“I am a supporter of radical tax changes.” How the deputy head of OP Rostislav Shurma plans to save the economy. Interview
The Deputy Head of the Office of the President, Rostislav Shurma, is the third top official from the economic wing of the country’s leadership, after the head of the National Bank of Ukraine and the Minister of Finance, with whom Forbes spoke last week.
The disagreement between the Ministry of Finance and the National Bank on how to finance the torn military state budget and how much money can be less painlessly printed for this is one of the key questions for Shurmi. OP, as interlocutors of Forbes, who are related to Bankova and the government, act as an informal “arbitrator” in this discussion.
However, this is far from the only role and area of responsibility of Economic Deputy Andriy Yermak. It was Shurma, together with Yermak, who in May hosted a delegation of business community representatives who spoke out against Danylo Hetmantsev. Currently, his tasks are in the “pipeline” – state business support programs, mortgages, preparation for the heating season, and even a radical tax reform project.
What details can the “head of economics” from the Office of the President reveal?
This has been shortened and edited for clarity from Rostislav Shurmi’s version of the interview.
“10% – income tax, 10% – personal income tax and 10% – VAT”
In mid-May there is a low the business association appealed to the president dismiss Danylo Hetmantsev, head of the Tax Committee of the Verkhovna Rada, and generally change the approach to the formation of economic policy. How did OP receive this démarche?
First, I wouldn’t call it a demarche. It was an initiative not so much of individual entrepreneurs as of public figures.
We actively involve public figures and businessmen in the decision-making process. Another thing is that the result does not always meet their or even my expectations, since it is always a difficult consensus. Now, other business associations have a different view of the same problem.
Is tax reform among the discussions?
There is no final decision yet. But yes, we are indeed discussing a model called “10-10-10”: 10% income tax, 10% personal income tax and 10% VAT, as well as the abolition of the EUV and the 3% military levy. However, at the same time – almost complete cancellation of all fields, increased liability for violations of tax legislation and such things as, for example, access to information about bank accounts by the tax authorities to prevent tax evasion.
We don’t offer anything unique. For example, in the USA, responsibility for violating tax legislation is almost the greatest among all possible offenses. At the same time, we want to create a model that will enable Ukraine to be competitive from a tax point of view, in particular for global business.
Unfortunately, we have not yet reached a consensus on this issue, but I hope that in the coming months – six months we will be able to adopt a new tax model.
What prevents it from doing so inappropriately, as the signatories of the May letter to the president, in particular, suggest?
First of all, there is the question of what will happen to the budget revenues in the coming year. The budget is already unbalanced: we barely cover 30% of our needs with our own income.
At the same time, no one doubts that such a model will give a serious impetus to the economy in the long term. But what to do in the coming years? For this, you need to understand what obvious compensators we may have. For example, if everyone unnecessarily starts paying taxes honestly at reduced rates.
Also, from a purely tax point of view, things like environmental pollution or harmful consumption, i.e. tobacco, alcohol, oil products, are not taxed enough in our country. Another idea is tax incentives for the development of the processing industry, which provide for the cancellation of VAT refunds on raw materials.
What is your understanding – is the economy able to adapt such a reform without significant losses for the budget?
I’m a big fan of such radical tax changes, so I think they probably need to be done now. This is also our unique chance to change the culture of paying taxes in the country. However, this is indeed a very responsible decision, so we should make it only when we reach a consensus.
You support the idea of additional fee on transactions for the purchase of foreign currency for import?
We consider this tax not so much as a method of filling the budget, but as a means of combating speculators. This tax is supposed to waive demand for currency from unscrupulous businesses that take advantage of the 180-day settlement option. accordingly, it equalizes the balance of payments and reduces the pressure on the hryvnia.
The Ministry of Finance, commenting on this fee, expressed fears that the consequence may be the transfer of parts of importers into the shadows and, accordingly, a reduction of all taxes in general.
Of course, in any such decision there are your risks. But I believe that this will give us the opportunity to solve two fundamental problems: to lose speculative demand for currency and to strengthen the position of the national producer.
“The hryvnia issue can easily amount to 30 to 60 billion hryvnias per month”
The Ministry of Finance and the National Bank of Ukraine are now on the verge of conflict over financing the state budget at the expense of the hryvnia issue. The National Bank says it could drive the economy in a severe inflationary crisisThe Ministry of Finance shows the gap between income and expenditure, in particular for defense. Whose arguments are closer to you and how, in your opinion, can the long-term risks to the economy be balanced against the budget’s immediate cash needs?
The institutional conflict between the NBU and the Ministry of Finance is a normal situation for developed countries. Another thing is that in extreme situations they must work as a team. Unfortunately, we don’t have enough of that.
