The ninth issue is about social protection of Ukrainians during the war. Why is the issue of inclusion not only and not so much about payments? How does digitalization of services help save public money? Why is the post-Soviet model of social support difficult to get rid of? Why is it important to return Ukrainians who left during the full-scale invasion? In the new episode of the Budget Talks podcast, you will find answers to these and other topical questions. Victor Maziarchuk, Head of the Center for Fiscal Policy Research, Roman Slobodyan, public finance expert, and Daryna Marchak, First Deputy Minister of Social Policy, discuss the peculiarities of social policy in times of war and the changes that are taking place in this area.
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ROMAN
Good afternoon, dear friends! We are glad 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 a person who has definitely seen all of our podcasts, who has definitely attended all of them. This is the head of the Center for Fiscal Policy Research, Viktor Maziarchuk.
VIKTOR
Hi! Yes, I was there, I saw it. I’ve come up with an idea, now I’m going to spill it.
ROMAN
And Daryna Marchak, First Deputy Minister of Social Policy of Ukraine.
DARINA
Good afternoon.
"We still have a post-Soviet model and philosophy of social support"
ROMAN
Victor, the first question is about social expenditures, social security for 2024. What is planned and, perhaps, already implemented?
VIKTOR
This year, compared to last year, social spending has certainly increased. In total, the state allocates almost UAH 500 billion from the budget for these needs. To be more precise, it is UAH 477 billion. Spending on veterans’ needs has doubled. This is almost UAH 15 billion. Almost UAH 6 billion is allocated for housing subsidies.
I was preparing for this recording, and I want to start with two quotes. The first one, Daryna, is yours: “As a result of the war, Ukraine has rolled back 16 years in terms of the welfare of its citizens.” And the second quote is from Antonina Kumka, the head of Protez Hub, who says that “Ukraine has been going for almost 10 years before it started a new profession of people who work professionally with prosthetics.” What is happening now? Because in these two quotes, two realities actually met. The war has had a great impact on the welfare of the population, and we have a large category of people who need constant support from the state.
DARINA
In fact, veterans and people who are disabled (or rather, injured) as a result of the war are a very important, but not the only category of people who are affected by the war today. Of course, we are also talking about internally displaced persons. We had 1.3 million IDPs before the start of the full-scale war. And as a result of the full-scale war, more than 3.5 million more citizens received IDP status. Of course, some of them have already returned home because they left, for example, Kyiv or Zhytomyr regions at the beginning of the full-scale war. But a significant number of these citizens are still people who, in fact, live without their own homes. Also, when we talk about veterans, we need to understand that we have veterans who, God willing, will return home alive and healthy, but most likely healthy at best only physically. Psychologically… we understand how much stress war causes to the human psyche. We also have to understand that this stress and impact will be felt not only by the person, but by all his or her family. This is an issue for the families of current military personnel, but it is also an issue for people who, for example, are civilians but receive disabilities. Children, adults. We see what is happening. And, in fact, what we have. On the one hand, there is a significant increase in the number of people in need of state support, IDPs, and we are expected to have at least a million veterans, several hundred thousand people with disabilities who will have this status. People who went abroad and whom we need to bring back. People who have lost their jobs and whom the state should help. While the total amount of tax revenues has decreased, it has decreased significantly. Social security used to be the first largest area of government spending, now it is the second, but by a wide margin.
VIKTOR
One hundred trillion and almost UAH 500 billion.
DARINA
Yes, yes. And so the key risk we have is how to support a significantly larger number of people who need such support with a reduced amount of income that can be directed to social welfare. This is the first important challenge. The second is that we still have a post-Soviet model and philosophy of social support. And this is a huge problem. How does this manifest itself? There are two components. First, our legislation actually stipulates that a person must first obtain a certain status, and only then does the state have grounds to help this person. This is a big problem. For example, when we talk about a person receiving the status of a person with a disability. Before they receive this status, for example, they may not always be eligible for financial support from the state. In fact, we encourage people to receive the status of a person with a disability in order to be eligible for certain payments. Instead, when a person is injured, the state immediately gets involved not only from a medical point of view, but also from a financial point of view, helps them through this crisis stage, rehabilitates them and helps them return to the labor market and have their own sources of income. That is, we have a reverse incentive system in social policy, as of now. At the same time, this reverse incentive system is very clearly enshrined in the legislation. And every step we want to take is to prepare systemic changes to the legislation, to convince MPs, and to fight against the fact that our social legislation is extremely out of sync and covered by a huge pile of acts. And the third component of this problem is that we still do not have a system for registering people affected by the war.
