Key task for all sectors is to achieve the most efficient use of resources. Experts discussed allocation of public spending

Key task for all sectors is to achieve the most efficient use of resources. Experts discussed allocation of public spending
September 13, 2016.

Public discussion on the state budget priorities in 2017 allowed different sectors to compete in getting to the general priorities. 

Kyiv, August 12, 2016. During the discussion-debate held at Ukraine Crisis Media Center, representatives of selected sectors explained why their area should be a priority in the allocation of public spending and answered the questions of moderators and audience. At the beginning of the discussion, electronic voting showed that the audience considers priority areas education, economic activity and infrastructure (31%), national security and healthcare (15%). After the debate, the voting showed a different picture – 35% for the priority of national security, 25% – infrastructure, 15% – social spending and 10% – education and health.

Infrastructure

According to the experts of infrastructure group, their sector should be a priority because it predetermines the normal functioning of many others. “Developed countries have proved that every dollar, the invested dollar, ensures USD 1.6 returned investments which contribute to developing businesses,” said lawyer Andriy Huk. Road maintenance has been funded only by 10% recently. “As of today, 60% of roads of national importance and 70% of bridges are in a critical condition and should be closed down. Twice as many people are killed and injured on the roads than in ATO (armed conflict in the Eastern Ukraine – UCMC),” stressed the expert.

There is no spending on railways and sea or river ports, the fact that they give most revenue to the state budget, said Serhiy Vovk, director of transport strategies. “If we total the tax burden on two major monopolies – Ukrzaliznytsia and Seaports Authority, we get about 20 billion direct taxes,” he stressed. Moreover, said Roman Khmil, former head of the Department of Traffic of the Ministry of Infrastructure, Ukraine must go through ICAO (the International Civil Aviation Organization) audit, and it has to prepare for it. “If Ukraine loses its safety assessment, it may lead to the termination of certain passenger services and cargo transportation, particularly from the United States,” he emphasized.

Public-private partnership and privatization, increasing tariffs on cargo transportation to the European level may help the situation. It is desirable to create a special road fund for financing road maintenance. “In our opinion, if it is not created, we will not make any progress,” underlined Andriy Huk. A prerequisite for the efficiency is independent control over the use of funds. Yuri Hanushchak, Director of regional development, added that, in the context of decentralization, most powers on road maintenance should be passed on to the state agency for highways ‘Ukravtodor’ on the grassroots level – it will improve the quality and reduce maintenance cost.

Education

Representatives of the sector reason their priority by saying that education is an investment in technology and competitiveness of the country. “Education and science – this is what allows us to earn more. For us to grow, we need a modern education and science, and this requires proper funding,” noted Volodymyr Bakhrushin, senior expert of the large civic initiative Reanimation Package of Reforms (RPR), Adviser of the Minister of Education and Science of Ukraine. “One dollar invested in education brings an estimated 8 – 15 dollars in the long run,” stated Inna Sovsun, vice president of Kyiv School of Economics (KSE). She mentioned that in recent years, funding for education had decreased from 7% of GDP to 5.5%. Even taking into account the demographic factor – that today’s students are a mid-90’s generation, small in number, in a few years this figure will be much higher”. I understand that 8%, as in Scandinavia, is impossible, but we must return at least at 7%,” she believes.

The key task is to use funds more efficiently. “We should, perhaps, reduce the number of establishments and the number of people receiving higher education, as 80% is an inadequate figure, but invest in infrastructure and raise the quality of education,” noted Inna Sovsun. Quality career guidance is another important task. We should also change the allocation balance in favor of secondary education – in developed countries it ensures a high level of knowledge of university applicants. The lion’s share of funds is to be invested in new equipment, primary schools, and improving training and monitoring of teachers – along with a significant increase in wages. “The higher teachers’ salary is, the better PISA results are,” said Iegor Stadnyi, executive director of the analytical center CEDOS. To combine the interests of different sectors, we should organize joint projects.

