The price of gas is the main stumbling block in Ukraine’s talks with the IMF. And soon it has to grow, giving rise to the tariffs for heating and hot water. The growth will coincide with the verification of receivers of subsidies for housing and public utilities and with the monetization of payments – that is, the payment of grants to people off the books. And now it’s obvious that problems in the system of subsidies can hardly be avoided.

For many years in the state, there was a system, in which the cost of gas for the population was lower than the cost of gas for the enterprises. Mediators earned a lot of money, buying “social” gas cheaper and selling it to the industrialists by more expensive price. In the absence of reliable accounting of consumed resources, it was extremely easy to do this. When Ukraine was in need of assistance from the IMF at the height of the crisis, one of the main requirements was the establishment of a single market price for all, the refusal of so-called “social” tariffs and the overall reform of the energy sector. The reform has traditionally begun “from the bottom”, first of all, the tariffs for the population were raised. It was at that time, when the system of housing subsidies, which had existed for many years in the state, helped the government not to lose control of the situation and to soften the blow for family budgets. The procedure for receiving grants has been substantially simplified in order to protect the maximum number of families. In the end, after a few years, a half of all households in the country began to claim the state support. From the point of view of social protection this is a catastrophe, because, in fact, it shows, that a half of the population of the state either beyond or on the verge of poverty.

Expenditures on subsidies continued to grow from year to year, chronically lacking scheduled expenditures, and the new budget period began with the repayment of last year’s grants arrears. This year, for example, in the state budget 71 billion UAH of expenditures have been provided for grants, of which 18 billion UAH is the settlement of last year debts. When the government spoke about another rise in the cost of gas, experts altogether said, that under such conditions, the number of receivers of grants in the state will be close to 90% of all families, and grants expenditures may be equal to pensions ones.

This is perhaps the only reason, why the government has so long opposed the next rise in gas prices, driven by rising prices on world markets. IMF demanded the formula for calculating the so-called “import parity” from Ukraine, we made stuff up as we could, but it was difficult to resist global trends, gas prices in Ukraine had to rise, but the government did not want it. The other government officials offered the IMF a model that would make gas cheaper for the population and more expensive for the industry. That’s right; it’s the very model, which we agreed to abandon at the beginning of cooperation with the fund. Moreover, we haven’t just taken the corresponding obligations, but also have already received under these obligations the IMF’s funds.

Currently “Naftogaz” sells “social” gas at five hryvnias per cubic meter, and its market value is already about 10 UAH per cubic meter. That is, the cost of gas for the population should increase substantially, even if the government will raise it gradually – by 25% annually.

In order to balance government expenditures, the authorities systematically reduced social standards of consumption, bringing them closer to real indicators, hence the expenditures for grants declined because they were calculated by social standards. The Ministry of Internal Affairs, in its turn, began to reduce the number of those receiving grants. The basic requirement, that a subsidy goes to a family, that has to spend more than 15% of the total revenue to pay the bills has not changed, but new restrictions have been added to it. So, in general, this will make the system of state support more targeted, depriving social assistance of those, who don’t have to apply for it, but at the same time, those who really need it can also be left without help.

According to the Ministry of Social Policy of Ukraine, among households that receive grants, there are many people of working age, who are incomeless or have the income below the subsistence line. On the websites, you can often see that there are apartments for rent with modern repairs and with already issued subsidies. The Department of Social Protection recorded cases, when families, declaring zero revenues, had received a subsidy and then bought expensive cars and equipment.

Stiffening the requirements for receivers of grants, at first glance looks like the right step. In particular, grants will no longer be granted to families living in apartments of more than 120 square meters, or in houses of more than 200 square meters. Families with cars which age is more than five years will also be deprived of social assistance. Although it will not affect families with cars with a foreign registration, since they are still out of the law, social justice won’t be achieved. Unemployed people, who want to receive a grant must either register at the employment center or declare their real incomes and pay pension contributions, if they don’t do so themselves – the management of social protection will automatically calculate the unemployment income in the amount of three subsistence minimum and they will be obliged to pay to the pension fund at least the minimum contributions of three months. Thus, the Ministry of Social Policy tries to cut off grants from the family, in which one or two able-bodied members are so-called commuters, who periodically go to paid work to other countries, and in Ukraine, they are considered unemployed. At the same time, the Ministry of Social Policy wants grants to encourage such people to pay a unified social tax (UST) to the PFU.

