The tenth issue is about macroeconomic indicators and their impact on the daily life of every Ukrainian. Why is inflation important? Why do wages grow in times of war? What should be done to increase labor productivity in Ukraine? How do military operations affect GDP? Why can’t hryvnias be replaced with dollars? And how do the decisions of the Constitutional Court affect the lack of money in the budget? In the new episode of the podcast “Budget Talks” you will find answers to these and other topical questions. Viktor Maziarchuk, Head of the Center for Fiscal Policy Research, Roman Slobodyan, public finance expert, and Oleksandra Betliy, expert of the Institute for Economic Research and Policy Consulting, discuss macro indicators of economic and social development of Ukraine and key risks for macro forecasts.
ROMAN
Good afternoon, friends. I am pleased to welcome you to our podcast “Budget Talks”, which is produced with the support of the International Renaissance Foundation. And today I have with me the head of the Center for Fiscal Policy Research Viktor Maziarchuk.
VIKTOR
Good afternoon.
ROMAN
And a leading expert of the Institute for Economic Research and Policy Consulting, Oleksandra Betliy.
OLEXANDRA
Good afternoon.
What are macro indicators and why inflation is important
ROMAN
Good to see you in our studio. And today I would like to start with the basics, perhaps. Tell us about macro indicators. We all know that these are the statistical data on which the state budget is calculated, and they are collected for analysis and forecasting. But we would like to understand what exactly these indicators are and how they affect the everyday life of every person.
VIKTOR
And preferably not just one. Not unemployment.
OLEKSANDRA
That’s a good question. In general, there are a lot of macro indicators. So we will focus on those that are used in the budget calculation.
ROMAN
On the main ones.
VIKTOR
What are macro indicators in general?
OLEKSANDRA
What is macroeconomics? Microeconomics is you and me. Each individual – each family separately, each company separately, each individual, each entity separately – is micro. But everything that is bigger, like Ukraine, is already a macro level. That is, it is already something big. For example, if we have a salary, an individual’s salary is a micro level. If we are talking about Ukraine, this will be the payroll for the state. There are regional indicators, which are also macro in principle, but very often people also talk about meso. We are talking about GDP, gross domestic product, as the most well-known macro indicator, which reflects exactly what is being done in Ukraine. There are several ways to calculate it. On the one hand, GDP is calculated, for example, as what is generated in the economy. This means the gross value added of various sectors of the economy. Something has been produced, a product has been created – in metallurgy, agriculture, various industrial sectors, services, and so on – and this is all summed up, and we come up with GDP. Another approach to calculating GDP is, for example, by the direction in which the GDP that has been earned is spent. It will be wages, it will be various taxes. This will be….
VIKTOR
…exports and imports.
OLEKSANDRA
No, export-import is the third method. Again, salaries, profits, various payments, administrative payments, in particular. What it’s used for, who it goes to.
That is, we earned money, and as a result, the company took something as profit, paid taxes to the state, and paid salaries to its employees. This is another method of calculating GDP. And here is the third method of consumption or demand. It shows exactly how much people consumed at the macro level, i.e. we received salaries, we saved something, and we consumed something: we went to the shops, spent money. And exports give us a plus. Our enterprises produced something, sold it abroad, and the state received money. Imports in this calculation are negative, they subtract from GDP. That is, we could produce something, but instead we import it from another country. Both investments and public consumption. Public consumption is the budget, i.e. what is spent on wages, on the purchase of goods and services by the state. This is called government consumption. This is a very simplistic way of putting it. In fact, the State Statistics Service is responsible for calculating GDP using three methods. And it has to be “metered,” meaning that if something doesn’t “meet,” then we have different methodological approaches for the State Statistics Service.
