Oleksandr Klymenko Official website
Interview | 465 | 23.12.2014

Oleksandr Klymenko about ukrainian budget

Valerii KALNYSH: Our conversation will be about the state budget, and our interlocutor, an expert is Oleksandr KLYMENKO.

Let me remind you that Oleksandr Klymenko is the man who has been a Minister of revenue and duties in Ukraine since December 2012 till February 2014.

Nowadays, he is outside of our country.

Oleksandr KLYMENKO: Good afternoon!

Valerii KALNYSH: Oleksandr Viktorovych, the question that I basically ask all the people who were in power, can we talk about your current location?

Oleksandr KLYMENKO: Yes. I am in Russia. I told about it when I gave my recent interview to CNN, and I would repeat it once again for our listeners. Nowadays, I am in Russia, I have to stay there.

Valerii KALNYSH: Oleksandr Viktorovych, let’s talk about the budget. Have you familiarized with the draft budget for 2015? How do you estimate it?

Oleksandr KLYMENKO: Yes, I got acquainted with the materials that are publicly available, but if to put it briefly, I can say the following: the budget is now being adopted in the interest of external creditors, rather than for the benefit of citizens. There is curtailment of spending, 90% of it are related to curtailment of spending of citizens.

Valerii KALNYSH: You know, just when I was looking at these figures, (and I will remind the audience that the draft Law on State Budget for 2015 is available on the website of Verkhovna Rada, where it is registered under the number 1000) the fact is that all negative performance indicators, which are expected next year, are attributed to difficult situation on the market, prices deflation on world markets, and, particularly, to the war. Tell me please, how do you see formation of the budget under conditions of war with Russia? What it should be?

Oleksandr KLYMENKO: Well, first of all, I don’t believe that today we have… I advocate against the wording “war with Russia”. I believe that today it is rather difficult time for Ukraine, which it is experiencing. Ukraine should not be a trophy between East and West, between the United States and Russia. Ukraine should think from the point of internal interests rather than external. The budget should be based on it, namely, on defending the interests of domestic business, interests of citizens. All the efforts should be applied in this direction. Not to please external factors. I think it is the most important task for any government.

Valerii KALNYSH: Let’s see, Natalia Yaresko – Minister of Finance – talked about the budget and she said that we would have a difficult year. I will quote her: “A difficult year, in which 30% of our expenditures are planned for defense and debt servicing”. Well, probably there is no alternative, but to reduce social payments if the hostilities are carrying out. As far as I remember, 89 billion are being allocated for the defense. In my opinion it is logical, isn’t it? Reduction of social spending?

Oleksandr KLYMENKO: I believe that it is logical that today budget has to be based on capabilities of the country, I believe this is logical. The second point is – as a view of a man, who was working in the government, there has never been an easy budget. Every year, every period of time had placed all new and new challenges. Yes, indeed, today’s challenge makes us to be lost in thought. I will not discuss political topics, cause we have an economic conversation with you. However, here is the following question: where should we take additional income from?

I observe the situation on the basis of my experience and those developments that have been made. First of all, it is unshadowing of economy, which in 2014 has seriously progressed into the shadow sector. Second point – is the thing that I always talking about – the fight against offshore. In order to make it more understandable for our listeners – it is fight against a situation, when profit is being withdrawn from Ukraine outside the country to countries with low tax rates, while taxes are not being paid in Ukraine. I always keep talking about it, because this is my duty as a statesman, as a public figure. Recently on Facebook I have provided statistics. I showed that exports to these “tax havens” has increased not by certain percent, it has increased by times. Thus, the issue of fighting with, let’s say, financial flows, that are being withdrawn outside the country, should become the priority and shift focus from citizens. It is very important.

Valerii KALNYSH: Oleksandr Viktorovych, correct me, but when you were the Minister, offshore existed and money was being withdrawn outside the country. What has changed since that time?

