Retirement benefits

Of the 12 million pensioners (29% of the population), 9 million receive pensions. There already are more pensioners than working Ukrainians in the country, and this figure is growing.

To stimulate the official employment and increase the budget revenue the government has reduced the rate of the Single Social Contribution (SSC) from 41% to 22%. However, as a result, the revenue has considerably decreased, and the deficit of the Pension Fund has reached astronomical figures - more than 150 billion UAH (18% of all government spending) and 110 billion UAH (79% of the SSC earnings) will be allocated from the budget.

If the pension system is not reformed now, then in the coming years we will find ourselves once again faced with a choice: to increase the retirement age or lower the pensions.

Social security for families, children and young adults

39 billion UAH, which is almost 5% of the total government spending, is spent on social assistance and social protection of children, large families and people in a difficult financial situation, pregnant women, childcare (after the birth of a child till the age of 3), single mothers, and other vulnerable individuals and households.

Social housing

Almost 35 billion UAH or 4% of all government spending is spent on housing for AFU servicemen, law enforcement employees, as well as on citizens’ preferential mortgage loans.

More than 600 thousand families and more than 1.7 million internally displaced people are in lines for apartments that are moving too slowly. Every year about 2,000 families get in line, and about the same number gets housing.

It should be recognized that the existing system will never solve the housing problem at the current dynamics of the growth of needs and their satisfaction. Providing housing to everyone is impossible.

How can young people be helped? Legislative changes are necessary

Other kinds of social protection

28 billion UAH (3% of the government spending) is allocated to monthly targeted assistance to ATO participants, internally displaced people, the unemployed, the disabled, participants of the liquidation of the Chernobyl accident, war and labor veterans.

This category also covers the payment of monthly targeted assistance to internally-displaced people (IDP) - 3 billion UAH. This amount in real numbers is almost 16% less than it was last year.

A detailed overview of the situation with the IDP can be found here.

Housing subsidies

Over the past year the number of households receiving subsidies has increased from 5 to 9 million (60% of the total number). 40 billion UAH, or 5% of the government spending.

The current subsidy system needs to be further improved, since it does not motivate consumers to reduce consumption and increase the energy efficiency of their housing.

Energy efficiency in action: heating bills could be much smaller.

State apparatus

20 billion UAH is allocated to paying salaries to civil servants of central executive bodies, regulatory authorities and services. Also, these funds are used to finance state planning and statistics, maintenance costs and other expenses related to the activities of these bodies.

Local government

Almost 17 billion UAH of the government spending is allocated to the activity of the local authorities and local governments.

Healthcare

Ukraine’s medical sphere is quite decentralized - about 44 billion UAH is allocated to local budgets for health care. But the quality of health services still remains unsatisfactory, “free” health care is paid for with our own means,  the amount of which exceeded the government spending on health care in 2015 (according to data of the company MedExpert).

Obviously, the current model does not take into account patients’ needs and promotes the increase in spending without a focus on the quality. The new model will allow for optimal task performance to improve the service quality and efficiency of the health care system.

The new system will be partly launched in 2017.

Education

Expenditure on education in 2016 amounts to more than 130 billion UAH, or more than 15% of all government spending. The main source of education spending is the local budgets.

At the same time, funding is not well-balanced: Ukraine allocates too much money for higher education and leaves secondary education underfunded. In Ukraine 41% of total budget expenditure on education goes to secondary education institutions while developed countries spend much more than that.

In addition, the state continues to fund specialist training through old mechanisms that in no way meet modern requirements - expensive, bad, but for everyone. They should be replaced with a new conceptual funding model based on operating results.

Debt servicing

As of August 2016 Ukraine's public debt amounted to 17.7 trillion UAH and expenditure on debt servicing was almost 100 billion UAH (almost 12% of government spending). The amount of repayment and servicing of the public debt will be one-third of the consolidated budget revenue, which, of course, remains a significant burden on the budget.

These costs would be greater if not for the debt restructuring in 2015. However, in exchange for the cancellation of 20% of the principal amount of the debt, the government is supposed to pay creditors an additional amount, if the Ukrainian economy develops successfully - Ukraine has issued the lenders so-called Cost Recovery Tools (CRT) - complex and quite rare securities, the payment of which depends on the growth of the GDP of the country.

Defense

Defense spending in 2016 has increased significantly (by almost 10 billion UAH compared to 2015) and amounts to nearly 62 billion UAH (more than 7% of government spending)

The lion's share of these expenses (55 billion UAH) is spent on the Armed Forces of Ukraine and training of troops. However, since the beginning of the military conflict in eastern Ukraine, volunteers have had a key role in supporting the AFU.

In order to improve the situation, a Reform Project Office was established in August 2015, for the comprehensive and expert managing of reforming the MDU. In April 2016, the Reform Committee of the Ministry of Defence and the Armed Forces of Ukraine approved a roadmap of the financial security reform.

Border security

More than 5 billion UAH is spent by the State Border Service on personnel, training and improvement of engineering and technical installations at the borders.

The SBSU consists of 50 thousand people, including 42 thousand soldiers. Since the spring of 2014 the personnel of the Border Service has been involved in the military action in the southeast of Ukraine.

Foreign policy

Ukraine spends 3 billion UAH on foreign policy, about 2 billion of which goes to the salary fund of the Foreign Ministry employees. Also, these funds are used to finance activities to support relations with Ukrainians living abroad (7 million UAH) and pay contributions to the international organizations of which Ukraine is a member (eg, the UN).