The State Statistics Service recently released information that GDP grew by 6.5% in the first quarter of this year. This is quite a strong growth. We at the IER make monthly estimates of GDP, and our estimate for the first quarter was 5%. That is, the actual result was better. Again, why? Because there was consumption. We have a fairly rapid growth of wages and a strong nominal growth. This is another macro indicator. Why are wages growing? Because we see, also from the survey we conduct, that the second biggest obstacle to business is the lack of labor. When there is a shortage of labor, this is the first impetus for raising wages. It is clear that they do not grow equally everywhere, somewhere much more, somewhere less. That’s why we are moving on to another indicator – unemployment. There is almost no data on it now, because the State Statistics Service does not conduct population surveys, for obvious reasons, because there is a full-scale war. Another important macro indicator I would mention is inflation, which is often mentioned.
Why is inflation important? Because our purchasing power depends on it. If inflation is high, and even if our salaries are rising, we don’t feel the effect of this because we can’t buy more goods, inflation eats everything. Inflation is slowing down a lot this year, in May it was 3.3%, year-on-year. People often criticize this figure, saying that inflation is actually higher. Inflation is calculated by basket.
ROMAN
What kind of products does it include?
OLEKSANDRA
There are more than three hundred different products. There are “weights” for each product. “The weights were calculated earlier on the basis of a survey. Nowadays, the weights are not updated very much, precisely because there is no survey, again. But in fact, about 50% are food products. There is a fairly large share of administrative goods and services. Administrative means, in particular, tariffs. If we know that tariffs have not been raised much, then we do not see this in inflation. If the electricity tariff was raised significantly in June, we would see it in inflation. But since the share of electricity in our consumer basket is not that big, it will be insignificant.
VIKTOR
And tell me, please, are there any eggs for 17?
OLEKSANDRA
There are just eggs. And the State Statistics Service collects prices from stores. And it’s real, that is, visiting stores. Very often, people collect prices by region. That’s why we have inflation available at the regional level as well. Sometimes we see that prices are slightly different, trends, price changes.
VIKTOR
Can you tell me, please, whether these figures are available somewhere, or are they public?
OLEXANDRA
Yes, they are. The State Statistics Service publishes it on its website, ukrstat.gov.ua.
OLEKSANDRA
The ratio is very important. I mean, we have indicators that we can just look at purely: it’s a trillion, and it doesn’t tell us anything. But when we start talking about budget sustainability, about budget sustainability, we have to compare it with something. And most often, this indicator will be GDP. That is why the GDP, nominal GDP, is very important for the budget. If we are talking about the pre-war situation, we are talking about the fact that, for example, the deficit should have been less than 3% of GDP. According to the Budget Code of Ukraine, our debt cannot exceed 60%, and so on. All these indicators depend on GDP. That is why GDP is ultimately very useful, but it is for assessing sustainability, stability, not for assessing revenues. When we talk about expenditures, inflation, for example, is also taken into account.
VIKTOR
And how is it calculated? Well, explain. How does inflation affect expenses?
OLEKSANDRA
For example, if we take a salary figure, there should be indexation. That is, we can…
VIKTOR
Pensions, probably, too.
OLEKSANDRA
Pensions are indexed. If we take, for example, expenditures on certain categories of goods and services, we will also take inflation indexation. This is very important. Now it is a little less, because, first of all, the Ministry of Finance estimates how much is needed for defense and security, and these are different wording and categories, how to estimate it. But, again, inflation will play a role here. It will play a role, for example, when we are talking not just about the state budget, but about the budget of the public administration sector, which includes all our social insurance funds. We have an unemployment fund. In order to assess what is being done, we will need to know what the unemployment rate is, how many people will come to register to assess the budget. Therefore, different indicators have different effects. The same goes for the exchange rate. In principle, it also has an impact. Because imports are estimated in foreign currency. And then, in order to recalculate what the VAT will be, the exchange rate is used.
How the war affects GDP
ROMAN
The exchange rate is our pain. But I have not yet closed the topic of GDP for myself. I would like to understand how exactly it is calculated and evaluated. Because, for example, I open the news – the first one on Forbes: “The European Commission has estimated that Ukraine’s GDP will grow by 2.9% by the end of the year and will grow by 5% in 2025.” Then I open the news on the World Bank. They say that by the end of this year, GDP will grow by 3.2%. I open the Ministry of Economy. I look at the May figures, and they estimate 3.7% by May of last year. That is, the data is very different, and people are confused.