Oleksandr KLYMENKO: I absolutely agree with you. It was a challenge. I was fighting against it. In 2013, we, as a government, have introduced and adopted the Law on transfer pricing in the Parliament, via inviting the best experts and advisors to ensure that this Law would be properly drawn. These are the major changes. The first thing the new government did – it postponed the action of this mechanism, by which it has immediately deprived itself of revenue into the budget from the outset, and then it washed out those provisions from the Law which were needed. It is clearly readable that the new government has supported oligarchic groups. No more, no less – that’s the key difference between us.

Valerii KALNYSH: If we put aside corruption and the offshore, could you name what reserves does Ukrainian economy have today?

Oleksandr KLYMENKO: First of all, I support the task, which were set by the government: reduction of taxes, reduction of the SSC, reduction of the tax burden. Protection of private property – it is very important and necessary. Nowadays, the issue of raiding remains open in Ukraine. These things are getting in the way of business. Moreover, budget has no macroeconomic indicators today, which triggers instability (I mean, for instance, the dollar exchange rate has not been declared). All these things do not allow businesses to predict its working efficiency. Nowadays, everyone is working not in order to develop, but in order to survive.

If there is no development of an enterprise, there is no development of the tax base. Accordingly, if we start acting more from the standpoint of fiscal authorities in future, believe me and my experience, the effect will be proportionally opposite – business will go into shadow, amount of taxes will be decreased. One of the main tasks that we set was transition from a fiscal body to a customer oriented service. We were opening servicing centers, we were reducing communication time, we were doing everything in order to make business feel very little of us, and to make it busier with its own development. Nowadays, the emphasis is made solely on fiscal authority. Due to this fact, including incompetence of this approach, the situation of budget shortage has been created. Any increase of fiscal burden under conditions of difficult economic situation, will only lead to a drop of budget revenues.

Valerii KALNYSH: If you do not mind, we’ll finish after a short news release and advertisement.

Valerii KALNYSH: Oleksandr Viktorovych, let’s talk about this: in general, how realistic is creation of balanced budget under the conditions of political instability?

Oleksandr KLYMENKO: You know, adoption itself of the budget is better than its absence. Accordingly, we need to understand the capabilities of the country and our spending. In any case, the country’s budget has to be adopted, it must be balanced and based on reality. The second point is – by means of what are we planning to earn extra income into the state budget, because the revenue that is budgeted today – it is highly optimistic, perhaps, even, the most conservative scenario, which the government will offer – it is overly optimistic on the one hand, and on the other hand, we need to understand what we saving money on. How much the state, the government can afford to cut now? For instance, does health care costs by 39%? Or should we cut 20% of spending on education? After all, these are not instantaneous objectives – we are making foundation for the future. Somewhere someone will receive less qualitative education. It is important to understand what we are laying emphasis on and at the cost of what. Where we are willing to take tough measures. Where our position is tough. Where we are ready to listen to people. Both experts and business –are the key organizations. It is necessary to hear them too, it cannot be one-sided document.

Valerii KALNYSH: Oleksandr Viktorovych, I would like to disagree concerning cuts of spending for social needs. The things you said about health-care and education – is not adopted so far. I have not seen these figures in the draft budget, well, let’s see what happens. Concerning scenarios. Cabinet of Ministers offered two of them: optimistic and the second one, as they called it, conservative. Thus, in the optimistic scenario falldown of the real GDP is at the level of 2% and in the conservative – it is 4,3%. Average monthly wage in the optimistic scenario is UAH 3934, in the second scenario – is UAH 3882. We can not escape from this falldown (which is existing today). Could you tell me about investment climate? How can it help Ukraine? What should we do in order to attract investors to our country?

