army -- its poor morale and outdated equipment exposed by the eight-month campaign against pro-Russian insurgents in Ukraine s industrial east -- to five percent of gross domestic product from less than two percent today.
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The most unpopular changes include a 10 percentage point hike in the customs duty slapped on alcohol and tobacco -- as well as most food.
A five percentage point rise will apply to almost all other items except for energy and a few other exceptions.
This year s 20 percent slowdown in production has forced Ukraine s to rely on imports to an even greater extent than in years past.
The new budget also allows the state to raise money by opening up cassinos and allowing online gambling.
But social benefit payments to the poor and elderly will only be raised in line with inflation -- projected to jump by 13 percent in 2015 -- while help with utility and other bills will be cut for all.
The cumulative effect is designed to deflate Ukraine s budget deficit to 3.7 percent and kickstart growth in 2016.
Finance Minister Natalie Jaresko -- a US citizen who was plucked from her Kiev-based investment house this month to help streamline Ukraine s relations with global lenders -- said all the measures had been agreed with the IMF and that most would be repealed in 2016.
The Fund approved a $17.1 billion two-year loan in the wake of the February ouster of a Moscow-backed leader and Kiev s decision to expand its ties with the European Union.
But it has withheld the past two payments due to Poroshenko s inability to come up with a clear restructuring plan that could stem an economic implosion projected to reach up to eight percent this year.
The Standard and Poor s ratings agency warned that "the government might not be able to meet its obligations" without a further $15 billion from world lenders next year.