OLEKSANDRA
Look, in fact…
VIKTOR
Can I add to that, sorry, please. If you look at the last year’s forecasts of the Ministry of Economy, which are included in the budget, the expectation was 5%.
OLEKSANDRA
What you are asking about now is a forecast. We were talking about how it is calculated. This is a little different. As for the forecast. The key thing when we make a forecast is a series of assumptions: what we think will happen to those factors over which we have no control. For example, when you went out today, you somehow decided to get dressed, you had an assumption that it would not rain, so I did not take an umbrella and I put on light clothes. If you had assumed that it would rain, you would have dressed differently and taken an umbrella. It is the same with GDP. When we, as macroeconomists, estimate what the GDP forecast will be, we say: active military operations will end by the end of this year. This is what the IMF did in March. So this affects their further forecast, because it is a very important assumption. We know now that this is not likely to happen, and as a result, the IMF will change its forecast later. But it has a very strong impact. We are talking about the fact that, for example, the Ukrainian sea corridor will work at full capacity. As a result, what does this give us? This gives us the opportunity to include in the macroeconomic forecast, namely GDP, an increase in real exports. In other words, we are talking about exporting our goods that were not produced last year even because companies could not export them, could not sell them, what they have always done. If we say, for example, the assumption that, for example, we all say this very often now, that, for example, our institute’s forecast of 3.8% for this year is based on the assumption that all the international aid that is budgeted and perhaps an additional couple of billion will come by the end of the year. If any of these assumptions are not met, the macroeconomic forecast, i.e. GDP and all other components, will not be realized, will not have such a result. And this is where the differences in forecasts often occur because of different assumptions. Or different, let’s say, assessments of how this or that assumption will affect the economy. The other day we had a discussion about how the lack of skilled labor, the law on mobilization, if the situation with how people are recruited, booked, and so on, will affect the macroeconomic forecast, i.e. how it can affect GDP. In other words, one of the assumptions is knocked out, and the forecasts made by organizations do not come true. So there is a certain difference. So if you see different numbers in the forecast, you just look at what they say in their assumptions. Assumptions are often made public. These can be assumptions about global prices for metals, gas, agriculture, and so on. All of these will affect what kind of GDP you will eventually have.
At the same time, again, when we develop a forecast, we often talk about risks. For example, we will lose even more energy, because Russia will destroy much more of our electricity generation. International aid will not come, for example, we still have no information about the aid from the United States. 7.8 billion dollars. We still have no idea when it will come, what it will be for, or what conditions it will come with. And as a result, these 7.8 billion dollars. This $7.8 billion is what we have all already written down in our assumptions. The government has written it down, and non-governmental organizations have written it down.
Why hryvnia should not be replaced with dollars
VIKTOR
I have another question, a simple, banal one that, to be honest, sometimes really pisses me off when experts discuss it: where is the exchange rate in the budget?
OLEKSANDRA
In the budget assumptions, in the explanatory note. Most often, it is always there. It’s just that, for example, it surprises me a lot when, out of all the richness of indicators that are in the explanatory note, one is taken, which, again, means nothing by itself.
VIKTOR
Which means nothing.
OLEKSANDRA
We have to understand that macro indicators make sense as a whole. If you pull out one macro indicator, all the others will no longer “fight” because something changes in our equation. That is, if we have A plus B plus C plus D equals I, and something has changed, it means that the result, i.e. our GDP, has changed completely. That is why it is included in the explanatory notes.
VIKTOR
But you have to read it there.
ALEXANDRA
Yes, you need to be able to read it. It can sometimes be calculated, but the question is, again, it depends on what, for example, assumptions are made about monetary policy. And we see that last year the NBU’s approach to monetary policy changed, and we are moving to a more flexible course. But at the same time, we see that even though the hryvnia has become somewhat cheaper, meaning that we now pay more for a dollar, the National Bank spends a lot of money, i.e. dollars, to maintain this exchange rate. If the National Bank did nothing in the market, the exchange rate would be ….
