PR for the authorities, discrimination against private entrepreneurs or assistance to poor Ukrainians: what is behind the “National Cashback”

Not everyone reacted positively to the government’s initiative to introduce a national cashback. Firstly, the idea is quite specific, and secondly, it requires money from the budget.

But the main question is also acute: will such a decision be appropriate and useful for ordinary Ukrainians, or is it just PR for the authorities? Economist, coordinator of expert groups of the Economic Expert Platform Oleg Getman answered this question to Telegraph in a quick interview.

— Why did our government decide to introduce the National Cashback program now, not 5 years ago? What is the economic and political feasibility of all this?

And there was such an exotic deputy head of the Presidential Office for Economic Affairs, Mr. Shurma, who generated these ideas and then threw them into the Cabinet of Ministers, and the Cabinet of Ministers was forced to carry it out. Fortunately, he has already been fired, so we hope that we won’t see any more such strange and exotic ideas soon, because the economic bloc of the Cabinet of Ministers is really quite professional. However, they were sometimes forced to comply with the strange whims of the Office of the President, and that’s how this cashback came into being.

We, as economists and think tanks, do not see any economic feasibility. We made a joint statement about this by 14 think tanks, which the Cabinet of Ministers was outraged by. However, they still pushed through this cashback, despite its dubious feasibility, and believe that there will be some benefit from it. We, as economists, do not see this.

— That is, it will be difficult for an ordinary Ukrainian to take advantage of it? Why don't you see the feasibility?

— Ordinary Ukrainians will happily take advantage of the [National Cashback]. They have already opened, it seems, about a million cards on which they will receive these cashbacks.

Therefore, for certain categories of ordinary Ukrainians there will probably be benefits. They will save some money. But from the point of view of the economy as a whole, society as a whole, we don’t see any sense.

Because Ukrainians, who already bought the overwhelming majority of Ukrainian goods (especially in the grocery group), will continue to buy Ukrainian goods. Ukrainians who did not buy Ukrainian, no 10% [Cashback]. they will not be attracted to buy Ukrainian if they believe that it is of significantly worse quality. So nothing will change for certain product categories.

Therefore, we see that 3 billion hryvnia this year and, perhaps, 10 billion next year will simply be transferred to certain categories of Ukrainians in the form of a certain benefit. One more benefit in addition to the hundreds of benefits that are now being distributed to everyone in unlimited quantities. In addition, this program discriminates against small and micro businesses compared to medium and large ones.

It applies only to VAT payers, that is, only to large chains and large stores. And does not apply to individual entrepreneurs. That is, all small shops and markets are discriminated against compared to large and medium-sized businesses.

— Aren’t people from rural areas who receive their pensions, payments in cash and not on a card, discriminated against?

— Any Ukrainian can open his card in any branch, even virtually, so anyone can do this. And in rural areas, cards are now actively used. So there is no significant discrimination here, but small and micro businesses are significantly discriminated against because they were not included in this program.

— You said that in Ukraine wages have grown above inflation, and this is not the case anywhere in the world. Won't this increase the money supply? Will inflation “increase” in Ukraine?

- No, this is only 3 billion UAH against the background of our expenses of 4 trillion.

These three billion will not particularly affect inflation. They rather distort fair competition and lead to additional expenditure of funds from the state budget, which are already in short supply. Therefore, comparing the value of different programs, for example, for the development and additional purchase of drones or something else useful, it could be much more useful than simply distributing money to certain categories that fall into this program.

— This is reminiscent of the story of subsidizing cinemas and entertainment cinemas when there was Covid.

— Closer to the “Yulina Thousand”, which was distributed to Sberbank depositors. It’s just a very strange idea without a real economic background, but with the desire to do something for the Ukrainians, to distribute certain funds to them. Fortunately, it's only 3 billion, not very harmful [to the economy].

And next year we will have to watch. While there is an expectation that this program will not be extended into next year, its harm will end on January 1 [2025]. We don’t yet see this cashback in the draft state budget, but perhaps they hid it in other articles, so we’ll look more closely.

— So this is more of a PR campaign and help to “our people” than to the ordinary Ukrainian?

— The PR campaign, which was happily picked up by large networks, is a definite help to them. And additional savings for people earning average or below average income.

But the overall effect on the economy is zero.

Reference. “National Cashback” is an initiative that allows Ukrainian citizens to receive certain interest on the purchase of domestic goods. Cashback will be credited to your bank card. It was created to increase the popularity of Ukrainian goods and support domestic manufacturers. Cashback payments will be credited until the 20th of the next month for the previous one.