Society, experts, and business are actively discussing a new idea of Danylo Hetmantsev, chairman of the Verkhovna Rada Committee on Finance, Taxation, and Customs Policy. The deputy, who has repeatedly initiated tax increases in Ukraine, proposed to oblige all working Ukrainians to buy domestic government bonds (OVDPs) for 7% of their salary. This caused a wide resonance and a wave of indignation among ordinary citizens and the business community. UNN asked Myroslav Laba, an expert at the analytical center of the Union of Ukrainian Entrepreneurs, about the economic consequences of such an initiative.
Details
The expert believes that additional costs in the form of mandatory purchases of government bonds could create an additional financial burden for the population, especially for low-income citizens and entrepreneurs, and called for alternative ways to finance government needs. Laba suggested focusing on combating the shadow economy and tax arrears instead of introducing new mandatory expenditures for citizens.
- Recently, society has been actively discussing an initiative that proposes to oblige working people to buy government bonds with 7% of their taxable income. In your opinion, how will this affect the income and financial situation of working Ukrainians during the war? Will it become an additional financial burden for the population? After all, opinion polls show that the majority of working Ukrainians cannot save from their income, and many of them live in debt or on previously saved money?
- In my opinion, this initiative to introduce mandatory purchase of government bonds by the working population has another goal - namely, to provide a probably even worse alternative to the draft law voted by the Verkhovna Rada 11416-d on the introduction of a military tax for individual entrepreneurs of UAH 800 and an increase in the military tax on wages. Now this draft law is awaiting the President's signature. I feel that there are some doubts or unwillingness to sign it, so this idea of mandatory purchase of government bonds for 7% of taxable income by citizens has emerged. This was voiced in order to say either we are increasing the military tax to 5% or 7% of government bonds on wages. So I think this initiative is intended to push the President to sign this draft law 11416-d (on tax increases).
- Can such an initiative have a positive impact on the country's economy? What specific economic benefits can it provide under martial law?
- I would say that the population of Ukraine has different income levels. For example, we have quite a lot of citizens who receive 15 thousand hryvnias a month. We looked at the income of individual entrepreneurs of the first group, which they declared in 2023. Their average salary was at the level of 14-15 thousand hryvnias per month.
The introduction of a military fee of UAH 800 per month for this category of citizens and the introduction of mandatory purchase of government bonds for 7% of taxable income is an economic sabotage against the population of Ukraine. This is a very harmful thing, because these citizens will have a choice - either to go into the shadows, or to close down, or to emigrate, or to serve in the Armed Forces, because they will not be able to pay these additional funds.
Recently, the Ministry of Finance published a dashboard of average salaries for ministries and departments, and I was honestly surprised when I saw the average salary of 200 thousand hryvnias per month. I believe that this mechanism of mandatory purchase of government bonds could be applied specifically to civil servants, to those who have a reservation, who have a high salary. These people could give part of their income to government bonds without compromising their own well-being and actually help the Armed Forces of Ukraine and the state economy in the same way.
I would slightly adjust the thesis that said by the Prime Minister: “either work or fight”. It should be “either help the army or fight”. That is, those people who did not go to war, who have protection, who have reservations, who have some opportunity to work here, can invest their excess salary, which, for example, exceeds 5-10 minimum wages, in government bonds and thus help the country's economy.
- Are there mechanisms to protect the interests of citizens if the state is unable to fulfill its obligations under the government bonds in the future? How will the state guarantee the repayment of these funds in critical conditions?
- I see only one incentive here: if high-ranking officials, ministers, deputies, people who make state decisions invest their money in these bonds, they will do everything to ensure that the state returns these funds.
For example, there was information that the head of the Regional Office of BEB shows in the declaration quite a large fortune in millions of dollars and so on. If such people, officials, civil servants, who have balances in their declarations of more than a certain amount – a million or half a million-invested part of their funds in these Government loan bonds, I think that they would work more efficiently, more carefully in their jobs, and their efforts would be aimed at ensuring that Ukraine survived, stayed, and returned these funds to them with the appropriate interest.
- How do you assess the risk of reducing the level of consumption due to the forced investment of part of the income in government bonds? Can this negatively affect the domestic market?
- I think that every family has some minimum needs for their own life, such as food, clothing, and a certain standard of living. And if the state takes away these funds that the family spends to maintain a minimum standard of living, it will affect consumption. And if these funds are taken away from a person who has a million in a drawer, I don't think it will have a significant impact on their consumption.
- How might the introduction of this initiative affect public confidence in government economic policy? Could it lead to an increase in shadow payments to avoid deductions?
- I propose to focus on the public sector. If it is the public sector (officials will be required to buy government bonds – Ed.), then there will be no shadow payments there. It seems to me that if this initiative is aimed specifically at the public sector, it will not affect the shadow level of wages.
- What will happen to small businesses? Entrepreneurs have significantly increased taxes, including the military Levy, and there are already warnings that this is not the last increase.