For example, there is a system for recording property destroyed or damaged, a register maintained by the Ministry of Reconstruction. But there is no system for recording damage to non-property human rights. And we are now trying to fix this gap. More than a year ago, last winter, we realized that we had a huge gap, both legislative and technical in this part, prepared a draft law, passed it in the first reading, and now it is being finalized to be submitted for the second reading. But, in fact, it is very important for us not just to know that we have several categories of people affected by the war. It is important for us as a state to see each such person from the very beginning. Regardless of whether they have any status or not. We want to be able to help these people right away. We are ready to develop and deploy tools for this. But for this, we need a regulatory framework, IT solutions, and, of course, the fiscal space. Viktor knows very well what the fiscal space is. And I am glad that there is someone who understands how important it is. But, in fact, how to create a fiscal space in such conditions is a challenge. We are working on these challenges.
How to return people who left because of the full-scale war
VIKTOR
But conditionally, if we compare Ukraine with European countries, we have 10 million pensioners and 10 million single social contribution payers. In fact, one to one. This number has decreased dramatically, and the war, unfortunately, contributed to this – some people left Ukraine altogether, some stayed in Ukraine, but they became IDPs. And we also say that business is also experiencing problems. Big business is being destroyed. I have specifically looked at the companies that have the largest arrears of payments to the Pension Fund. These are huge companies, many of which are now owned by the state, and the State Property Fund is their manager. What should be done about it? And what to do with demographic history in general? Because these are the people who pay taxes. And then these taxes are actually spent, including on social needs.
DARINA
The basic challenge that we see is that we do not have enough people paying taxes today. This statistic of the ratio of pensioners to taxpayers is only one part of the story. Because the same people who pay the unified social contribution also pay taxes, which support our army and our people who are unable to work themselves. That is why this ratio of people who pay taxes and people who are beneficiaries of social benefits and pensions is critically important for the country.
In fact, we talk a lot about this with all stakeholders, including the Ministry of Economy and the State Employment Service. For us, one of the key tasks is to bring back people who have dropped out of the labor market for certain reasons. Obviously, in this demographic situation, it is very important for us that… every hand counts. We need to have as many taxpayers as possible. This will allow us to provide sufficient assistance to those who really cannot work. And to pay pensions to those who have reached retirement age or retired for other reasons. The philosophy of our ministry is very simple: we want to build capacity instead of dependency. And this is a fundamental change in the philosophy of social policy. This change is quite difficult. Because for the past 30 years, it seems to me that when we talked about social policy, social support was equal to payments. But in fact, if you look at the best international experience, this is not the case at all. The task of our social policy is to help people return to an independent active social and economic life through a wide range of tools.
I recently attended a seminar organized by the World Bank. There were 35 countries there. The seminar was devoted to the best international practices in the field of social benefits. Since I am responsible for these social payments, it is important for me…
ROMAN
Did you show them the classroom? Did you tell them?
DARINA
I rather listened very carefully to understand what international experience we could use for ourselves. I really liked the experience and how social support is being reformed in Italy. They have two tracks. One is when a family does not have its own sources of funding. They divide the people they help into two groups. The first group is those people who just need help finding a job, retraining. They are ready to work, just give them the tools, give them the job. This is their so-called “activation policy”. And the second track is those people who are obviously not yet able to find a job, and in order to move to the activation policy with them, you first need to ensure an inclusion policy. And the policy of inclusion is, if you are a person with a disability, to understand what the state should do to enable you, as a person with a disability, to go to work. In fact, we have a lot of negative stereotypes in society, I think: if you are a person with a disability, it exempts you from the need to work, the state should support you. But in reality, we see a significant number of our young guys, veterans, who are injured. God forbid we follow this logic, because then we are actually telling the person that that’s it, you have a very significant injury and then…
ROMAN
…especially if she’s very young, it’s critical.