Oleksandr KLYMENKO: I want to emphasize on the wages… it is important to look not just at those figures, but also to correlate them with the dollar rate, which was last year, and which we have today. Prices and a number of commodity groups are tied to dollar and, accordingly, growth of the exchange rate leads to price rise. Accordingly, consumption costs of a person also increase. I can single out petrol as an instance. With regards to increasing investment, there are some measures that are quite rational. Business ombudsman, which has appeared as an institution in Ukraine, headed by Mr. Šemeta – a great expert. For the government it is important to do everything in order to make this institute really working rather than being a “celebrity-for-hire”. It is quite a positive thing. Concerning the investment, I want to stress on the inviolability of private property rights, on the fight against raiders. These basic things are really important for investors. In the context of another huge problem, which had been there before, and which has arisen today – VAT refund. I want to make an appeal and state: it is enough to experiment! All experiments with the VAT refund only frighten investors and make our country less attractive for investment. Automated VAT refund instruments were introduced, we worked hard every month to reduce the debt. And we succeeded. Although, it was not easy and probably there were some excesses somewhere. Nevertheless, we found a common language with businesses. I think that it is very important to find common ground in this matter in 2015.

Valerii KALNYSH: You are saying that you managed to find a common language with business. In such case, how can you explain the figures of falldown that are being demonstrated by the Cabinet of Ministers of Ukraine? In particular, the fact that in 2013 exports decreased by 5%? I am now reading the explanatory note to the law on the budget: balance of payments deficit was 16,5 billion, gold and currency reserves shrunk to 20 billion? It turns out that it was not quite the dialog since such a falldown was recorded in the 2013?

Oleksandr KLYMENKO: Here it is necessary to have a broader perspective of the problem and those figures that the government announces today. It is important to understand the work of the previous government, because the previous government had entirely Ukrainian interests. Stable Hryvnia, payment of social payments, growth of general welfare in the country were important. During those three years, one can say that a class of rentiers has appeared in Ukraine. Trust in the domestic currency was quite high. Concerning the decline in exports, I do not think that a percent, two, three more or less may constitute an evaluation criterion. Indeed, there was a tough situation in metallurgy. However, metallurgy was the main export-driving potential of the country. We managed to make a breakthrough in agriculture and to build up those volumes, which are the pride of Ukraine today. Therefore, it really matters what landmarks the government sets itself and what does it focus on. What does the government need today? They are short of planning horizon. Today no one makes plans for two years and more. Today’s planning is instantaneous — in order to survive. However, such course of events shouldn’t take place.

Valerii KALNYSH: I would like to say that the current government would have probably called into question the thesis that your government, – have worked in the interests of Ukrainians. However, it is only a remark. As far as I understand, you are very positive about the presence of foreigners in current Ukrainian government?

Oleksandr KLYMENKO: My assessment are follows: I, as a technocrat-Minister, who has been working for a long time with the tax authorities, can make the following statement: I was the first person, who brought auditing company PricewaterhouseCoopers and involved it to work as consultant, first – in the Tax Service and then – to the Ministry, and I think that this experience has justified itself. We were able to quickly complete reforms – those that have allowed us to reduce processing time, to develop better servicing component. These indicators had been attested by the World Bank, which continuously, during long period of time was issuing us better and better grades. But I am totally against appointment of foreign consultants on key positions in the state. A consultant who can give advice – it is effective person, not someone, who works as a Minister. I am not sure, but the time will judge and show.

Valerii KALNYSH: Oleksandr Viktorovych, we have started our discussion with mentioning the interview to CNN, let’s finish our conversation with it? Back then you have said that you were planning to return to Ukraine. For the matter of that, under what conditions and when?

Oleksandr KLYMENKO: I want to return to Ukraine and will return to Ukraine in the nearest future. Unfortunately, the new administration, which has come to power, does the same things that the previous administration did before it. It is destroying all representatives of the previous government and it does not matter what he or she was doing — the label itself is important. I understand that the time of revolutionary practicability of political purges will end. It cannot last forever. I’m sure that justice and time will set the record straight: who is an enemy of the state, and who was working for the good of the state. Thoughts about Ukraine indwell me – it is in my heart, my people is in my heart. Everything that is happening in Donbas is very painful for me. Every day and every minute I am trying to invest my efforts, my knowledge in order to somehow settle this situation. I am sure that this mission is very important and with this mission I will be in Ukraine. Nowadays, it is important to define domestic interests of Ukraine and to implement it.

Valerii KALNYSH: Thank you.

Oleksandr KLYMENKO: Thank you for the opportunity and for our professional conversation.