Instead, those citizens, who are officially receiving income, lower than the minimum wage will not be deprived of grants, if they pay the UST in full amount, or if the UST is not paid by the employer fault, because in most cases it is the employer, who is the tax agent that pay this contribution.

But at the same time, the Ministry of Social Policy did not change the mechanisms for the assignment of grants in any way. The final decision on the provision of social assistance to one or another family is still made by special commissions in local social protection bodies. No changes in the work of these commissions have been introduced. But if we are talking about targeting, then we have to adhere precisely to the targeted, individual approach, so that the commission could not only rely on the Ministry of Social Policy’s criteria, but also skip them in individual cases.

For example, a family, that bought a new car two years ago will not receive the grant according to the criteria, but for these two years the family could lose the breadwinner, or its property status could deteriorate significantly due to the serious illness of some of its members, and they can indeed need social assistance from the state, but to get it they have to sell the car. At the same time, the family owning several apartments, which completely fit into the norms of the Ministry of Social Policy, may receive a grant, although it certainly has additional and shadow income from the lease of housing. Workers of local commissions, even if they wish, cannot decide on the allocation of subsidies, departing from the criteria. So, we are still very far away from targeted assistance, and all proposed changes to the Ministry of Internal Affairs are conditioned by the desire to reduce the number of grants, rather than protecting the poor families.

However, even if the number of receivers of grants will be reduced, it won’t be a gross difference, according to the government estimates by 20%, that is, up to 5.5 million families. This number of households received grants in 2015 when expenditures on them have already started to grow at a ridiculous tempo. Given the increase in tariffs for heat and hot water, even if you manage to save, then it will be not much. In the draft budget for the next year, 55.5 billion UAH were intended for the grants, but the draft budget was set up on the current legislative basis, that is, taking into account the current “social tariff”. Until now, neither the Ministry of Finances nor the Ministry of Social Policy can say if this sum is enough and what will be the real number of those, who will need state assistance.

This challenges one more initiative next year – monetization of the subsidies. According to the logic of reform, the subsidy receivers should get assistance not in the form of a write-off of a part of the “amount to be paid” in their bill, but in form of cash. The goal is to increase the energy saving by citizens because, after payment of the bill, they can save money and spend on them on their own needs. Subsequently, there will be a real incitement for the grant receivers to make coldproof homes, replace old windows with new ones, reduce water and electricity consumption. It is the monetized grants that are the “gold standard” of social support in most developed countries.

But Ukrainian officials are really not ready for the monetization. And it’s not even because of the fact, that they have no idea how much money it will take. Most officials, even among technocrats, find it hard to agree, that people will have the right to spend part of state support on other goals, so they are trying to find out numerous fuses, in the form of separate accounts, with the help of which only public services can be paid, special cards, which can be used nowhere, except for the Oschadbank cashbox, etc. At the same time, a few weeks before the start of the heating season, and a few months before grants monetization, the government still has no definitive vision of what the monetization system will look like, how it will work, on what conditions people will be provided with assistance, and so on. By the way, reforming the system of grants is another commitment to the IMF, which Ukraine does not carry out systematically. And not because we can’t do it, as the experts of the World Bank have developed an acceptable model of monetization for Ukraine a year ago.

Today, the only acceptable way of monetization for the state – is monetization of the surplus. The program works for two years, and people who have the surplus of the grants at the end of the heating period can receive them by applying for social protection. But, on the one hand, by decreasing the standards, the state constantly reduces the amount of surplus, that may be received by the grant receivers, and on the other hand, the red tape, that precede their receiving deters a significant proportion of families from participating in this program.

So, you can safely assume that since the next year fewer households will receive grants and it will hardly be cash. However, tariffs will be raised unambiguously and together with the rather restrained growth of incomes, this will become a significant burden for family budgets, bringing the majority of Ukrainians to the survival edge. After starting the energy reform from raising tariffs, the authorities actually stopped at this stage and refuse to change the industry, which would affect the interests of the monopolists of the market, because their interests, in contrast to the interests of ordinary citizens, can hardly be neglected. However, if we limit ourselves to raising tariffs, the problems won’t disappear. For Ukraine, the issues of reliability of consumption accounting, transparency of tariff formation, monopolization of energy markets, and lack of competition among suppliers are still relevant. If these issues are not resolved, tariffs will continue to increase, people will get poorer, monopolists will earn, and energy problems will remain the most urgent issues for Ukraine.

By Valentyna Yushchenko

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