Experts have unveiled the pitfalls of financing subsidies.
You do not receive housing subsidies, and believe that you are not concerned? Disappoint — sorry, concerned, and even how! You may not get subsidies or even know about their existence, but you pay for them.
Pay that money from the state budget are funding them and not funding school for your child, the hospital for your parents or our soldiers. Pay the fact that your neighbor doesn’t want to work together to insulate the house, because to it it is uninteresting — will pay the state, and it is convenient that you pay twice — for the expenditure of heat in non-insulated house. Pay the fact that an inefficient system of subsidies creates inefficiencies in other areas of gas supply, heat supply, so that’s a chain reaction.
Subsidies for everyone: some get them, others pay for them
How much is it?
This year’s public expenditure on housing subsidies and benefits will be at least 80 billion UAH. A lot or a little? More than the cost of the Ministry of defence of the country! Country who are fighting for the fourth year.
Each family will pay this year for subsidies for 5000 UAH.
Only these two theses would be enough to attract serious attention to this topic. Unfortunately, it is not. But today it is more logical to concentrate attention on this issue than to think about what was not used all the possibilities for this.
To begin to answer a simple question: can the government cancel a housing subsidy? After all, no subsidies — no problems?!
No, the problem is not in housing subsidies as such! On the contrary, the subsidy as a form of targeted social assistance is more effective than paying the poor a cheap gas and electricity for the rich.
The purpose and objective of the grant is to help those who really need it. But its advantage, in contrast to tariffs, — target orientation. Therefore, for society in General housing subsidies are cheaper than low tariffs. And that is why the tool of targeted subsidies in effect in many countries. Even those who at times richer than Ukraine.
Subsidies should remain, but in a different form and under the control of their purpose
Is it possible a universal solution to reduce overall spending on subsidies?
There is good news. Universal solution — economic growth and real incomes. But there are bad ones. Even under the best growth rate of the economy will take years (and not two or three) for a radical reduction in the number of recipients of grants and payments of grants.
But we have to live today and tomorrow as “docks sonce side, dew Ochi Visti”. Therefore, in parallel with a universal solution is needed to optimize the system of subsidies.
Today, the subsidy system consists of two large systems — the system of assignment/calculation of subsidies and their funding.
The system of assignment/calculation of subsidies is based on two pillars: to whom and how much? To whom the subsidy to give, and who does not, the first question we need to answer.
Here comes the first conflict between the desires of politicians and the possibilities of society (taxpayers). Politicians want to win the favor of voters, and given the existing distribution of population by income is dominated by voters with low incomes, and the society’s strong paternalistic attitudes. Therefore, politicians tend to expand the circle of recipients of subsidies, to hold a kind of replacement therapy — low rates to replace the generous distribution of subsidies.
The latter undermines the very essence of the grants target funds to the needy, leads to a deepening sense of injustice and reinforces paternalistic attitudes. This is the first reason why society should pay more attention to subsidies as a potential source of indirect bribery of voters at the expense of other members of society. The second reason is society has other important needs that should be supported.
How much to give subsidies the second issue, which affects not only the cost of financing the subsidies, but the energy efficiency of grantees. It seems to be directed to the social standards set by the government, but their validity was still a lot of questions. Just one example: over the last three years, the social norm of natural gas consumption for heating decreased by 1.4 times and this is not the limit, social standards remain high.
It is the difference between the actual resource consumption and the accrued social standards and grants creates opportunities for abuse and leads to wasteful use of energy. And this at a time when the state is virtually absent some mechanism for monitoring actual resource consumption by the recipients of subsidies. Therefore, the establishment of reasonable social standards should be the next object of attention for society.
But, obviously, most covered in an aura of secrecy system of funding subsidies. Especially a lot of attention it is given recently in the context of the so-called monetization of subsidies alleged with the aim of opening of the gas market.
As funded by grants
Most funds from the state budget is spent on subsidies for gas and heat supply, so subsidies in this area the most attention. And considering that in the country the heat is mainly produced centrally from gas the word “gas” and “subsidies” — often coexist. Consideration of subsidies to pay for gas and concentrate.
The current financing mechanism of subsidies for gas and heat for more than a decade. Key feature — a rigid hierarchical structure calculations on closed circuit in which the amount of the funds released from the state budget to Finance subsidies, is equal to the sum of taxes paid by participants in the payment to the state budget. The funds on the Treasury accounts of participants of calculations are just the day and return to the state budget.
While the amount of subsidies in the chain was negligible compared to the total turnover of the enterprises, the problems were invisible. But when the amount increased significantly, then any problems in the chain of calculations on subsidies began to exert influence on the operations and liquidity of each participant in the calculations.
There are two main causes of problems: untimely financing of subsidies from the state and the excess amount of subsidies that need to Finance, on the tax obligations of the participants.
