How the Rada (Parliament) and the Ministry of Finance Complied with the Budget Rules. Rating of Budget Processes of Ukraine

It is not a deputy, not a minister, not even a president. All these indicators are defined in the state budget. It is the law on the state budget that directly affects the welfare of millions of Ukrainians.

The procedure, timetable for preparation and approval of the budget are set out in the Budget Code and the law on the regulations of the Verkhovna Rada, but every year literally for every budget figure there is a fierce struggle among different political forces.

When the budget goes to parliament, MPs try to shuffle the budget settings in every possible way. Usually, the main purpose of this shuffle is to increase expenditures. The Ministry of Finance is trying to maximum to defend budget’s initial version.

This process is being watched by Ukraine’s major international lenders, most notably the IMF, for whom a balanced budget is a traditional must-have for continued cooperation with the country.

For the first time in 2018, VoxUkraine estimated which ministers of finance were best in compliance with the timeframe of the procedure and to defend the main budgetary parameters — the size of the spending and the deficit – in the process of “passing” parliament.

In 2020, we considered another factor — the number of laws or individual provisions of other regulations that were stopped by the state budget law.

Top 5 most accurate budgets

1st place, budget 2019. Minister of Finance Oksana Markarova, Verkhovna Rada of the Eighth Convocation.

The 2019 budget was approved in accordance with the procedure. Revenues and expenditures during its revision were increased by UAH 17.7 billion respectively, but the deficit remained unchanged. This budget puts an end to the provisions of the 5 laws, in particular the BC norms on expenditures on regional development, the size of salaries of court experts and some others.

The 2nd place was divided between the budgets for 2012 of the Minister of Finance Fedir Yaroshenko, the Verkhovna Rada of the sixth convocation and the budget for 2020 of the Minister of Finance Oksana Markarova, the Verkhovna Rada of the ninth convocation.

2012 budget revenues and expenditures were reduced during parliament’s revision and the deficit widened. The budget was timely submitted but was approved with delay, on December 22. The budget suspended a number of provisions of one law – on the status of People’s Deputy. The suspended norms concerned the financial support of the people’s deputies.

The 2020 budget is a record breaker by the date it was approved. It was approved on November 14, the day the IMF mission arrives in Ukraine to continue negotiations on a new cooperation program. However, this is exactly the case when the legal deadline for preparing the budget for the second reading failed. In the stage of “passing” by the parliament, revenues and expenditures increased by UAH 16.1 billion and UAH 12 billion, respectively, and the deficit narrowed. There was a refinement of the macro forecast between the first and second readings.

3rd place – budget 2017. Finance Minister Oleksandr Danylyuk, Verkhovna Rada of the Eighth Convocation.

The budget was timely submitted to the Verkhovna Rada. During the budget process, it was managed to be balanced: revenues and expenditures increased, but the size of the deficit remained unchanged. The main change that occurred with the budget between the first and second readings — double the minimum wage – up to 3200 UAH. The budget suspends the provisions of the budget code and two laws.

4th place – budget 2001. Minister of Finance Igor Mityukov, Verkhovna Rada of the Third convocation. This budget is ideally suited to the criterion of “changing basic parameters”. They have not changed at all during their time in parliament. An important drawback of the budget is the large number of laws (24) whose certain provisions it suspends.

Based on these indicators, we have calculated two sub-ratings that give an understanding of the overall budget estimate for the process and the parameters.

SUB-RATING “Discipline” is based on arithmetic mean of indicators №1, №2, №3, which relate to the terms of submission and approval of the budget.

The most disciplined budget is the budget that has been adopted with the highest compliance with the procedure. This is Oksana Markarova’s budget for 2019. Timely submission and acceptance is the main “chip” of this budget. Previously, there were many budgets submitted on time, but only one — the budget for 2004 prepared by Mykola Azarov — was approved by the deadline set by law, by December 1.

The least disciplined budget is the budget that has been adopted with the maximum violation of the procedure. This is Victor Pynzenyk’s 2008 budget. Only two days have had passed between it submission to the parliament and its adopition. All possible timeframes for reviewing the budget in the first and second readings were broken.

SUB-RATING “Changing Parameters” evaluates the scale of changes in budget parameters during its discussion and adoption in parliament and includes indicators # 4 and # 5.