DARINA
Yes, it is. The policy of inclusion is to quickly pick up on this, to provide high-quality prosthetics, high-quality rehabilitation, psychological rehabilitation, and adaptation of housing to the needs of a person with a disability. It’s good if a boy or girl has a modern prosthesis and can move around independently. And if they haven’t? Like most of our houses, you can…
VIKTOR
The issue of inclusion is now becoming extremely important.
DARINA
Yes. And after that, we have to help them find a job, adapt this job to the needs of this person, and make sure that they lead an independent, full-fledged economic life. In fact, a change in philosophy means a change in tools. Previously, social policy was focused on payments: let’s give payments to everyone, but now we believe and sincerely believe that we have to create opportunities for people. That is why we focus (I think Victor could see it in the changes in budgeting priorities) on spending on prosthetics. We have increased it many times over. Just this year, compared to last year, we have a 60% increase in spending on prosthetics. We have increased spending, including on high-tech prosthetics, such as bionic prosthetics. The second area is that we are very actively investing in the development of social services. The state budget has almost never financed social services.
"We are working on developing a Social Code"
ROMAN
But this point, could you tell us more? I read your article where you wrote about the Soviet legacy, about the changing focus: financing a budgetary institution for a social service. Please praise yourself. Let’s see, what have you achieved? And secondly, what are the benefits that apply to any person, regardless of whether they are a civilian or a military?
VIKTOR
Let me clarify a little bit. Before Daryna took the position of Deputy Minister, she had been working as an analyst for a very long time. As the head of the KSE think tank. One of the last things you did was a huge study on social payments. Could you start with that? What actually happened when you came in, what is the situation now? Because you have done a lot.
ROMAN
International experience is good, but we also have our own achievements. So I think you could share them.
DARINA
Unfortunately, we have not yet changed the system as much as we would like, because most of the shortcomings relate to legislation. And there is still work to be done in the area of legislative changes for years to come. We are currently working with the relevant committee and a bunch of Council of Europe experts to develop a Social Code. It has to replace the whole pile, the huge number of different laws that we have today, which are super conflicting and actually profess that old philosophy. When we did this research at the Kyiv School of Economics, we focused on the amount of promises made to our citizens in different areas of legislation. And it turned out that, for example, in the category of people with disabilities, we have more than 100 different “norms” for payments, services, and benefits written in the law. But in fact, when you look at what works and what doesn’t work in practice, most of these norms have not worked for a long time. This is one of the most difficult topics on which we are currently having difficult discussions, and we have developed certain proposals on how to change it. Together with the Ministry of Veterans, we are working on the issue of veterans’ benefits. Today, if you look at our veteran benefits, you will see that we have everything you can. There is a privilege for the early installation of an apartment phone, a privilege for participation in housing cooperatives. That is, there are things that are so far behind the times that I am ashamed to say, and when I see certain presentations where colleagues tell me how great our legislation is (colleagues not from our ministry) and how much is provided for veterans, it is difficult for me to agree with this, because if we promise a certain benefit, for example, free travel, but the state or local budgets cannot provide this benefit financially, then it is not fair. We are the ones who shape the situation…
VIKTOR
Expectations?
DARINA
Expectations that we can’t fulfill, and everyone is dissatisfied. So we have this problem in all areas. And it is quite difficult to make changes in small portions. Because you are actually investing the same amount of effort that you would invest in big changes. But what did we do? First, we analyzed in detail all the payments that are already in place. Today, the state budget finances about 40 cash benefits, plus a huge number of different compensations and payments. We have formed packages. For example, there is a package of assistance for a person with a disability, and this assistance is aimed, for example, at ensuring that a person with a disability who needs care receives care. But our analysis has shown that there are such unfair approaches to providing these benefits that a low-income person can receive a payment of UAH 600 per month from the state for care assistance. How can you meet your care needs with 600 UAH per month? No way. Or, for example, we have a situation where we pay care assistance to parents who have a child with a disability only if these parents do not work. That is, we as a state stimulate the unemployment of these parents, and the amount of assistance is also small. We are currently reviewing all these things, they are all written in the laws. It is very important for us to make the system fairer. Given that we have a huge number of people in need of support, we cannot simply say that all people with disabilities are entitled to benefits, because some people need help with care, some need an inclusive school…
VIKTOR
…for the kids.