Regarding the first reason, it’s actually not a disadvantage of the system of subsidies, and the investigation or lack of appropriate appointments to the state budget or the operating delay in the fulfilment of the States obligations under the Finance subsidies.
The lack of appointments in the state budget occurs for two reasons. First — low estimate of the requirements to Finance subsidies in the preparation of the draft budget and the delay in the preparation and/or amendments to the state budget in case of detection in the process of its execution, that such assignments is not enough. The second reason is not provided subventions to local budgets to Finance subsidies and debt between the parties builds up. This year has highlighted both the above reasons.
The second reason is typical for chains of offsets confined to tax obligations of settlement participants, are not the same moments of the netting and the tax liability of participants in comparable volume. This forces some participants to pay the taxes upfront, and the other is to use a “live” funds for the payment of current tax liabilities in that time, the state owes the latter much a lot of money on subsidies that could be used to pay current tax liabilities. But due to delays in financing, government subsidies will they do in future periods when tax obligations in the necessary amount has simply will not.
Characteristically, in the context of the chain principle calculations, “the amount of money output from the budget is equal to the taxes paid,” the government is beneficial to delay funding grants because the settlement participants will be required to pay taxes “live” money that will allow you to fill the budget. And as for the cost and content of the budget meets the United state is vertical, then there is a conflict of interests, encourage her to delay the funding of grants. In terms of the absence of fines and penalties for untimely financing of subsidies from the state such delay “bloom riotous color”.
What does the Ministry of Finance
At the government meeting on 8 November 2017, it was decided to introduce from 1 January 2018, the so-called monetization of subsidies. In the official report of the Ministry of Finance stated: “the Purpose of these changes is the transition to transparent and timely payments “live” funds for the grants between the state and providers of services.” What will the new system?
It turns out that it’s the same rigid hierarchical structure calculations on closed circuit in which the amount of the funds released from the state budget to Finance subsidies, is equal to the sum of taxes paid by participants in the payment to the state budget. All transactions will be made in the Treasury accounts, and no one hryvnia of “live” funds will not be released outside the chain (see diagram).
Then what is the innovation and monetization? Unfortunately, the obvious benefits are not visible, but the flaws of the current system.
It is not clear how will be solved the main problem that exists now. As will be provided “timely payments”, if this is the problem, as mentioned above, external to the system of subsidies. This is the problem of availability of appointments in the state budget to the extent necessary and timely release of subventions from the state budget. In the absence of any sanctions for untimely financing of government subsidies remains a mystery, based on what statements of the Ministry of Finance.
However, the real problems that need to be resolved in the system of funding subsidies, have remained unresolved. And main from them — a regulatory hole that allows service providers (gas and heat) to pay for subsidies the gas that was delivered to consumers, not recipients of subsidies. De facto it is a misuse of funds. De jure none of this is to bring to justice impossible. To close the hole, it was necessary to change only a few words, but did not. Why? Could be attributed to a technical oversight, but given the attention given this subject, is a weak excuse.
Adopted by the Cabinet decision of “monetization” contains other stories, but that’s a topic for another article, as it concerns a separate natural gas market. But one of the questions should stop now, because it is used as a carte Blanche for such “monetization”.
“The government decision… any provider and the resource owner may be involved in the supply chain of gas to consumers receiving subsidies. Thus, it is, obviously, the most significant has been done to date step to full-scale natural gas market”, — said Deputy Prime Minister-Minister Vladimir Kistion after the decision of the government “on monetization”.
But there are several logical questions tests. In the country, not all consumers are subsidiarily. On the contrary, the most attractive is the segment of domestic consumers who live in large cottages, often consume tens of thousands of cubic meters of gas per year for heating and pay “live” money. Why the whole country does not reach ten million consumers that would have chosen alternative gas suppliers? The answer is simple. The system of subsidies is neither here nor there, and none of its changes will not help.
There are other reasons, but chief among them is obvious: while in this segment are regulated prices that are below market, you will not get here, not a single cubic meter of gas from the market.
And regarding “… the owner of the resource may be included in the circuit supplying gas to consumers receiving subsidies”, we would like to know how this circuit to include imported gas resource, if the adopted resolution of the Cabinet there is a clear restriction that the chain of settlements on subsidies can be closed only on “domestic producers of natural gas.”
Negative answers to these two simple questions-test show that the monetization will not be a “silver ball”, will not solve problems of financing of housing subsidies and will not create competition in the retail natural gas market.
You need a thorough work on the real monetization of subsidies for consumers and the decision on price deregulation of the natural gas market to generate real price competition. If to consider the proposed Finance model of monetization at the level of providers as an intermediate for a limited time and only after significant improvement. Fortunately, the time before the New years!
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