VIKTOR
The exchange rate would be lower.
OLEXANDRA
The exchange rate would be much weaker, let’s say. The exchange rate would have been completely different. Why is the National Bank doing this now? Because in May they made some currency liberalization, but that’s a completely different topic. And as a result, the demand for the dollar has grown in Ukraine, and unfortunately, we don’t print it. And it would be very good. And in May, we also received very little international aid, only $20 million. WE HAD ONLY $20 MILLION. And this has a little impact.
VIKTOR
Let’s talk about that. There are a lot of…
ROMAN
Why don’t you print the exchange rate (dollars)?
VIKTOR
I’m afraid that after this issue…
ROMAN
I just had a question from my friends: why can’t we change hryvnias into dollars? That’s all, and all issues will be resolved.
VIKTOR
Dollarization. Like in Argentina, for example.
ALEXANDRA
No, well, look, because we can’t.
ROMAN
Is that all?
OLEKSANDRA
Because there are certain requirements for countries that want to be on the dollar or euro. And we also lose the flexibility of monetary policy. In fact, as soon as we switch to a currency that we do not print, that is not ours, the National Bank is already very limited in the tools it can use. We can look at the European Union. The Czech Republic, for example, is a fairly strong economy, Poland – they are in no hurry to introduce the euro because they want to do what they do. And this flexibility of their central banks allows them to feel better economically, let’s say, and to respond to certain crises than in countries that do not have this independent central bank policy. So I would not rush into anything here. And, again, it makes sense to introduce the dollar and have a salary of $100, for example. For example, if you have a salary of 100 dollars. Because we can’t have a situation like this: you introduce the dollar instead of the hryvnia and you immediately have a salary of 2 thousand dollars. US DOLLARS. This does not happen.
ROMAN
Everyone wants it to happen.
OLEKSANDRA
It depends on productivity. This, by the way, is also about the economy. Because labor productivity in Ukraine was generally very low. In order for labor productivity to increase, we need a more skilled workforce and we need investments.
VIKTOR
I still want to come back to the question: there is not enough money coming in, we cannot print it, we cannot draw it. No, we can draw it, but there may be consequences.
OLEKSANDRA
We can draw the hryvnia.
The work of commercial banks is an indicator of why reforms are useful
VIKTOR
But compared to last year, this year’s expenditures are higher. How does the government carry them out? There is a trend now – small delays in financing. The government has no money. Where does it get it from?
OLEKSANDRA
Let’s start with revenues, with the structure of revenues. Tax revenues, non-tax revenues. And when we talk about financing, it is not a part of the revenues at all, it is deficit financing. In other words, we finance our expenditures at the expense of all this. By the way, revenues plus this financing are called revenues in the Budget Code. Therefore, revenues and income are different paradigms. Just like expenses and expenditures. Philology is very much involved here. However, tax revenues have increased this year compared to last year. This is due to the fact that, once again, our GDP is growing, wages are growing, which “drives” PERSONAL INCOME TAX. Consumption is growing, and as a result, we receive much more revenue from VAT, among other things. And quite a lot of money has come in this year, for example, from corporate income tax. We received UAH 60 billion in March alone, and I think UAH 40 billion in May. I don’t remember the exact figure. This is due to the fact that in March, banks paid this tax, which raised their interest rates quite significantly. That is, commercial banks paid the tax for the past year at a rate of 50%, while the usual rate is 18%. And for the rest of this year, they will have a 25% rate.
The performance of our commercial banks is, in principle, an indicator of why reforms are useful. In 2015-2016, the National Bank carried out a very good reform of the banking system. It has become more stable, works better, and bad banks have gone.
VIKTOR
They have been cleaned up.
OLEKSANDRA
As a result, what we have now is the first crisis of 2022-2023, when Ukraine had a functioning financial system. Banks never stopped their payments, we could use the terminals.
VIKTOR
And even during the war, at the beginning of the war.
OLEKSANDRA
Yes, even at the beginning of the war, the National Bank was able to introduce this new system where you can get cash at the checkout.