The most stable budget is the budget whose parameters have changed or decreased during the revision in the Verkhovna Rada. Natalia Jaresko won in this nomination with the budget of 2016 . The budget revenues and expenditures have been reduced during the revision. The deficit remained unchanged.

The least stable budget is a budget whose parameters have changed a lot during your time in parliament. The 2003 budget was discussed immediately by two finance ministers, Ihor Yushko and Mykola Azarov. This budget was prepared during the transition period when the “regionals” first came to power. The bill was submitted to the Parliament by Prime Minister Anatoly Kinakh and Finance Minister Igor Yushko, and the document was adopted by Prime Minister Viktor Yanukovych and Finance Minister Mykola Azarov. The budget deficit increased 2.5 times during the revision.

The ranking of budgets by the number of laws or their separate provisions, whose effect stops by the budget, remains outside sub-ratings.

The budget that stops the least number of provisions of other laws is Fedir Yaroshenko’s 2011 budget. In fact, this is the only budget that does not suspend any act or provision.

The budget that stops most of the other laws. Two budgets — the budgets for 2004 and 2007 of the Minister of Finance Mykola Azarov — won in this nomination. They terminate 59 and 63 laws or separate provisions, respectively.

The 2008 budget has been exceptional for the last 20 years. On December 26, Prime Minister Yulia Tymoshenko and Finance Minister Viktor Pynzenyk submitted it to the Rada, and within two days parliamentarians approved the budget as a whole. The law suspends 22 provisions of other normative legal acts and amends more than one hundred other laws, which is reflected even in its official name: “Law on the State Budget and Amendments to Some Legislative Acts of Ukraine”. The impact of this budget on the rest of the legal field is abnormally high.

Conclusion

We have come to the following conclusions in preparing the rating and finalizing the methodology.

First, taking into account the number of laws or certain provisions of regulations blocked by the budget has changed the placement of budgets in the ranking. As can be seen from Figure 2, budgets for 2001-2008 have fallen in rating.

Secondly, the suspension of other laws or their separate provisions may be due to several reasons: the budget has no funds for these expenditures, the law has lost its relevance or contradicted other laws, but it has not been legally corrected, the Constitutional Court recognizes certain norms and laws as unconstitutional. Suspension of other legislative acts by the budget is allowed only in case of martial law or state of emergency. Regular budget intervention in other laws entails several risks.

The first risk is referred to by the Chief Scientific and Expert Directorate of the VR with reference to the Constitutional Court. “For objective reasons, the practice of suspending by the law on the State Budget of Ukraine of existing acts of legislation creates contradictions in the legislation, and as a consequence — the abolition and restriction of rights and freedoms of person and citizen,” — said in the conclusion of directorate on the budget 2019.

The second risk is especially noticeable when there is no enough time for the careful reading of the budget is or the budget is accepted at night in an emergency mode. Then the rules of the law or the whole laws can be suspended by submission of small groups of deputies without due consideration by all deputies or banally because of a technical mistake.

This was the case, for example, when Parliament considered the estimates for 2017. In voting for the state budget for 2017, the deputies erroneously supported the rule on elimination of the tax police and withdrew the number of the unit that regulated its activities from the Tax Code. This has created a legal conflict that has not yet been resolved. Since then, the tax police have been operating in a unclearly defined legal field.

The Constitutional Court directly prohibits this approach: “The Verkhovna Rada of Ukraine is not empowered, when adopting a law on the State Budget of Ukraine, to include in it a provision on amendments to the current laws of Ukraine, suspend individual laws of Ukraine and / or in any way change the legal regulation of social relations. […] Where necessary, the laws should be suspended, amended, and declared invalid by separate laws. “

Third, too quick adoption does not improve the budget position in rating and does not indicate compliance with the procedure. In conditions of rapid consideration, MPs have less time to prepare  budget for the second reading. In recent years, rapid budget adoption has been in line with Ukraine’s negotiations with the IMF to continue cooperation. The government and MPs are pushing for  budget adoption, that violates the procedure.

In the course of the analysis of the budget data for 2001-2020, we came to the conclusion that the procedure of preparation and approval of the budget prescribed in the BC was always violated. Although after the Dignity Revolution, the authorities gradually began to get rid of some bad habits. The budget is no longer accepted “under the Christmas tree” at night. The practice of so called timely submission of budget to the Parliament without its publication with a prompt recall to revision has also been out of date in recent years. Budget discipline has improved. However, there is still much to be desired.