DARINA
Yes. Some people need someone to come twice a week to cook and clean. I mean, everyone has different needs. And the general philosophy is that we should have an assessment of the needs of each individual person who is in difficult life circumstances. According to this needs assessment, a list of tools is given: social services, prosthetics, rehabilitation, social benefits, retraining. That is, a wide range of tools, the idea of which is to return a person to an independent life, plus after this toolkit is implemented, there must be a manager who supports such a person. And based on the results of this support, we have to monitor whether we are achieving our goals or not. Just like a doctor: if these tools don’t help, we have to reassign others. Now, as for praising ourselves. Actually, I’m going to praise myself here, maybe not so much myself as my colleagues. Because over the past two years, in our opinion, we have been able to do quite a lot of things. First, we launched the financing of priority social services from the state budget. For example, we are not just financing…
VIKTOR
What are these services? Could you be more specific?
What is a "resilience service"?
DARINA
We are prioritizing services, first of all, care services. Or, for example, we have launched a psychosocial support service for people with a very nice name, “resilience service”.
VIKTOR
That’s a nice one.
DARINA
Already, about 100 communities have applied, and we have selected them to co-finance this service. In general, we plan to cover absolutely all of Ukraine with this service. And the key idea is that we, as the state, pay for the service, the community pays for the premises, housing, and utilities for these services, and donors come and modernize the premises, for example. This is co-financing from different parties in order to provide the community with a good, high-quality service provider.
In addition, one of my favorite projects that I worked on at the beginning was the monetization of children’s health improvement. For example, it’s summer here. As a mom, I have a problem with where to take my child. And many parents have this problem. I have now started to appreciate children’s camps because… I used to not understand their meaning when I was a child. Now, as an adult, I understand it very well. We have a legal requirement that we promise this service to many citizens. According to the law, about 2.5 million children are entitled to health improvement payments. Of course, the state budget has never had the funds to cover this number of children. And this led to a situation where, in fact, the funds were allocated in a small amount, but distributed sufficiently, let’s say…
ROMAN
Subjective.
DARINA
Yes, subjectively.
VIKTOR
I can tell you some interesting things in a separate podcast about how they were distributed.
DARINA
What we did is we clearly defined that we prioritize paying for this rehabilitation for low-income families. Including IDP families who are at the highest risk of falling below the poverty line. These are families with many children. These are families with children with disabilities. We calculated how much a 2-3-week shift in an institution could cost, and through state registries we were able to identify families with children who meet these criteria and proactively offer them this service.
VIKTOR
That is, not the regional councils, as they used to form the lists, give and finance them.
DARINA
We just defined it. People received a message from Privatbank: please, you are entitled to such and such a service, come to Privatbank and get your card.
ROMAN
And it was 100% covered? Was there no additional funding?
DARINA
Last year it was 5 subsistence minimums per child. This meant that you just came, you had marked money on your card, and you could spend it in one of the camps that joined the project. You call, choose which camp you like best in terms of price, everything, and go there and pay with this card. It’s like the program at the beginning of the war, remember?
VIKTOR
…about books.
DARINA
Books, yes.
VIKTOR
Books, sports facilities.
DARINA
And, in fact, the key task is to ensure that all the services and benefits we promise can be actually realized. But to do this, we must clearly understand the target audience.
VIKTOR
Listen, I’m sorry, I’m just a little bit pleasantly shocked. Why doesn’t the general public know about this? How many people have used this service?
DARINA
Last year, it was 5,000 families. It was more than in 2022 and even, I think, in 2021.
VIKTOR
How many this year? How many do you expect?
DARINA
The project itself is designed for about 25 thousand families.
VIKTOR
So, in fact, 25 thousand people who are in need, who are eligible, who are in this, it’s hard to call it a risky category, but it’s a category of need… and they can send their children to the camps for free?
DARINA
Yes, they can.
ROMAN
To the camps.
VIKTOR
Yes, to the camps. Well, this is a very, very good example of the proactive position of the state.
