Last week, the Verkhovna Rada adopted the law “On the State Budget of Ukraine for 2024.”
Budget 2024: More income - less expenses
Despite the expected recovery of the Ukrainian economy (by 5% this year and 4.6% next) and the planned increase in the state budget’s own revenues, its expenses will not increase in 2024. Compared to the current state budget for 2023 (taking into account all the changes made), they will even decrease.
The main reason is the huge budget deficit of the warring country, which is increasingly difficult to cover with the help of partners in conditions when all domestic revenues are directed to defense.
According to Finance Minister Sergei Marchenko, Ukraine still does not have guarantees of financial assistance for $29 billion out of $41 billion, which are already included in the state budget to cover expenses not related to the security and defense sphere.
Defense and social services: Main items of expenditure
In general, state budget expenses for 2024 will amount to 3 trillion 355 billion UAH, which is slightly less than planned for the current year (3 trillion 393 billion), including expenses of the general fund - 3 trillion 121 billion UAH and expenses of the special fund - 234.5 billion UAH
More than half of all spending next year is planned to be spent on the defense and security sector - 1.69 trillion hryvnia. This amount is limited by its own state budget revenues, since Ukraine cannot use funds from international partners to finance the Defense Forces.
At the same time, some non-defense expenditures in the state budget will increase significantly next year. In particular, subsidy funding has been increased by a third or 12 billion – to UAH 49.9 billion. Spending on education will increase by UAH 22.9 billion, or 15%, on healthcare – by UAH 24.4 billion, or 13.7%.
“This year, for the first time since the beginning of the war, we are providing for indexation of salaries for teachers and doctors. This is critical. Because people have actually been in difficult living conditions for two years, despite the fact that the inflation rate last year was 26%, so indexation is necessary,” Finance Minister Sergei Marchenko explained in parliament.
In addition, the cost of servicing public debt will increase significantly - up to 420 billion hryvnia (from 265.3 billion hryvnia in 2023).
Why are spending on officials growing, but not on the army?
Along with increasing salaries for doctors and teachers, the government has included in the budget an increase in spending for most ministries and departments, with the exception of those related to the Defense Forces.
Thus, at the current year level, the state budget for 2024 provides for expenses only for the Foreign Intelligence Service (UAH 5.96 billion).
Funding for the Security Service of Ukraine and the Main Intelligence Directorate of the Ministry of Defense will decrease by 2-3%. At the same time, for the units of the Ministry of Internal Affairs, the state budget provides for a reduction in expenses by 64 billion hryvnia, and for the Ministry of Defense itself - by 188 billion hryvnia.
Moreover, the reduction in funding is primarily expected to come from labor costs, that is, payments to military personnel.
For the Ministry of Defense next year they will decrease by 130 billion hryvnia (to 664.4 billion UAH), for the National Guard - by 16 billion (to 60.5 billion UAH), for the State Border Service - by 9.5 billion UAH (to 43 billion UAH) .
At the same time, spending on most “civilian” ministries and departments will increase next year.
At the same time, the increase in expenses is primarily intended for labor costs. For example, the salary fund for the State Bureau of Investigation (SBI) next year will increase by almost a third - from 1.8 billion to 2.6 billion UAH, for the Ministry of Justice - by 27% (to 10.68 billion UAH), for the State Judicial administration - by 14% (to UAH 14.9 billion).
A similar situation is observed for the vast majority of authorities.
Why is this happening? Because the state budget for 2024 provides for an increase in a number of social standards to which payments to government officials are tied and which have hardly changed over the past two years. For example, along with the increase in the cost of living provided for in the state budget for 2024, the salaries of people’s deputies will increase from January 1.
In addition, salaries for all public sector employees will increase, because the budget also provides for an increase in the official salary of an employee of the first tariff category of the Unified Tariff Schedule, which remained unchanged in 2022-2023.
From January 1, 2024, it will increase from UAH 2,893 to UAH 3,195, and from April 1 next year - to UAH 3,600.
At the same time, the salaries of judges, prosecutors, employees of tax and customs authorities should not increase - the base value for their calculation for the next year was left unchanged. However, labor costs for the State Customs Service next year will still increase from UAH 2.95 billion to UAH 4.64 billion, and for the Tax Service - from UAH 5.49 billion to UAH 7.61 billion.
However, in order to finance the growth of these costs, it is necessary to receive all financial assistance planned for the next year from partners in full.
The state cannot increase payments to military personnel - its own budget revenues from the economy are not enough to ensure funding for the Defense Forces even at the current level.
That is why it became necessary to withdraw 96 billion hryvnia from local budgets next year from the so-called “military personal income tax” and use it for the purchase of weapons, as well as transfer 95 billion hryvnia from the Road Fund to the general fund of the state budget.
The Ministry of Finance admits that these funds are not enough.
“Indeed, the needs of the security and defense sector are 8-10 times higher than those budgeted for. Let's just do the math. The amount of 1.7 trillion hryvnia is what we have now. This is significantly higher than the taxes that we collect; this is the amount that we cover through all taxes and through borrowing. Let’s imagine that we have 17 trillion hryvnia (defense expenditures in the state budget - ed.) ... These funds will not appear in any absolutely cosmic, artificial or somehow magical way, this must also be understood. They can only appear if our gross domestic product grows at a fairly significant and rapid pace. And we are ready to direct every percent of growth to the security and defense sector. But let's talk about reality. We are now directing all the resources we have to the defense sector. Let’s make sure that this resource is used effectively,” explained Finance Minister Sergei Marchenko, speaking in the Verkhovna Rada before the adoption of the state budget.
At the same time, he recalled that this year, defense spending planned since its inception has increased several times. The Ministry of Finance will probably have to look for additional funds for the war in the future.