ROMAN
There is a limit there.
OLEKSANDRA
Yes, but it was very useful at the beginning, and, in fact, now it sometimes saves us when the terminal is down. We see this benefit of the reform. Although it was painful. I remember how many things people were shouting at the time: how did you do it, why did you do it? And in fact, a lot of criticism came from ordinary people whose banks were under the NBU’s knife. But now we see the result. That is, since the year 22, since the full-scale war, the national banking system has continued to operate. It continues to work with the population, continues to work with business. And it is precisely because we had a high discount rate of the National Bank, high rates on government bonds, etc. that banks continue to operate. Again, our banking system made quite high profits last year. And this tax was introduced, which, in principle… this style of tax is now being introduced in the European Union for Russian assets. That is, these are higher taxes than usual in order to support the budget. Also, since we have the largest state-owned banks, the government also received dividends from state-owned banks. Again, they supported the budget.
This, along with macroeconomic indicators, is something else that has brought in additional money, and our tax revenues are growing quite rapidly.
VIKTOR
That is, despite the fact that we are not receiving funding from our international partners for the time being, we are financing all these priority programs at the expense of internal reserves…
OLEKSANDRA
Yes, but the key thing here is that we are financing the priority needs. The delays that we are hearing about now, the delays in payments, mean that we don’t have enough money, and that is why it is urgent for us to get additional funds.
What "black swan" can hurt the economy in the future
VIKTOR
I’ll mention one more figure. In the first four months of the year, the state budget borrowed UAH 135 billion from the Unified Treasury Account to pay for these priority expenditures. It is clear that these are the security and defense sector, social expenditures, and so on.
OLEKSANDRA
You need to understand that half of the state budget expenditures are now defense and security.
VIKTOR
No, defense. I looked at it this morning. 50%, or rather 49.5%, according to the functional classification, is defense. Next comes the public order and security sector, and then social history.
I will mention a few figures that we have already discussed. This is about the impact of various possible crises on the macro situation and the budget. For example, we talked about demographics, and we estimate that this indicator – the demographic and migration crises – has a negative impact of UAH 11 billion on budget revenues. Or it has a negative impact on GDP, less than 1% of a point. What is the impact of the blockade? Minus UAH 2.6 billion in revenues. Insufficiently fast reforms – minus UAH 3.4 billion. That is, there are indicators that can be used for further work or for general understanding. So now I would like to move on to the story of fiscal risks.
We have already had six months of 2024, and the budget for 2025 is being formed. Please tell me what are the biggest fiscal risks, what “black swan” do you see now that could hit the economy and the budget system in our country as hard as possible in the future?
OLEKSANDRA
It’s about terminology. “The Black Swan is something we don’t see.
VIKTOR
Well, we’re waiting for it.
ROMAN
It’s beautiful.
OLEKSANDRA
There are risks – that’s what we expect. And there are black swans. The black swans are in a different category. Because most often we don’t see them. This is something we cannot take into account. The report of the Ministry of Finance on fiscal risks is just that the Ministry of Finance is already saying that something may arise somewhere, and as a result, we have to react.
VIKTOR
And maybe something is missing from this report?
OLEKSANDRA
Maybe something is not in this report. But…
ROMAN
But you can see it.
OLEKSANDRA
I read today that some experts are astrologers. I am not an astrologer. That’s why I have this question. But, in principle, if we decompose all these risks mentioned there, something additional may arise at each of these moments. In general, the biggest risk is what will happen at the frontline. This is what has the greatest impact today. If we expect that we will continue to receive military support from our partners, we will receive air defense, we will receive something else, we will protect our logistics, infrastructure, energy facilities – this is our forecast, this is an assumption. If any of these things fall through, these risks can be called “black swans” because, in principle, we expect all of this to happen. For example, the assessment of Trump’s arrival varies quite a bit. Some say that nothing will happen. The other day, there was another article in the international press saying that, in principle, he could actually stop this support. This will be a black swan event, purely because it will have a very negative impact on us. We are talking about state-owned enterprises. This is one of the blocks of this report, a very large one, and I am very grateful to the Ministry of Finance for calculating all these financial indicators and risks, because this is a scenario approach, i.e., testing is carried out as in the banking sector… Again, if something happens to these enterprises, they cannot continue to operate, we lose some elements of the economy, and the state will have to support them, which is an additional cost.
