Ukrainians will see a 7% salary deduction for government bonds, as aimed by Hetmanets, according to an expert discussing government initiatives.

Society, experts, and businesses are actively discussing a new proposal from Daniil Getmantsev, the head of the Committee of the Verkhovna Rada on financial, tax, and customs policy. The deputy, who has frequently been an initiator of tax increases in Ukraine, suggested that all employed Ukrainians should be required to purchase government domestic bonds (OVGS) amounting to 7% of their salary. This has sparked significant controversy and outrage among both ordinary citizens and the business community. UNN interviewed expert Myroslav Laba from the analytical center of the Union of Ukrainian Entrepreneurs about the economic implications of such an initiative.

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The specialist believes that the additional costs associated with the mandatory purchase of OVGS could impose a financial burden on the population, particularly on low-income citizens and entrepreneurs, and urged the consideration of alternative methods for financing state needs. Laba suggested focusing on combating the shadow economy and tax debts instead of introducing new mandatory expenses for citizens.

-           Recently, society has been actively debating the initiative proposing to mandate the working population to buy OVGS at 7% of taxable income. In your opinion, how will this affect the earnings and financial situation of working Ukrainians amid the war? Will it not become an additional financial burden for the population? After all, sociological surveys indicate that most working citizens of Ukraine cannot save from their incomes, and many live on credit or rely on previously saved funds?

-             In my view, this initiative to enforce the purchase of OVGS by the working population serves another purpose - namely, to provide a potentially worse alternative to the bill that the Verkhovna Rada voted on (bill 11416-d) regarding the introduction of a military tax for individual entrepreneurs at 800 UAH and an increase in the military tax on salaries. Currently, this bill is awaiting the President’s signature. I sense that there are certain doubts or a lack of readiness to sign it, which is why this idea of mandatory OVGS purchases at 7% of taxable income emerged. It was articulated to suggest either a 5% increase in the military tax or a 7% OVGS requirement on salaries. Therefore, I think this initiative aims to push the President towards signing this tax increase bill 11416-d.

-              Can such an initiative positively impact the country's economy? What specific economic benefits could it provide under wartime conditions?

-              I would say that the population of Ukraine has varying income levels. For instance, we have quite a few citizens earning 15,000 UAH per month. We looked at the incomes of individual entrepreneurs in the first group, which they declared in 2023. Their average earnings were around 14,000-15,000 UAH per month.

The introduction of a military tax of 800 UAH per month for this category of citizens, along with the mandatory purchase of OVGS at 7% of taxable income, constitutes an economic sabotage against the population of Ukraine. This is very detrimental because these citizens will have to choose between going underground, closing their businesses, emigrating, or serving in the Armed Forces, as they will not be able to afford these additional payments.

Recently, the Ministry of Finance published a dashboard of average salaries across ministries and agencies, and I was honestly surprised to see an average salary of 200,000 UAH per month. I believe that this mechanism of mandatory OVGS purchases could be applied specifically to public servants, those with exemptions, and those with high salaries. These individuals could contribute a portion of their income without harming their own well-being to the OVGS, thus also helping the Armed Forces and the economy of the state.

I would slightly adjust the statement made by the Prime Minister: "either work or fight." It should be "either help the army or fight." That is, those who have not gone to fight, who have protection, exemptions, and some ability to work here, should invest the surplus of their salaries, which exceeds, for example, 5-10 minimum wages, in OVGS to appropriately help the economy of the country.

-              Are there mechanisms in place to protect citizens' interests if, in the future, the state cannot fulfill its obligations regarding OVGS? How will the state guarantee the payment of these funds under critical conditions?

-              I see one incentive here: if officials, ministers, deputies, and those making state decisions invest their funds in these bonds, they will do everything to ensure that the state returns these funds.

For example, there was information that the head of the regional office of the Bureau of Economic Security displayed quite a large wealth in millions of dollars in his declaration. If such individuals, officials, and civil servants, who have balances in their declarations exceeding a certain amount - a million or half a million - invested part of their funds in these government bonds, I believe they would work more effectively and thoughtfully in their positions, directing their efforts towards ensuring that Ukraine endures, remains, and returns these funds with appropriate interest.

-              How do you assess the risk of reduced consumption levels due to the forced investment of part of incomes in OVGS? Could this negatively impact the domestic market?

-              I think that every family has certain minimal needs for their own survival, such as food, clothing, and maintaining a certain standard of living. If the state takes away from families the funds they spend to support their minimum living standards, it will impact consumption. However, if those funds are taken from someone who has a million stashed away, I don’t think it will significantly affect their consumption.

-              How might the introduction of this initiative affect citizens' trust in government economic policy? Could it lead to an increase in shadow payments to avoid deductions?

-              I suggest focusing on the public sector. If this initiative targets the public sector (requiring officials to buy OVGS), then there won't be shadow payments there. It seems to me that if this initiative is directed specifically at the public sector, it will not affect the shadow wage level.

-              What about representatives of small businesses? Entrepreneurs have seen a significant increase in taxes, including the military tax, and there are already warnings that this is not the last increase.

-              I would say that perhaps those making economic decisions in the government need to determine what they want. On one hand, we are promoting the initiative to create a Ministry of Unity, which will work on bringing Ukrainians back from abroad, and so on. But if you want people to return and live in Ukraine, then surely conditions must be created for them to want to come back. Because on one hand, the government declares the need for Ukrainians to return, while on the other, through tax increases for microbusinesses and those who feed themselves and earn a living, they are doing everything to drive them out of the country.

-              What alternative methods of financing the state under wartime conditions would you propose that would not create additional financial burdens on working citizens?

-              When the Ministry of Finance submitted bill 11416 (on tax increases) to the Verkhovna Rada last summer, many business associations suggested that it was necessary to tackle the shadow economy. We have quite a lot of money circulating in the shadow markets of excise goods, and there are significant amounts of money tied up in tax debts.

So, there are areas where there is a white economy and areas where there is a gray economy. It turns out that when the state needs income, it starts from the easiest places to obtain it, which is from the white business, the legal sector. However, it should approach the other side, where businesses do not pay, where unaccounted income exists - there the state is absent, and other mechanisms, different distributions, and some corruption components are at play, and unfortunately, the authorities do not want to fight this, or create a certain appearance of fighting, or somewhere behind closed doors, there are some agreements...

If we take the shadow cigarette market, prior to the full-scale war, it was at 6%, then 25%, and now it has decreased to 14%, but it still represents budget losses. That is, take these funds from where they are not being paid. You have debts totaling 160 billion UAH - take these funds from there.

For example, today many citizens are unaware that they have a property tax debt. The tax service has closed these registries. The only place to find out if you have a debt is the taxpayer's cabinet, but to access that, a person must know how to do it and have a key to access... This is currently not accessible to the general population.

The state is reluctant to take funds from where they rightfully belong and instead goes where it is easier and simpler to obtain them - through tax increases.

Additionally

Previously, a member of the Ukrainian Society of Financial Analysts, Vitaly Shapran, also sharply criticized Getmantsev's idea of mandating the purchase of OVGS by the working population. According to the financial analyst, the introduction of such a requirement will lead to an increase in the number of Ukrainian citizens leaving the country.

"Getmantsev's latest idea (a student of Volodymyr Syvkovych) to force Ukrainians to buy OVGS at 7% of their income indicates