How digitalization of services helps to save public money
DARINA
We actually really want to develop such proactive services. In terms of payments, we have several areas where we are moving. The first is maximum targeting. Since we have limited financial resources, we must clearly understand that we are helping those whom we, as a state, should help, who are most vulnerable. The second is maximum digitalization. This is where digitalization helps to build proactive services. At the beginning of the war, the 17 largest benefits paid from the state budget were already digitized. These are the 17 largest in terms of funding, covering more than 80% of the total amount of funds. Before the start of the full-scale war, we had a completely decentralized system of payments, in which each region used its own software, for example. And at the central level, we saw lists of how much money we had to give, but we usually did not see the people to whom the money was to be directed. When the war started, there were a lot of challenges because of this. The main one is that such a regional linkage implies a linkage to a specific social protection department.
That is, what surprised me was that, for example, if you receive housing and utility subsidies and move to another location, you have to check out of your social security department, and in the new social security department, in the community where you have arrived, you have to hand over your documents, sign in, and then they reassign you the payment. Obviously, this was the last thing on people’s minds when they left. In a situation of forced displacement, this is not a working model. That’s why the first thing we did was to transfer all housing and utility subsidies to the Pension Fund from January 2023, which ensured…
VIKTOR
Because he has registers? Why was this decision made?
DARINA
Because he already had a very powerful IT system at that time. We as a ministry were just deploying our system at that time, but the Pension Fund already had one. And the Pension Fund also had a large network of its own offices, which could act as a front office. And a powerful IT system that helps build effective back-office solutions. As a result, we quickly digitalized the entire process of providing housing and communal services in just 4 months. This has led to the fact that, first, you now have an extraterritorial principle: no matter how you move within the country, you can submit documents online, communicate with the Pension Fund through your account. Second, the Pension Fund has the ability to verify immediately. It sees data from the register of insured persons, and it has a lot of exchanges.
"We have synchronized our efforts with international payment partners"
VIKTOR
At one meeting, you told us that your verification stories impressed your partners. And that you ensured the redistribution of funds… it’s hard to say “saved funds” to more urgent needs. Please tell us more.
DARINA
For example, what we were able to do. It may be a small thing, but I am very proud of it. It is the fact that we have now been able to synchronize our efforts with international partners in payments. Last year, in a conversation with one of the donors, I realized that this donor was allocating funds to pay for housing and utility services, apparently to people who were already recipients of housing and utility subsidies. I was surprised by this. We started having more detailed conversations. Eventually, we moved from a model where we, as a state, pay a certain amount of financial support, for example, to this vulnerable category, and the donor pays the same category of people (i.e., there is, on the one hand, duplication, and, on the other hand, we are not helping those who are actually in more pain somewhere else) to a model where we have learned to be “friends” and our registers “talk to each other.” And now we are building… I’ll try to put it more simply. For example, we say: in terms of subsidies, we now need to cover this category of people with additional funding. And we don’t have the funds in our budget, for example, but we attract donors, and donors pay this category of people according to our registers. Last year we did this to increase the subsidy for the purchase of solid fuel in winter. Some of our families heat their homes with wood. And it turned out that the tariffs for solid fuel subsidies had not been revised for 8 years. And they do not correspond to reality at all. For example, we used to pay a family about 3-4 thousand UAH as a one-time payment for the purchase of firewood. You can’t buy enough for the winter for 3-4 thousand UAH…
VIKTOR
…you can’t buy a car for firewood.
DARINA
Yes, I can’t. And we calculated that we should have a much higher amount of subsidies. But it would have cost us 2.2 billion hryvnias in additional government spending. We talked to donors and found a donor, the UNHCR. It took over almost UAH 900 million of this payment.
ROMAN
So did it pay the difference that was missing? Or did he finance new families?
DARINA
No, no, he paid the difference that was missing.
VIKTOR
So you actually pay 3 thousand hryvnias and what is required by the existing law, and the rest is paid by the donor?
DARINA
Yes. And now we are also talking to donors that we actually need to make the same payment this year. And we are already talking to donors to synchronize with it. That is, thanks to registries and digitalization, we have the opportunity to save public funds, we do not spend them, but donors do. But at the same time, they pay those citizens whom we, as a state, would like to see as the most vulnerable.
