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"Zelensky's Thousand" and tax hikes: strategies to steer clear of populism during wartime.

"Тысяча Зеленского" и налоговые изменения: как избежать популизма в условиях войны.

Starting December 1, Ukrainians can register to receive the "presidential thousand." Additionally, from the same date, taxes are being increased in Ukraine. It appears that the government is simultaneously reaching into citizens' pockets with one hand while distributing money with the other. Is this really the case? Financial editor of RBK-Ukraine, Ruslan Kislyak, investigates.

On Social Generosity and Its Cost

From December 1, Ukrainians can apply for a one-time state assistance payment of 1,000 hryvnias. However, only those currently residing in Ukraine, excluding temporarily occupied territories, are eligible. Applications must be submitted between December 2024 and January 2025. The funds can be used until December 31, 2025. The money can be spent on the same purposes as the funds received under the government program "National Cashback." Specifically, it can be used to purchase military bonds of the domestic government loan or to donate to the army. RBK-Ukraine has already reported on how to apply, when and how to receive the funds, and what they can specifically be spent on.

The monetary assistance is symbolically called "Winter Support" and is provided under the All-Ukrainian Economic Platform "Made in Ukraine." The program's budget is set at 5 billion hryvnias until the end of this year, and 10 billion for the next year, which suggests that the government does not expect every Ukrainian to actually receive the thousand hryvnias. Nevertheless, 15 billion hryvnias is a substantial amount for the budget, which the government needs to find alongside the search for 500 billion hryvnias, which were lacking for financing defense forces as of early autumn.

15 billion hryvnias is nearly double what the increased taxes, effective from today, December 1, could additionally bring to the budget by the end of the current year.

Another 3 billion hryvnias will be spent by the state on the program to stimulate demand for products from national manufacturers, "National Cashback," from the beginning of autumn until the end of the year. This program undoubtedly has the potential to positively impact the domestic economy; however, its effectiveness remains questionable according to many experts. At the very least, during wartime, this money could have been used for more targeted assistance to those in need.

This "holiday of populism" appears even more surprising against the backdrop of over six months of efforts by the authorities to find funding for the previously mentioned 500 billion hryvnias deficit for the needs of the defense forces. It so happened that due to delays in military aid from the USA at the beginning of the year, the Ukrainian government was forced to finance current military needs from future expenditures. As a result, by early autumn, the military had no funds to pay salaries.

"Тысяча Зеленского" и повышение налогов: как избежать популизма во время войныUkraine is forced to seek defense funding from internal sources (photo: Getty Images)

The decision was made to source funds from three main areas. Approximately 70 billion hryvnias in unplanned funds were obtained by the budget as a result of savings on servicing external debts of over 20 billion dollars following successful restructuring in the summer. Another 300 billion hryvnias were expected to come from commercial banks through a voluntary-compulsory buyback of government bonds. Additionally, around 140 billion hryvnias were anticipated from increased taxes, including raising the military tax rate and introducing it for individual entrepreneurs, as well as a 50% tax on banks' excess profits "retroactively" for 2024.

The ongoing struggle in the government-parliamentary arena for the adoption of the so-called "resource" bill (No. 11461-d) with active involvement from businesses and the expert community indicates that the government is in dire need of funds. Therefore, the initiatives of the authorities to distribute money to all Ukrainians, regardless of the real needs of specific population categories, appear all the more strange. Especially considering that the funds amounting to 1,000 hryvnias for every Ukrainian under the "Winter Support" program are intended to be taken from the social insurance fund for temporary disability. It seems that the intention is to distribute money to all Ukrainians—rich and poor, businessmen and pensioners, IDPs and small children—at the expense of those who have lost their jobs.

At the same time, the conclusion of the saga surrounding the tax increase bill is equally perplexing. The law passed by the parliament on October 10, which after several revisions (that drastically reduced its fiscal value) was supposed to generate additional tax revenues of around 30 billion hryvnias by the end of the year, lay unsigned by the president for over a month and a half. As a result, the law signed by the president on November 28 came into effect on December 1 and is expected to provide additional tax revenues of about 8 billion hryvnias by the end of the year.

On Funding Sources for Social Initiatives and a Bit About the War

The fact that the people's deputies ultimately approved a law that almost five times reduced the potential additional budget revenues from taxes compared to what the Ministry of Finance initially planned, and that the president, due to delays in signing the law, further reduced its fiscal value by nearly four times, indicates that at some point, the critical need for these funds diminished. Experts surveyed by RBK-Ukraine agree that this likely occurred because the prospects for Ukraine receiving funds from the "G7" countries amounting to 50 billion dollars secured against frozen assets of the Central Bank of Russia became clearer.

The Ministry of Finance's response to the editorial inquiry confirms that funding for Ukraine's current and future needs from external partners is proceeding smoothly.

According to the Ministry of Finance, as of November 14, external financing for Ukraine since the beginning of the year amounts to 27.2 billion dollars, of which grants comprise nearly 8 billion dollars. This enables full funding for pensions, healthcare expenses, education, infrastructure recovery, and addressing the consequences of the war.

The largest donor to Ukraine in 2024 is the European Union, which has allocated about 12.1 billion dollars under the Ukraine Facility since the beginning of the year. By the end of this year, Ukraine expects to attract an additional 4 billion euros from the EU.

The United States is the largest donor in 2024 among countries worldwide, with approximately 5.2 billion dollars attracted by Ukraine since the beginning of the year.

"Collaboration with the IMF is also crucial for supporting the country's financial stability and mobilizing resources for priority budget expenditures. Thus, in 2024, funding from the Fund reached nearly 4.2 billion dollars. Discussions are currently ongoing at the staff level regarding the sixth review of the IMF Extended Fund Facility Program, the successful completion of which will open the way for receiving 1.1 billion dollars by the end of this year," the ministry notes in response to a request from RBK-Ukraine.

Since the start of the full-scale invasion, the total amount of direct budget support attracted from international partners is approximately 100.8 billion dollars.

Meanwhile, the Ministry of Finance of Ukraine continues to engage in active dialogue with partners and implement joint initiatives with donors to mobilize necessary funding.

"Тысяча Зеленского" и повышение налогов: как избежать популизма во время войныInternational partners are actively helping Ukraine financially. Pictured is Serhiy Marchenko (source: kmu.gov.ua)

The Ministry of Finance assures that by the end of this year, partners will provide support to Ukraine in full. Overall, it is expected that external financing will amount to 41.3 billion dollars.

"For next year, there are already several assurances of support for Ukraine. In particular, under the EU Ukraine Facility, there is a planned 12.5 billion euros in budget support. The IMF has optimized the schedule of tranches for 2025, increasing the funding plan for Ukraine from 1.8 billion dollars to 2.7 billion dollars," the ministry reminds.

They also note that the "G7" countries have effectively reached a consensus regarding providing Ukraine with assistance amounting to about 50 billion dollars within the ERA mechanism. Loans will be serviced and repaid from future revenues from frozen assets. Disbursement of funds is expected to begin by the end of 2024.

"Funds should be available by December of this year and fully disbursed no later than December 2027," the Ministry of Finance explains.

Regarding the funding of military expenditures, the Ministry of Finance states that security and defense remain the absolute priority and the largest item of expenditure in the state budget this