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Ukraine parliament approves 2008 budget

Ukraine’s sharply divided parliament overcame a critical financial and political hurdle on Friday to pass into law the 2008 government budget.

The polarized house voted 235 out of 450 in favor of increased government assistance to low-income families, reduced tax load on small business, and additional collections from big business. Ukrainian pro-reform forces won a razor-thin 228-member majority in September elections. The budget vote was a critical test for the two-party coalition’s ability to hold a key parliament vote without defections. The bill obtained out-of-coalition support from eight Communist deputies who deserted party ranks to support the Europe-oriented funding package.

The budget calls for some $42 billion of government collections during 2008, some $46 billion of expenditures, and a deficit of some $4 billion. All three figures are increases, by between 18 and 36%, over an earlier version of the 2008 budget passed by the previous parliament. The new ruling majority castigated the old budget as promoting the interests of big business at the expense of average Ukrainians.

The present opposition has criticized the new budget bill for its free-spending and wild optimism about Ukraine’s 2008 economic performance, given 14-15% inflation during 2007, and the budget planned 9% inflation figure. The biggest-ticket spending item is a programme to return to Ukrainian bank depositors some $4 billion in savings lost when the Soviet Union broke up. Critics have questioned whether money can be found to fund the project. Overall planned GDP growth may also be pitched too high, with the budget projecting a healthy 6.8% expansion, as the country’s steel and chemical sectors face record high energy bills and flattening world markets.

A key concession to the Communists, and defeat for reformers, was a delay to President Viktor Yushchenko’s plan to make land a legally-traded commodity in the former Soviet republic. The budget bill, now law, placed Ukrainian land reform on hold until further legislation is passed creating a national land register and legal codes regulating land sales - conditions believed by observers to add years of practical delay to actual land sales. Most land in Ukraine may not be bought or sold, a situation popular with villagers worried about losing their livelihood, and with Ukrainian businessmen lucky enough to own some of the land that is traded.

The budget bill in addition delayed the imposition of Value Added Tax (VAT) to agricultural businesses - a vote-getting move popular in Ukraine’s provinces, but at odds with Yushchenko’s announced intention to put Ukraine’s economy on line with European Union and World Trade Organization standards. The farmer tax break will remain in effect until such time Ukraine joins the World Trade Organization. Ukraine has repeatedly announced its readiness to join the WTO, only to stumble because of failure to remove blocks, which are popular at home, most often with farmers or big business.

Ukrainian President Viktor Yushchenko will not sign the 2008 draft budget into law if it „takes into account proposals that would in effect prevent Ukraine from joining the WTO,” parliament speaker Arseny Yatsenyuk said on Friday. Yatsenyuk made the announcement at a plenary session of the legislature. The government had proposed introducing value-added tax for agricultural products and abolish privileges the moment Ukraine joins the WTO, but the parliament’s Budget Committee is insisting the proposed measures take effect on January 1 in the year that would follow the country’s entry to the WTO. Yatsenyuk asked the head of the legislature’s Committee on Tax and Customs Policy, Serhiy Teryokhin, and Finance Minister Viktor Pynzenyk to give an explanation to parliament. Prime Minister Yulia Tymoshenko was present at the second-reading debate on the 2008 draft budget in the legislature. (c&, interfax)