“How much is missing in the budget for 2025 to cover critical expenses and where to find the money?”, — write: www.epravda.com.ua
In the first week after submission to the Council, it is very easy to get lost in the flow of news about hundreds of programs for which UAH 3.9 trillion of the budget was allocated. And while I’m certainly interested in understanding the ins and outs of vaccinating wild foxes and how much it costs taxpayers, I’m more inclined to analyze the big picture.
Before the full-scale invasion, all budgets were condescendingly called the “food budget”, because the main item of expenditure was always welfare. From 2022, the three largest budget expenditure categories have changed.
Now it is defense and with a big gap – debt service (almost 481 billion UAH) and social protection (419 billion UAH).
The 2025 budget is a war budget. We will once again set a historical record for defense spending. It is planned to allocate UAH 2.2 trillion to security and defense, which will exceed future actual expenditures in 2024, even after the changes voted this week and an increase in expenditures by almost UAH 500 billion.
But more than half of these funds – 55% or 1.2 trillion hryvnias – will go to the financial support of servicemen of all forces and branches of the military. 737 billion UAH will be directed to the purchase of weapons and military equipment, in particular, almost 47 billion – to the purchase of drones.
This year, I can confidently say that with UAH 2.2 trillion, the government will be able to finance the war for the whole of 2025. Of course, in the absence of force majeure circumstances.
For example, this year, due to the delay in the decision on the allocation of funds in Congress, Ukraine did not receive military aid from the United States for three months and had to pay for the purchase of weapons with future expenses for the financial support of military personnel. This led to a hole of UAH 495 billion and the threat of non-payment of “combatants” in September.
The costs of servicing the state debt next year will increase by almost UAH 108 billion compared to this year. Unfortunately, this is our new reality – we live in debt and this debt is growing faster than we can imagine.
In 2025, to cover non-military expenses, we will have to borrow almost 37 billion dollars abroad and 579 billion UAH in the domestic market.
In these conditions, we need to be aware of the fact that expenditures in 2025 will increase by only 5.4%, because we have not had any radically new sources of income in the state budget.
And the small package of tax changes that we may vote on in October, while much needed, will only cover 3.5% of our total spending.
Of the need for $38.4 billion in international funding, we have only a little over $15 billion confirmed. That is, we need to FIND and borrow more than 23 billion dollars.
We are counting on the fact that in the coming years, Ukraine will get access to 50 billion dollars from frozen Russian assets, but after repeated high-profile statements, the mechanism, terms and conditions of providing the money have not yet been formalized.
Forming the budget in such a situation, the government took several rather radical steps. Obviously, the biggest burden of balancing the budget was borne by the social sphere (this is logical, medicine and education have two times smaller budgets – it is difficult to effectively optimize something there, and other non-military expenditures are statistically insignificant in the scale of our problems).
State budget expenditures on the Pension Fund have experienced an unprecedented reduction in recent years (minus UAH 34 billion). It is not a secret for anyone that pensions are actually paid not from the state budget, but from the EUV, which goes to the PF.
The budget, in turn, usually covers the deficit of the Pension Fund, as well as so-called special pensions (for people who worked for the state, military personnel, etc.).
This year, for the first time in more than 20 years, the Pension Fund may become deficit-free (thanks to the large amounts of social insurance that the state pays for military personnel).
In addition, the state proposes to include military pensioners in the solidarity system (that is, to pay them a pension not from the budget, but from the income of the PF), to increase the maximum salary limit from which the social security is paid (from UAH 120,000 to UAH 160,000) and to introduce other compensators
Another tangible source of spending reduction was the budget program of the Ministry of Social Policy to support Ukrainians in difficult life circumstances. The government reduced this program by almost UAH 8 billion.
One of the main reasons is the underutilization of funds (80.5% of the plan for 8 months of 2024) due to increased targeting of payments. Simply put, only those who need it get help.
And although I personally have an understanding that these changes will not lead to a decrease or loss of assistance from the state for a specific person, I cannot but admit that they are a point of tension in the budget talks.
A new approach to capital expenditures is interesting.
On the one hand, the government is centralizing the management of public investment projects, reducing the revenues of the Fund for the Liquidation of the Consequences of Armed Aggression to a minimum (in fact, only to the proceeds from the confiscation of Russian assets in Ukraine – this year so far, UAH 551 million), and on the other hand, it is restoring the State Road Fund.
I strongly support the creation of a single pipeline of investment projects (in fact, capital construction projects), which were previously scattered among different ministries, because it will increase the meaningfulness of expenditures, prioritization and give an opportunity to do something really necessary for the state, and not scatter money on roof repairs. By the way, the implementation of such an approach is a strong recommendation of the IMF, one of the structural beacons was even dedicated to the new procedure for selecting investment projects.
However, as a citizen, I cannot agree with the restoration of the Road Fund (in any amount, but too much – UAH 43.2 billion). By raising excise taxes on fuel, we convinced citizens that this was a forced step and a need for the front.
I am still convinced that every hryvnia of Ukrainian taxpayers should go to the defense of our state, because we can only use our own resources for these needs.
At the same time, the repair of roads at the request of the military (and there are many such requests, primarily they are related to the transportation of the wounded and the transportation of ammunition) can take place from the Reserve Fund with a detailed consideration of the feasibility of repairing each road.
And finally. Two months of fierce political battles await us, thousands of amendments and hundreds of man-hours spent on their processing, but it is already clear that there will be no revolutionary changes to the government project – the budget framework of income and expenses has been agreed with the International Monetary Fund.
In particular, we understand that in the case of an increase in expenses that are not covered by real income, the IMF will demand from Ukraine an increase in VAT by at least 2 percentage points. Although some people’s deputies are ready to take this step voluntarily…