The report has a separate section on social security. And there, most attention is paid to the Pension Fund, in particular, and the social system in general. Why? Because we already have quite a few court decisions on various aspects of social assistance, including the Pension Fund, which require funding of tens of billions of hryvnias. There were different estimates: UAH 70-80 billion, UAH 50 billion. These are funds that are not included in the budget, but they will be needed on a regular basis to comply with court decisions. What decisions are you talking about? For example, we have quite a few court decisions concerning (as it turned out, it was surprising to me) pensions paid to people under the law on the Chernobyl NPP, the Chernobyl accident. This was surprising to me because the law was amended at one time precisely because the law is not sustainable, it is very difficult to pay high pensions to all Chornobyl victims, the state simply does not have such a resource. As a result, pensions were changed for certain categories, and restrictions were imposed on the amount of pensions, which should not exceed a certain amount. As a result, what people who want this pension do is go to court. The court decides in favor of the person, and as a result, the Pension Fund has to pay the money. For me, it is obvious that the law needs to be changed further, although this does not solve the issue of the courts, because it is necessary to somehow change the court’s approach to how they make decisions.
Even today, a person can receive a disability pension under the Chernobyl law. Personally, I do not understand how I can prove that this person’s disability is related to the Chornobyl NPP. It is unrealistic. So many years have passed, the person could have led some kind of wrong lifestyle, worked in some place unclear.
On myopic decisions of the Constitutional Court
ROMAN
What kind of amounts are we talking about now?
OLEKSANDRA
As far as I remember, it’s a few billion hryvnias a year for the Chornobyl victims. I can’t say for sure now, but it’s about 10, maybe 15. But we still have 70-80 billion hryvnias in various other courts for social benefits and pensions. There are a lot of such decisions. And a lot of cases are going to the Constitutional Court. A lot compared to what I would have thought, that they should not be there.
The problem with the Constitutional Court, for example, in April of this year, the Supreme Court sent a new case to the CCU for consideration on whether the 2017 reform, when the retirement age for certain categories of people was revised, is constitutional. In other words, these are kind of dangerous lists that slightly raised the retirement age for certain professions. For example, even now, tractor drivers have the right to retire earlier, doctors have the right, milkmaids have the right. But if we compare (even if we move away from sustainability issues, when the system was introduced, it was still the Soviet Union), the working conditions of tractor drivers and the working conditions of milkmaids were completely different then than now. Today, people have the right to choose a profession, and they can go somewhere where this is not the case. But if the Constitutional Court now decides that this was an unconstitutional decision…
VIKTOR
So the pension reform was unconstitutional.
OLEKSANDRA
…pension reform, an element of this pension reform, that it was unconstitutional. This will lead to the fact that the government will need to allocate even more money to pay pensions.
VIKTOR
Do you have any estimates? How much can it be?
ROMAN
How much will it cost per person? What are the consequences?
VIKTOR
I mean, we have to understand …
OLEKSANDRA
I haven’t seen the estimates yet, to be honest.
VIKTOR
They are expected.
OLEKSANDRA
Expectations may be UAH 20-30 billion. This is a lot of money. Because usually, when the Constitutional Court can make such a decision, it says: “And now you have to pay for all the previous years that you did not pay.”
VIKTOR
So, in fact, even now, if the members of the Constitutional Court, the judges, make a decision, we understand that this is a personal decision, not a collective decision, then it will be their personal responsibility for the fact that the state will pay tens of billions of hryvnias every year for those old decisions.
OLEKSANDRA
On the reform. We have a big problem with the approach in general. This is my impression. I’m not an expert…
VIKTOR
What do you mean by that?