Culture and sports

Nearly 17 billion UAH (2% of public spending) is allocated to culture and sports. These funds are directed to financing people’s work in the fields of television and radio broadcasting, culture, film, information policy, economic and cultural publications.

Part of the money is spent on supporting

youth and children's community and sports organizations, Olympic and Paralympic athletes’ training, museums, theaters and libraries.

This budget item also contains almost 95 million UAH for the restoration of the Mariinskiy Palace that started in 2007.

Energy sector

Out of the 1.3 billion UAH that is allocated to the energy sector, almost 1.2 billion is spent on maintaining the coal industry. Mostly, it is subsidies to unprofitable mines, but this amount is considerably lower than it was in 2015 (4 billion UAH) and in 2014 (14 billion UAH).

However, the amount of state support does not affect the profitability of mines. The best way to increase the profitability of state-owned coal mines is privatization.

More information on the reform of the energy sector can be found here.

Justice

9 billion UAH from the budget is provided for judges, judiciary institutions, the administration of justice by the Supreme, local, appellate and higher courts, as well as for carrying out prosecution and investigation activities. Starting from 2017 this amount will be increased in connection with the adoption, as part of the judicial reform, of the law "On Judicial System and Status of Judges", which envisions a higher level of funding of judges and the justice system.

More details on the most anticipated reforms in Ukraine can be found here.

Penal system and prisons

Almost 3 billion UAH is budgeted to finance the penal system and prisons: for wages of employees of the state penitentiary system, as well as for the activities of penal institutions and bodies of the penitentiary service.

As of September 1, 2016, 148 institutions and 589 subdivisions of the criminal executive inspection were under the management of the State Penitentiary Service of Ukraine. Maintaining such a large number of prisons is economically inexpedient - penal institutions and detention centers are holding not more than 60 thousand people, although they are designed for 230 thousand, the rest of the institutions are half-empty.

The situation may be improved by the reform the penitentiary system.

Public order and security

40 billion UAH has been allocated to finance activities of the Security Service of Ukraine, as well as the services that are part of the structure of the Ministry of Internal Affairs.

The number of employees of the SSU is 31 thousand people, 1.5 thousand more than the FBI. This is the largest intelligence agency in Europe, excluding the Russian Federation. The next European agency in size is British (5 thousand people).

Also, the state budget provides for 152 thousand law enforcement officers. This number does not necessarily mean the quality of these important structures - they are in need of urgent reforms.

Fire safety and rescue

6 billion UAH is provided for this item of expenditure. Almost all of these funds (5 billion UAH) are spent on civil protection forces. The rest - on hydrometeorological activities, rescue missions, etc

Industry and construction

2 billion UAH is allocated for industry and construction, more than 1.5 billion UAH of which is to be spent on the implementation of the state program for reforming and developing the military-industrial complex.

The annual need for funds from the state budget for the implementation of this program is 0.2% -0.5% of GDP, based on international practice.

State support is provided on a parity basis, at the level of 50% form the state budget, 50% - investments and other sources of funding.

Roads

The budget provides more than 30 billion UAH (almost 4% of public spending) for the construction and repair of roads, their maintenance, as well as repayment of loans received for the development of the road network.

A more efficient use of these funds can be expected due to the adoption of the mandatory application of the e-procurement system Prozorro. Also, within the framework of implementing CoST Initiative (of which Ukravtodor is a member), it is necessary to disclose the information on contracts for the repair and operational maintenance of roads of the national importance.

In Ukraine, there are about 170 thousand km of public roads (including 52 thousand km of national importance), the technical condition of which does not meet modern requirements at all.

Join the survey on the condition of the road building industry.

Transportation

About 4 billion UAH has been allocated for the maintenance of the transport infrastructure (water, air, railway, pipeline transportation), with almost 1.5 billion UAH for the maintenance of railroads alone.

The railway transportation of Ukraine is the leading sector of the road transport complex of the country and accounts for 82% of freight and almost 50% of passenger traffic carried by all modes of transportation.

However, the condition of our railways does not meet modern requirements. To improve the efficiency of the industry fundamental structural changes are needed.

Agriculture, forestry and fishery

Nearly 6 billion UAH is allocated to these items of expenditure. More than 5 billion of it for agriculture.

With such not significant support from the state, a breakthrough in the development of the agro-industrial complex can not be achieved, and the land moratorium only aggravates the situation.

Ukraine accounts for about 25% of the world supply of black earth, and its agricultural area is 43 million hectares (72% of the total area of the country). Of these, nearly 31 million hectares are privately owned. However, owners are not allowed to sell their land, they can only lease, exchange and transmit it. The moratorium impedes the development of entrepreneurship in rural areas and the inflow of investment into the agricultural sector and the economy as a whole.

Land Reform in Ukraine: all episodes

10 Myths About Moratorium Abolition

Support Abolition of the Moratorium

Other economic activities

Nearly 32 billion UAH is budgeted to support international economic cooperation, control and regulation of economic activity and labor relations, state property management and research in public administration sectors.

Environmental protection

Around 7 billion UAH is allocated to this item of expenditure – for waste recycling, elimination of pollution of the environment, protection of nature reserves and other protected areas.

Housing and utility management

Almost all the funds - 18 billion UAH - for housing and communal services are redistributed through local budgets and directed for the maintenance of houses and house-adjoining areas.

Reducing housing expenses of the state budget is due to the implementation of the reform program, which includes the transfer of authority for housing management to the local level and voluntary citizens’ associations.

5 Steps for Reform Implementation