VIKTOR
In fact, do you attract donor funds to people who need them most?
DARINA
Yes, and we check it.
ROMAN
Could this be a successful case, and in the future, let’s say, more donors will join this program? Or, for example, the budget season for the next year will soon be active, and you will revise some programs and redistribute them?
DARYNA
We are already doing that. We already have several projects. According to our registers, the World Food Organization has been co-financing increased pension payments in the war zone for almost a year now. UNICEF, according to our registers, pays increased assistance for families with children with disabilities and large families. Right now, they are paying large evacuation payments – UAH 10,800 per person, or to those families who stayed and live in the mandatory evacuation zones.
ROMAN
This is Sumy and Kharkiv regions, I understand, it’s very relevant. Do you know the amounts of payments that they cover?
DARINA
For example, now what UNICEF pays for our joint program is 10,800 UAH per person in a family. That is, if it is a family of three or four people, it can be 30-40 thousand UAH, which, of course, is not yet… In my world, the program I am working on, which I would like to implement together with donors, is a program of so-called “lifting” funds. I am very concerned about those families who live in houses that are hit by rockets. Thank God if the family survived in such a situation because they were in a shelter. But that’s it, one day you have nothing at all: no underwear, no pants, nothing. What to do in this situation? A person or family will register as an internally displaced person, and we will pay them an IDP allowance. But this assistance will not solve the problems, because your immediate needs are extremely high. Donors pay, I think, 3,600 UAH per person for three months. But, again, this is not a substantial help. That’s why I’m now looking for partners who could help me create a program, so that if you’re in such a stressful situation, the state… you know, like with a baby package, helps you with some basic set of things…
VIKTOR
…of basic needs.
DARINA
The first priority items: blankets, forks, something that the family needs because they have been left without any property at all.
Social payments are a powerful tool for changing the behavior of citizens. This tool is not used in Ukraine. The only case when we had such a modeling behavioral stimulation was housing and utility subsidies. Remember: we pay you money on a card, and if you save and consume less, you can use this money at your discretion. This was a great example of behavioral incentives, but it is not used almost anywhere else in Ukraine. We have now started using it, for example, in the IDP assistance program. Now, our program is structured in such a way that we will pay you an allowance, provided that you, if you are able-bodied and not working, go and register with the Employment Center, or get a job, or start your own business, do something. We will help you for a certain period of time, but only if you start doing something. And in fact, we see that after we introduced this requirement, in January this year we had a rapid increase in the number of internally displaced persons who applied to the Employment Center for employment. That is, if last year the average number of IDPs who applied to the State Employment Center was about 4 thousand people…
VIKTOR
Is it for a month?
DARINA
On average, per month. In February and March, this number increased to 11 thousand, then to 17 thousand people per month. This is still not a very large number, but it is a fourfold increase compared to the previous year.
VIKTOR
This is a change in people’s mentality, because they realize that they have to do something.
DARINA
Yes, absolutely.
VIKTOR
And somehow adapt, unfortunately, to the new reality.
DARINA
Yes. And so, for example, from what I see from the experience of other countries. The experience that I like. These are cases that are not very relevant to Ukraine, but they are very good evidence of behavioral changes. For example, in Pakistan, assistance is paid to families whose children go to school. They have a big problem with children not attending school, and as a result, they live in poverty and cannot do anything with themselves. So they pay families an allowance on the condition that the child goes to school. At the same time, the social side then goes and checks whether the child is really in school, you know, randomly…
ROMAN
Imagine how much we could earn if we were paid for our visits.
DARINA
Yes, yes! But in Ukraine, what we also want, what we are thinking about, is the use of social benefits to stimulate, for example, entrepreneurial skills for women. And here we need a good expert discussion and a lot more analysis, where is the behavior, what is the behavior that we want to stimulate.
VIKTOR
Daryna, thank you for your time, for an extremely interesting conversation, and of course, thank you to the defenders for the fact that we can breathe in a free country.
DARINA
Thank you very much.
ROMAN
Victor, Daryna, I also thank you for your time and such an interesting discussion. And, of course, I thank all the military personnel who allow us to record, communicate and bring this information to our listeners. Glory to Ukraine!
DARINA
Glory to the heroes!
ROMAN
See you soon!