OLEKSANDRA
I am not an expert in the judicial system, but. A long time ago, the Constitutional Court ruled that benefits, subsidies and various other things… for example, early retirement, which is also, in principle, a benefit, is a citizen’s right and freedom under the Constitution. In other words, we have an article in the Constitution that says that the rights and freedoms of citizens cannot be restricted. My understanding is “boyish,” or let’s call it girlish: a benefit and a subsidy are not exactly a right and a freedom. A right and freedom is my right to choose. I have the right to go to the polls, I have the right to change jobs, I have the right to decide which institution to send my child to, i.e. where the child will study, he decides which university to enter, and so on. This is about our freedoms. This is about freedom of speech. We can express ourselves, we read the press, and so on. But I would never in a million years have thought that you could actually include, for example, benefits and subsidies in the list of rights and freedoms. Accordingly, we have already had quite a few decisions of the Constitutional Court, when the Constitutional Court says that, for example, cutting benefits for MPs or judges is unconstitutional because it narrows their rights and freedoms. And most often, this was the case with judges and MPs. These are the people who are always filing complaints with the Constitutional Court. By the way, back in June, MPs once again submitted a new request to the Constitutional Court about their pensions.
Not only does the Constitutional Court say that all these benefits, early retirement, and so on are the right and freedom of citizens. It also says that it is normal, in principle, in judicial practice, to have a so-called “legitimate expectation”: when I was working, I expected to retire earlier. But there is already experience in other countries, and as far as I remember, there was a recent decision of the Constitutional Court in Poland on a similar case, when judges take into account not only the “legitimate expectation” because it means that we can never carry out reforms in Ukraine at all, we have a lot of reforms, it violates the “legitimate expectation.” Business wanted a tax break, it was given a tax break and then canceled. This is also a “legitimate expectation.”
VIKTOR
I want a cake, give me a cake.
ROMAN
After graduation.
OLEKSANDRA
So in Poland and in a number of countries, the Constitutional Court and the Supreme Courts already take into account the social and economic consequences of implementing decisions. That is, if the Constitutional Court, for example, decides that the pension reform provisions were unconstitutional, it means that it breaks the Pension Fund’s budget and requires additional spending. As a result, we need to increase expenditures from the state budget, because the Pension Fund will not pay more unified social tax. As a result, we cannot pay salaries to doctors, for example, we cannot pay salaries to educators, or we cannot finance the army.
And so I really want, as you said, that judges should be held accountable.
VIKTOR
But they need to be held accountable.
OLEKSANDRA
They need to understand this responsibility. I think such decisions are very populist.
VIKTOR
I’ll tell you, it is. Why? Because almost a million people are entitled to this benefit.
The cost of this benefit is expected to be UAH 50 billion in 2025. And of course, no matter how many people are in the Constitutional Court, they want to please a large number of people and show that they ….
OLEKSANDRA
Although it is not the role of judges to please people.
VIKTOR
Yes, it is not the role of judges.
ROMAN
Why should they like you? It’s not an elected position.
VIKTOR
They want to show their importance for the system, for society. Because now, of course, the military is in the foreground. For which we are very grateful to them. And the judges want to show that we are also part of the system of state power, conditionally, of the state authorities, we are also important. We have done a good thing for people. And this good thing, in fact, will lead to the fact that in 2025 people may not be paid their salaries because of it.
ROMAN
Do they realize the consequences? That they may not be paid either.
VIЛTOR
They don’t think about it.
OLEKSANDRA
They don’t think. It’s time for judges to start realizing this. Just like the judges who make decisions…
ROMAN
Do they get arguments?
OLEXANDRA
Look, here’s another example from Chornobyl that struck me. We still have pensions for Chornobyl victims who live in the radioactive zone. We even have the term “Chornobyl migration”. That is, people before retirement or even after retirement go to this zone, by the way, part of which, in my opinion, is still Boyarka. The rest of the area is not, but Boyarka, in my opinion, is. They go there, they get a pension there, even though they never lived there, they didn’t have the consequences of radioactivity. Then they go to court, claiming that they are entitled to a high pension, which was abolished in the law, but come on, it’s an old law, and judges award them a pension of 20 thousand hryvnias.
