In Ukraine, in order to stimulate domestic consumer demand and revive economic development, a national cashback program will be introduced, under which citizens will be able to receive a refund of part of the money they spent on purchasing domestic goods.
The “Buy Ukrainian” cashback program was announced by Vladimir Zelensky during the presentation of the “Made in Ukraine” platform on February 26.
“For the purchase of certain types of goods and services produced in Ukraine, citizens of Ukraine will be able to receive a refund of part of the funds on a special card. So that the money stays and works in Ukraine. These are taxes, the salaries of our soldiers, the capabilities of our state, in particular, defense. And cashback parameters are already being prepared - financial and technical,” Zelensky said, presenting a new state brand and economic policy called “Made in Ukraine.”
In turn, Prime Minister Denis Shmigal emphasized that Ukraine, when developing this program, is adopting the experience of the European Union. They say this increases consumer demand and fuels economic growth. And the total predicted effect from cashback is estimated at +0.14% of GDP, more than 22 thousand new jobs and more than 4 billion hryvnia of additional budget revenues.
In addition, according to Minister of Economy Yulia Sviridenko, the government is already working on the format of the Ukrainian cashback.
“In my understanding, a person who buys Ukrainian-made goods, using an online card or a physical card, receives a certain percentage of the cost of the goods, which are necessarily Ukrainian-made. After that, you can spend these funds on Ukrainian-made goods,” Sviridenko said on one of the TV channels.
Old ideas in a new wrapper
The first deputy head of the Verkhovna Rada Committee on Finance, Tax and Customs Policy, Yaroslav Zheleznyak, has already spoken about the initiative. He noted that the idea of “buy Ukrainian” is not new, with the exception of cashback. However, this is, in fact, a government subsidy and in fact this program is import substitution.
“For a small open economy, this is a similar story. And now, when everything has shrunk, even more so,” Zheleznyak wrote in his Telegram channel. “Our priority is not import substitution, but export development.”
Thus, the people’s deputy noted, in fact, the presented initiative is a repackaging of already known ideas under a new brand.
However, the idea of cashback is also not new. It is actively used by banks and retail chains.
“Experts and participants of the VSK (temporary investigative commission) on economic security have long proposed to the Verkhovna Rada and the government to introduce cashback when purchasing excisable goods (tobacco, alcohol, fuel). This, as planned, should have contributed to the “detinization” of this area, encouraging people to buy legal goods and pay by card,” Oleg Getman, coordinator of expert groups of the Economic Expert Platform, tells Apostrophe.
And although this idea was not accepted, it may have prompted the initiative to introduce a “national cashback”. At the same time, Getman did not rule out that the opportunity to receive cashback will encourage consumers, when choosing between goods of similar price and quality, to buy Ukrainian products.
“It is obvious that it will not be long before we will be able to choose some complex Ukrainian-made equipment. However, Ukraine consumes a huge amount of imported goods similar to those produced in Ukraine. Food, drinks, clothing, shoes and more. And it may not be a bad idea to create a certain material incentive so that, given a close price-quality ratio, people choose Ukrainian goods,” the expert believes.
But why reinvent the wheel for this? There is a mechanism that works quite well, which is quite often used in other countries. For example, reducing VAT on certain groups of goods. For example, in neighboring Poland, on a number of goods there is either no VAT at all, or it is symbolic.
Difficult and expensive
In addition, introducing cashback at the statewide level is complex and costly.
“The most important thing is that this cashback will be paid at the expense of taxpayers. This means that the government will have to spend additional efforts to collect additional funds from citizens and businesses. Then these funds will need to be distributed among all buyers of Ukrainian goods, which will also require significant costs for administering this process,” explained CASE Ukraine expert Vladimir Dubrovsky in a commentary to Apostrophe.
Also, according to him, if the condition for receiving cashback is the purchase of domestically produced goods, then the question arises of which product can be considered Ukrainian.
“If we take bread, we can say that it is almost entirely produced in Ukraine. What if a Ukrainian enterprise made a suit from imported fabric? Or did you deliver some product and pack it? Are these products Ukrainian or not? Therefore, it is impossible to draw a clear dividing line between domestic and imported goods,” the expert is confident.
In addition, Vladimir Dubrovsky debunked the myth that cashback will definitely increase the demand for Ukrainian products and, as a result, domestic production.
“This result is not at all guaranteed, since the expansion of production depends on many factors - market competition, investment, tax policy, competitiveness of manufacturers, and so on. If these factors are unfavorable, then an increase in demand for domestic products will only lead to an increase in prices for them,” the expert emphasized.
And, perhaps, the most important thing: can a country that is waging a debilitating war afford the luxury of voluntarily giving up a certain part of its income? The obvious answer to this question is that our state does not have extra money.
“This is complete nonsense, really. We have a war economy in the sense that we don’t have money in the budget, and we definitely don’t have money for some kind of cashback,” investment banker and financial analyst Sergei Fursa said on Apostrophe TV. “I hope that in a few months everyone will forget about this and will not remember these initiatives, which, apparently, were invented on their knees.”
After all, when they started talking about strengthening mobilization, the issue of financing arose. But there’s simply no money for things like cashback.
“We have half the budget, the entire non-military component is the money of our Western partners (there is still no American money - “Apostrophe”). And I would like to imagine how someone from the Cabinet of Ministers will come to American senators, especially Republicans, and say: “Give us money - we want to increase pensions during the war, and we also want cashback, so give us a few billion dollars also for cashback." And I want to see how Republican senators and congressmen will respond to members of the government who propose such a crazy idea,” summed up Sergei Fursa.
