Ukraine continues to live in a state of unresolved revolution. The number
of voters unhappy with how the country is developing, compared to the beginning
of the #Euromaidan has not only not gone down, but continues to grow.
According to one survey run by the Democratic Initiatives Fund (DIF) and
the Kyiv International Institute of Sociology (KIIS) in December 2015, 60% of
Ukrainians now think that things are not going as they should, compared to 52%
who thought so in December 2013.
The main reasons given by those who hold this
opinion is the decline in the standard of living (69%) and the high level of
corruption (57%). For them, a positive signal, in addition to the end of
military action in Donbas would be a rise in the standard of living (51%) and
seeing the most corrupt officials sued for their crimes (50%).
The decline in the #standard_of_living for most Ukrainians has really been
unprecedentedly significant for such a short period of time. Derzhstat, the
statistics bureau, reported in December 2015 that consumer prices had gone up
43% compared to December 2014 and by 79% compared to December 2013.
And this is
just the tip of the iceberg given the specific methodology and the consumer
basket that the statistics agency uses. Meanwhile, the indexation of wages and
pensions for most Ukrainians was dramatically less over this same period. For
instance, government workers and workers at budget-funded institutions saw
their wages go up only 25%.
By November 2015, the newest data available, even the official estimates of
the Ministry of Social Policy were that the minimum subsistence wage for the
employed was UAH 2,875, for children age 6-18 it was UAH 2,930, and for
pensioners it was UAH 2,052.
Yet the 2016 Budget used a minimum wage of UAH
1,378 (rising to UAH 1,450 May 1), while the minimum pension is UAH 1,074
(rising to UAH 1,130 May 1), meaning that in both cases, they don’t even cover
a half of what the Ministry considers the actual living wage.
What’s worse, even the average government wage is now at the threshold of
the subsistence minimum even for those who are employed: in November 2015,
wages averaged UAH 3,426 in education and UAH 3,168 in healthcare. And this
does not take into account any children that the individual is supporting.
Given that inflation is expected to be 25-30% in 2016, according to the minimal
scenario proposed by analysts, the 10% wage increase as of December 1, 2015
will do little to improve the situation.
With expectations of growing
unemployment this coming year, it matters that the minimum unemployment benefit
for those sufficiently vested in insurance will be only UAH 1,102.40 (rising to
UAH 1,160 May 1), which is barely one third of the subsistence minimum. Those
who are not vested will get barely half of that, or UAH 544.
In December 2014, 43% of Ukrainians were ready to suffer a certain level of
material decline in order for reforms to take hold, whereas in December 2015,
33% were prepared to do so, only 8% of those were prepared to suffer “as long
as necessary,” while 25% said “not more than a year.” Right now, 59% are no
longer prepared to put up with material decline at all, and 39% of them say
that they are already completely impoverished. The margin of savings and
patience among most Ukrainians has been exhausted for 2016.
Should military action in Donbas finally stop, strong demand for social
paternalism on the part of the state will become the priority for most of
Ukrainian society. A KIIS and DIF poll in October revealed that Ukrainians
expect the state to firstly provide social security (39%), justice and a fair
court system (37%), protection from foreign aggression (32%), free healthcare
(30%), and guaranteed jobs (29%).
Moreover, only 18-20% of those polled want the state to provide “rods, not
fish:” physical safety, law and order, and equal rights with minimal
intervention in the economy. Yet only 18% are prepared to pay taxes on all
their income, 8% are prepared to actively oversee the government, and only 5%
are prepared to participate freely in promoting various ideas or programs.
Most
Ukrainians are clearly less interested in fulfilling their obligations before
their country—and their fellow citizens—than they are in getting benefits from
it. This presents a serious threat that populists will manipulate this mood,
especially those who are on Russia’s payroll, and that the conditions are in
place for them to start tearing the country apart.
If the government fails to provide the conditions for the standard of
living to start improving again and for ordinary Ukrainians to feel more
confident that things are changing for the better in the near term, the
likelihood is that dangerous socio-political processes will begin and the
threat to the very existence of Ukraine as an independent state will rise
sharply. Still, such conditions obviously cannot be provided through populist
“easy steps” that will quickly deteriorate the situation even further.
This means the government will have to look for ways to prevent a social
explosion and the triumph of populists and the comeback of once-discredited
politicians at a time when budget resources are really limited and the IMF and
western partners justifiably insist that they prevent the deficit and the
already excessively high public debt from growing.
Somehow, the numberless calculations of today’s top officials—who were in
opposition not long ago—about the tens and hundreds of billions of losses to
the state through the corrupt schemes in place during the Yanukovych regime have
not translated into effective action to improve the situation over the last two
years. The oligarchs and Big Business continue to sell Ukrainian-made goods to
their offshore companies at below cost to evade taxes. Top officials continue
to cost the country billions in losses to both the state budget and to business
by abusing the state procurement system, taking bribes for permits and
licenses, covering up for contraband and smuggling, and manipulating the VAT
refund system.
To even partly close the loopholes through which the budget and economy are
losing hundreds of billions of hryvnia per year is something officials and the
political elite have no desire to do, although it’s the absolutely only way to
stabilize the situation in the country. Another way to renew social justice
could be higher taxes and fees on luxury goods and services, such as expensive
cars, high-end gadgets, expensive homes, jewelry and precious metals,
premium-class hotel and restaurant services and so on, as well as property
taxes that are more differentiated and tied to market value rather than based
on the size of the space.
This kind of approach is a workable alternative to all the so-far
ineffectual attempts to force unofficial incomes out of the shadows in order to
tax them. It’s equally important to set up a more effective mechanism for
leveling out tax contributions among different categories of the employed,
because it’s highly discriminatory and unfair when barely half of those who are
nominally employed are paying the proper taxes and social contributions and
supporting all the social and state infrastructure.
Obviously, the process of shifting at least some part of the expense of
education and healthcare from the state budget to alternative mechanisms for
legally getting funds from the direct beneficiaries of the services also needs
to be started.
Dropping the constitutional atavism about “free medicine and
education” is possibly even more important than judiciary reform or
decentralization because Ukrainians have long ago recognized that neither
healthcare and nor education is “free.” The trouble is that, right now, they
are being paid for in a distorted fashion that does nothing to prevent the
deterioration of these two areas or to improve the quality of the services they
provide.
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