VIKTOR
Per month?
OLEXANDRA
Yes, for a month.
VIKTOR
Do you know how many people receive such a pension? Maybe you’ve seen it somewhere?
OLEXANDRA
I have the data, but I can’t find it right now.
VIKTOR
Well, at least it’s in order.
ALEXANDRA
There are quite a few of them. I was struck by the fact that this order of numbers is quite large.
VIKTOR
So it’s tens of thousands?
OLEXANDRA
Yes, it is. I mean, it’s not even 20-30 thousand, it’s much more. And the problem is that for the Chornobyl victims, what struck me from the statistics is that this number is growing. It is growing every year. That is, this is something that needs to be reviewed, but with such decisions of the Constitutional Court, you cannot review it properly. You have to completely change the system. That is why I think the Ministry of Social Affairs is now discussing the introduction of a completely new pension insurance system, which should lead to a fairer and more transparent pension system.
But the biggest problem in the pension reform will be changes in special pension programs. And, in my opinion, we have to take into account that we were a Soviet country, and our social security system has not changed much. In 2008-2009, I did a little research on social benefits. It was a shock to me that we were actually the only post-Soviet country, even taking into account our bad neighbors, that had not reformed the system. We were the only ones who still had a huge number of benefits…
ROMAN
Perhaps we built a welfare state simply.
ALEXANDRA
No, it’s because, again, we wanted to be liked.
VIKTOR
Everyone wanted to be liked.
ALEXANDRA
Once upon a time, I don’t remember who said this phrase: reforms are made by statesmen, and in our country, politicians are most often in power.
VIKTOR
Yes, politicians.
ROMAN
It’s just a matter of where to find this limit. If tomorrow, based on recent stories, they say that it is unconstitutional to take cash during a search because a person has nothing to live for. And one decision after another, it will overlap…
OLEKSANDRA
Look, the Constitutional Court should, in principle, do some great things. The things you are talking about now, I think, are not very big things. Just like, for example, we had 25,000 cases of tax administrative stuff in the Supreme Court last year. There shouldn’t be that many. Something needs to be changed, i.e. at the lower level, in the way the tax authorities communicate with business. Yesterday I heard a term that I have always liked very much – the criminalization of public administration. This is what we need to change in the paradigm of all authorities. That is, if the Constitutional Court decides that maybe someone will drag me there for interrogation because I have decided that I am taking something from poor pensioners, this is also another logical reason to make such decisions. But, in fact, we have a situation that is not stable and not sustainable, and for every additional UAH 50 billion, as Viktor said, we have another UAH 70 billion in debts, in court decisions that have already been made. We don’t have that kind of money. We don’t have the money to pay it off. And the question will be that we are now financing all these social expenditures at the expense of donors.
ROMAN
Do international partners know about this problem? Is there communication? They can influence it too.
OLEXANDRA
It is better to ask the Ministry of Social Policy. But I think there is communication. At one meeting, I have already started discussing this topic, because it is really a very big fiscal risk, and that is why we need to start this dialog.
VIKTOR
And on this, as they say, good note, about the need to communicate…
ROMAN
To communicate.
VIKTOR
And communicate. Let’s wrap it up.
ALEXANDRA
Okay.
ROMAN
We’ll definitely continue, because I think we haven’t covered a lot of issues yet. This is a new topic about the Constitutional Court. I think that few of our viewers realize the risks that this can lead to and that it will have a direct impact on them.
I thank you for your time, Viktor, and for your time, Ms. Oleksandra. And, of course, I am very grateful to our military personnel who allow us to record such interesting podcasts. Glory to Ukraine!
OLEXANDRA
Glory to the heroes!
VIKTOR
Glory to the heroes! I also thank Roman and you for the interesting company and discussion as always. Oleksandra, you know, it is always a pleasure and a pleasure to communicate with you professionally. Of course, I am grateful to the defenders and the protectionKits for the opportunity to breathe in a free country.
ROMAN
See you soon!
ALEXANDRA
Goodbye, goodbye.
VIKTOR
See you soon!