Kiev. Ukraine. Ukraine Gate – January 8, 2021 – Economy
The government has postponed raising the minimum wage to UAH 6,500 from July to December 2021. However, this will not help reduce budget expenditures too much. After all, the “minimum wage” has increased from 5,000 to 6,000 hryvnias since January 1.
According to VoxUkraine experts, the net increase in state budget expenditures due to the increase of the minimum wage to UAH 6,000 from January and to UAH 6,500 from December 2021 will amount to over UAH 15.5 billion. Additional expenditures of local budgets will amount to UAH 12.6 billion. At the same time, the Pension Fund’s revenues will increase by about UAH 3 billion more than its expenditures.
It is noted that raising the minimum wage will have a significant effect of the “second wave”:
on the one hand, it will increase consumption in nominal terms (due to an increase in the purchasing power of the population and slightly higher inflation), and hence – revenues from indirect taxes ( VAT , excise duties) in subsequent periods;
on the other hand, business costs will increase. So, some will reduce investment, some will go into the shadows, and some will be forced to close.
Revenues will increase by UAH 22 billion. Due to the increase in the minimum wage next year, the total additional revenues from personal income tax , military duty and SSC will reach UAH 22 billion. In particular, additional revenues from personal income tax will amount to about UAH 8.4 billion. Of these, the state budget will receive an additional UAH 2.4 billion, local budgets – UAH 6 billion.
Slightly less than UAH 700 million will additionally go to the state budget due to the increase in revenues from the military tax.
Most of all – by UAH 12.8 billion – additional revenues from SSC will grow . And since 86% of this fee goes to the Pension Fund, it will benefit from the increase in the minimum wage.
Rising expenditures. However, raising the minimum wage means increasing both revenues and expenditures of state and local budgets.
First, expenditures on salaries of public sector employees and civil servants will increase. At the same time, the subsistence level set for January 1 of each year is used to determine the salaries of these employees. This level has already been increased from December 1, 2020 by 20%, which corresponds to the growth of the minimum wage.
The increase in salaries will lead to an increase in the amount of accruals for salaries of public sector employees and civil servants (SSC). Of course, not everyone’s salaries will increase. For example, in the draft law on the state budget for 2021 (Article 26), the Government proposes to freeze the basic salary for all government employees at the level of September 2020. This means an increase in wages for this category of workers only for those who have less than the minimum. The amount of salaries for judges and prosecutors is regulated separately (and in the draft budget before the second reading it was proposed to significantly – from UAH 1,000 to UAH 1,600 – increase the subsistence level to which their salaries are tied).
The “side effect” of a significant increase in the minimum wage is a narrowing of the differentiation of salaries of workers of different qualifications, as no employee can receive wages below the minimum. So, not everyone who receives a salary from the budget will be satisfied with raising the minimum wage.