- I would say that, perhaps, those people who make economic decisions in the state, tax decisions, need to decide what they want. Because, on the one hand, we are promoting the initiative to create a Ministry of unity, which will work to return Ukrainians from abroad, and so on. But if you want people to return and live in Ukraine, then for sure conditions should be created for them to want to return here. Because on the one hand, the authorities declare the need to return Ukrainians here, and on the other hand, by raising taxes for micro businesses, for those people who feed themselves and earn a living themselves, they do everything to make them leave the country.
- what alternative methods of financing the state under martial law would you suggest that would not create an additional financial burden on working citizens?
- When the Ministry of Finance submitted draft law 11416 (on tax increases) to the Verkhovna Rada in the summer, many business associations suggested that we should tackle the shadow economy. We have a lot of money circulating in the shadow markets for excisable goods, we have a lot of money circulating in the gambling business, we have a lot of money sitting in tax debts.
That is, there are places where there is a white economy and places where there is a gray economy. And it turns out that when the state needs revenues, it starts from the place where it is easiest to get them, that is, from white business, from legal business. But if you go to the other side, where business does not pay, where there are unaccounted for revenues, there is no state, there are other mechanisms, other distribution, some corruption component, and the government, unfortunately, does not want to fight this, or creates a certain appearance of fighting, or some agreements are made somewhere on the sidelines..
If we take the shadow cigarette market, then before the full-scale war it was 6%, then 25%, now it has decreased to 14%, but it is still a budget loss. In other words, take these funds where they are not paid. You have 160 billion hryvnias in debt – take these funds from there.
For example, today many citizens do not know that they have a property tax debt. The tax service has closed these registers. The only place to find out if you have a debt is in the taxpayer's office, but to get there, a person must have the knowledge of how to do it, must have an access key... All this is not available to the general population today.
The state is too lazy to take funds where they belong to it, and goes where it is easier and easier for it to get them – because of tax increases.
Add
Earlier, Vitaliy Shapran, a member of the Ukrainian society of financial analysts, also sharply criticized Getmantsev's idea of introducing mandatory purchases of Government Bonds by the working population. According to the financial analyst, the introduction of such an obligation will lead to the fact that the number of Ukrainian citizens leaving the country will increase.
"Another idea of Getmantsev (a student of Volodymyr Sivkovych) to force Ukrainians to buy government bonds for 7% of their income indicates that Danylo has either an acute mental disorder with an obsession to bite something off the income of Ukrainians, or a clear task from the center from the FSB and Co.to constantly confuse Ukrainians with new ideas, indirectly agitating economically active citizens to leave Ukraine," Shapran wrote on his Facebook page.
According to him, a compulsory obligation to buy domestic government bonds on the secondary market could lead to a number of negative consequences for Ukraine's economy. The saturation of the market with bonds purchased by the population under pressure will inevitably lead to an increase in the yield of domestic government bonds on the secondary market, as many citizens will try to get rid of these assets. This, in turn, will force the Ministry of Finance to raise interest rates for new bond issues on the primary market, which will increase the cost of servicing the public debt and put an additional financial burden on the budget.
In addition, Getmantsev's proposal, according to Shapran, does not take into account the high costs of administration and opening securities accounts, which is not an easy task for the banking system. In particular, the cost of opening and maintaining accounts for operations with government bonds may exceed the return on such investments for citizens with average incomes.
The financial analyst also believes that such an initiative will actually encourage the transition to shadow salaries and minimizing official payments, because the mandatory percentage of income on government bonds can be perceived as an additional tax.
“Ukraine is a country with a market economy, and such coercion can hardly be called market-based. Leaders must prove the profitability of their operations by their own example. Mr. Hetmantsev's annual declaration does not show that he or his family members are buyers of government bonds. On the contrary, I see a lot of foreign currency deposits and foreign currency cash. Therefore, it is strange to hear him talk about forced government bonds, especially since such reflections indicate that he has no idea how the government bond market works in Ukraine. And he, as the head of the Verkhovna Rada's Finance Committee, should know this, at least at the end of his term,” Shapran added.
He called on the President of Ukraine and the Chairman of the Verkhovna Rada to immediately remove Hetmantsev from the post of Chairman of the Tax Committee of the Rada and “send him for a compulsory psychiatric examination.
“The people have to find out: Hetmantsev is either a fool with no economic education who has no one to stop him, or a traitor who is adding fuel to the Ukrainian economic crisis. In any case, Hetmantsev's professional influence on the Ukrainian financial sector should be eliminated, preferably yesterday,” the financial analyst emphasized.
for Reference
Domestic government loan bonds of Ukraine (government bonds) are government securities placed exclusively on the domestic stock market and confirming Ukraine's obligations to reimburse bearers of these bonds of their nominal value with payment of income in accordance with the terms of the bond placement.
The nominal value of government bonds is UAH 1,000 and can also be determined in foreign currency.
Ukrainian government bonds may be:
- long-term-more than five years;
- medium-term-from one to five years;
- short-term-up to one year.