Medicine

“The main problem is that budget planning considers health care expenditures as social expenditures, but, in fact, they are investments, firstly, in the economy. People are our most important resource and medicine extends working lifetime. One dollar invested in prevention will ensure USD 11.5 of profit,” noted Pavlo Kovtonyuk, Deputy Minister of Healthcare of Ukraine. He added that the situation with healthcare also affects political stability and a sense of security: according to several surveys, healthcare reform is among five most important. Mr. Kovtonyuk also noted that currently over 600,000 Ukrainian families spend most of their income on treatment, and 92% of respondents claim that in case of serious illness they will find themselves in a difficult financial situation. Investment in preventive medicine would help to improve overall health and contribute to the early diagnosis of diseases and, consequently, less expensive and more successful treatment.

The main problem in the area is lack of funding and inefficient use of funds. “The government now promises all and free of charge, allocating 11% of budget but using the budget so that the average doctor’s salary is only UAH 2.000,” emphasized Olekandr Yabchanka, expert of the RPR. The primary task is to move from funding beds in hospitals to financing medical services. “The money should follow the patient and the doctor must be interested in providing quality services,” explained the expert. According to Pavlo Kovtonyuk, the current 2.5% is enough for relevant funding. “If our budget was indexed for inflation at least 3 years, we could find money for the reform within the sector. We must first carry out reforms, and only then invest additional money,” he said. Panelists also noted that for greater efficiency, it is desirable to combine all health institutions, which are in almost every ministry and sometimes public institutions, to a single system.

Defense

The sector representatives give arguments about priority of defense sector, because it guarantees the existence of the state as such. Yuri Gusev, former deputy defense minister, adviser to the Minister of Infrastructure, noted that Russia spends USD 54 billion for defense purposes, while Ukraine – UAH 55.6 billion, UAH 7 billion of which – for purchasing weapons. “We must spend money on reforming the Armed Forces rather than on implementing NATO standards. This should be the first priority of the state. If we lose the army, we will lose the state,” he stressed.

Sergiy Kovalenko, Adviser to the Minister of Finance of Ukraine, the expert of the RPR, acknowledged that now the defense sector needs more funding, because Ukraine has not got ready for war. Besides, we need to increase efficiency. “If we look at the defense spending, we will see that this balance sheet item is wrong, even in the Defense Ministry. Now we are spending 50% (about 26 billion on paying salaries and utilities. The leading countries of the world have the “golden balance,” i.e. “one-third/one-third/one-third” – on living, training and purchasing new weapons. We should strive for this. If there is imbalance even with the increased funding, it will lead to nothing,” explained the expert. According to him, the defense budget should include 3.4% of GDP to restore normal combat capability, and later on, 2,5% will suffice, as in the NATO countries. To increase efficiency within the sector we should move to a professional army based on contract principles and implement the Western-type civil administration in the Ministry of Defense, because it is a military hierarchy with its rigid hierarchy that significantly inhibits the efficiency and operationability of decisions conserning defence policy.

As to corruption risks in the sector, the experts note, that the e-procurement system will improve the situation, much as in the health sector. This year, “Prozorro” has made it possible to save UAH 15 billion. Given the specifics of the sector, there are certain restrictions on the data that may be opened to the public. However, they may be opened to special environment, while expenditures on wages and logistics should be fully open.

Social sector

The social sector representatives stated that currently, about almost half the spending is not really necessary, because about 75% of the population receive certain benefits. “People are paid for the status rather than for the state, whereas they should be paid on the total revenue basis. We have triple benefits – by incomes, expenditures and by different industries,” stressed Yuri Hanushchak. All experts unanimously agreed that all benefit recipients should be thoroughly verified. For this purpose a unified register of benefit recipients should be introduced, the reform of taxation of individuals should be conducted, and a property qualification should be introduced.
The top priority for all sectors – increase efficiency

The panelists unanimously agreed that the success of reforms in each sector is impossible without civil service and financial sector reforms, and the top priority for all sectors is increased efficiency. Thus, it is important that all ministries discuss what and where to optimize and that savings remain in the corresponding sector. “The logic is how to best use the available funds under the chosen priorities. Sometimes the same amount of money due to structural solutions can give much more,” said Viktor Pynzenyk, people’s deputy of Ukraine. “As soon as the public sector demonstrates effectiveness, the citizens’ perception of taxes will change,” added Borys Davidenko, editor VoxUkraine.

Galina Tretyakov, director of the Ukrainian Insurance Federation, expert of the RPR, proposed that an order of implementing all necessary reforms should be determined for a balanced distribution of available funds. “We have to develop a network schedule, according to which we will implement all reforms, as they should be time-bound,” she explained.

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