But I hope that we will be able to approach this position and find a reasonable level of monetary support that will help cover the budget problems and not create high devaluation pressure.
Regarding the calculations, we understand that for the balance of export-import operations, the solution of issues with the payment of the national debt and the significant support of international partners, this amount can be consciously made from 30 to 60 billion UAH per month. This is the part that doesn’t cause problems.
For example, we unblocked grain, and further – thanks to a 10% fee on currency transactions, we will take away $1-2 billion of speculative demand for currency. If the level of support from partners is maintained, it means that the balance of payments will equalize, that is, we can provide support to the budget of more than UAH 30 billion per month without significant risks for the currency.
Why do we still not see the joint work of the Ministry of Finance and the NBU? Is the problem precisely in the dogmatic nature of Marchenko and Shevchenko?
It would be incorrect to evaluate personalities, but, in my opinion, the approach in both institutions is too dogmatic.
“Business will be supported even in the most conservative budget”
Are the business support programs launched during the war – loans at 0%, grants for agricultural and IT industries, small and medium-sized businesses – working? Which one is the most successful?
The absolute majority of these programs work. 0% loans for farmers were extremely successful. In many ways, thanks to her, we have to carry out sowing in the spring: more than 80% of the required area has been sown. 18,000 agrarians were invited to lend UAH 38.5 billion. In addition, SMEs received about UAH 46.26 billion.
Is additional business support planned?
One of the projects is an affordable mortgage, a program that we started developing even before the war. Someone can say that this is not the most relevant direction now. But international experience and practical calculations say the opposite. For example, construction itself became the main driver of the economy of post-war Europe and America in the 1950s and 1960s.
Residential construction has a high level of localization – up to 95%. There is also a high multiplier effect for other industries: production of concrete, cement, glass, production of crushed stone, limestone, sand, etc. In addition, this is a large number of new jobs, because, unlike processing enterprises, there is a low level of automation.
In Ukraine, traditionally, a large share of the population was not provided with a sufficient number of square meters. More than 80% of the housing stock is old Soviet buildings. This problem is especially relevant now, when about 10 million Ukrainians have left their own homes, and millions of them cannot work because their homes have been destroyed or damaged.
How will the mortgage program work?
The program starts on October 1: a mortgage loan for 20 years in hryvnias, the first installment is 20% of the cost of housing. The program provides two types of interest rates – 3% for military personnel, defense sector workers, medical workers, scientists and educators. For all others – 7%.
It will be possible to issue a mortgage online through the “Diya” application or through bank applications. The only thing that needs to be done offline is to sign the agreement. The whole process takes up to 48 hours.
What other program develops the state?
Large-scale medium and small privatization. The goal is not so much to fill the budget through privatization, but to launch a new enterprise and create jobs. The program works in the coming months.
We do not exclude the launch of large-scale privatization later. Currently, we do not see a large number of investors who are ready to invest ten million dollars in large objects. The reasons are obvious – military risks. If we see investors’ interest in a specific project, we will put it up for tender. I hope that we can transfer three or four such objects to privatization this year.
Does the state have a systemic solution for risk insurance?
There is no ready-made mechanism, we are working on it. The question is the insurance model that should be available. A business cannot pay 5-7% per year.
A separate issue is the creation of a guarantee fund from which expenses are paid in the event of an insurance event. One of the possible sources is the funds of international financial institutions. We are currently negotiating with the World Bank and other organizations. The second option is compensation at the expense of Russian reparations. We are now calculating the options.
Already in September, the Ministry of Finance should submit the first edition of the 2023 budget. It is very likely that she will be conservative and focused on maximum savings. Could it be that the state simply does not have the resources to support business next year?
Business support will always find its place even in the most conservative budget. Other questions are the scope of these programs.
“The state cannot finance such a large and inefficient state apparatus”
Should we expect a large-scale reform of the state apparatus in the fall?
There is no final decision yet, but there is indeed an active discussion of reforms in the entire state administration system.
The state apparatus in Ukraine is historically redundant. This is, on the one hand, a very large array of jobs, on the other hand, a large number of officials creates unnecessary barriers for citizens and businesses. And what is happening, the state cannot afford to continue to finance such a large and inefficient state apparatus.
Therefore, with a high degree of probability, the reform of public administration will involve significant digitization and, accordingly, a reduction of the apparatus. At the same time, we offer people subject to optimization compensation and help with employment.
How do you expect this heating season to be?
This will be one of the most important heating seasons in history, so we are preparing for it very urgently. But I can say that we are accumulating enough gas and coal to get through this period. The only risk is the actions of the enemy, who do not know any red lines. But even in this case, we have plans “B” and “C”.
Do you plan to continue the pre-war thermal modernization program?
So. I think that we will start launching the first pilots in the next few months after the heating season.
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