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How the Government “Optimizes” Subsidies

18 December 2020Світлана ОЛІЙНИК, спеціально для “Української енергетики”
How the Government “Optimizes” Subsidies

Ukraine’s poverty is growing, but the number of subsidy receivers is declining

 

In the state budget for 2021, the government has included UAH 36.6 billion for subsidies - almost twice the amount allocated in 2018. At the same time, it is planned to increase the share of the obligatory payment for utilities from the total income from 15% to 20% almost immediately after the end of the quarantine. The question arises: is the growth of household incomes so much ahead of the increase in energy prices that the number of applications for subsidies has decreased significantly? In search of answers, Ukrayinska Energetyka together with experts analyzed some indicators.

Subsidies Save from Debts for Housing and Communal Services 

The objective of the housing subsidy program is to help low-income families pay for housing and communal services (HCS), the cost of which is increasing. Accordingly, the share of family spending on housing and communal services is increasing.

Thus, according to the online map of the energy sector of Ukraine, in which DiXi Group analysts generated various data (including the data of the State Statistics Service), in 2018 one household spent UAH 1,001.05 on housing, water, electricity, gas and other fuels on the average, and in 2019 – already UAH 1,321.14. The share of family spending on housing, communal products and services in 2018 was 13% of total consumer spending, and last year - 14.6%. In addition, these costs are much higher in cities than in villages: UAH 1,033.70 against UAH 564.24 in 2018 and UAH 1,360.44 against UAH 771.26 in 2019. Another interesting statistical nuance: the fewer people in the household, the greater the cost of housing in relation to income. Thus, last year they were 17.1% for a household with one person, 14.1% – with two people, 12.8% – three, 11.7% – four and 10.1% – five.

In view of this, subsidies remain very important. After all, non-payments of the population lead to debts, as result of which, respectively, producers and suppliers of water, heat, electricity, gas, etc. do not receive funds. This in turn threatens not only that consumers may be left without all this, but also in general lead to the collapse of life support systems in the country.

According to the online map of the energy sector of Ukraine, in October 2020, the level of payment for housing and communal services by the population decreased by 29% compared to the previous month. Payments have also become lower since the second quarter, compared to the same period last year.

“During the heating season, our level of payment is traditionally less than 100%, and after this period - more than 100%, Oleh Pendzyn, Executive Director of the Economic Discussion Club, notes. – And thus, people more or less cover their expenses for the next heating season. But there is a nuance: this year the number of people who repaid their debts in the summer for the previous heating season is much smaller. That is, if in previous years the percentage of payment in May-August was 120-200%, this year – 104-140%. This means that a much larger number of people have not paid and will not apply for subsidies. Because they had no money at all. That is, this group of people falls out of the category of population which receives state aid at the expense of subsidies.”

At the beginning of November this year, the population owed UAH 22.4 billion solely for the supply and distribution of natural gas. In October, this debt increased by UAH 1.3 million, as Ukrainians paid only about 60% of the accrued amounts.

“Over the past few months, the debt of the population for housing and communal services has increased catastrophically,” Andrii Kompan, chairman of the Association of Energy Suppliers, noted in one of his speeches. - Especially for gas after the opening of the gas market. In a number of regions, the level of payment for gas reaches 46-54%, while the level of payment for communal services – 82%.

During the pandemic, as a measure of economic support, some states expand their capacity to protect vulnerable energy consumers. In Ukraine, similar expectations exist regarding subsidies for those who cannot pay for communal services as a result of job loss or other negative phenomena. But the state has reduced this cost item.

According to official data, the funds allocated by the government for subsidies have almost halved since 2018:

2018 – UAH 71 bln;

2019 – UAH 55 bln;

2020 – UAH 39,3 bln;

2021 – UAH 36,6 bln.

Revenues and Applications for Subsidies

Thus, the amounts of subsidies in the budget have decreased. Theoretically, this happened because the incomes of Ukrainians increased, and accordingly fewer people began to apply for subsidies.

But is it really?

We see that from 2014 to 2017, the income of the population in hryvnia and the number of applications for subsidies increased. However, in 2018, almost 8.3 million applied for subsidies – about 800 thousand less than the previous year. And in 2019, the number of appeals fell to almost 5 million.

“According to the latest data from the State Statistics Service for 2019, we had almost 15 million households,” Liudmyla Cherenko, head of the Living Standards Research Department at Ptukha Institute for Demography and Social Research of the National Academy of Sciences of Ukraine, said. - During the inquiry of the State Statistics Service within the framework of the Household Living Conditions Survey, 3.2 million respondents said that in 2019 they received a subsidy (it could be a subsidy for one month or for a whole year). And the receipt of the subsidy in 2018 (when there was a peak in the number of applications for subsidies – 8.28 million) during the survey was confirmed by 6.5 million households, i.e. almost 44% of all households. Thus, the number of recipients has halved in a year.”

In November 2020, 2.9 million households (19% of the total) received a subsidy for housing and communal services in the amount of UAH 4.6 billion.

The main reason for this decrease was the growth of incomes of Ukrainians, Liudmyla Cherenko explains. And it happened, in part, due to an increase in the minimum wage (the share of those who receive a “minimum wage” or a little more is 30%):

2018 – UAH 3,723,

2019 – UAH 4,173,

2020: January 1 – August 31 - UAH 4,723; from September 1 – UAH 5,000.

The procedure for granting subsidies: from program expansion to narrowing

Another factor that affects the number of subsidy recipients, according to experts, is the procedure for providing subsidies. The government has repeatedly changed it. Thus, initially the families in which the amount of payment for housing and communal services exceeded 10% or 15% of the average monthly total income of citizens had the right to receive them. 10% were taken for calculation if the family had children, I or II group disabled persons, and the average monthly total income per one registered person did not exceed 50% of the subsistence level per person per month, as well as if only disabled citizens are registered in an apartment or house.

From January 1, 2007 the amount of payment for housing and communal services is already 15% of the average monthly total income (for the purchase of liquefied gas, solid and liquid furnace fuel – 15% of the annual total income), even if only disabled citizens are registered in a housing unit. And from May 1, 2020, the percentage of mandatory payment for communal services was supposed to increase to 20%, but as a result of the coronavirus, this change was postponed.

It will take effect on the first day of the month following the month in which the quarantine ends.

“In 2014, the subsidy program was expanded, and it was campaigned for in order to prevent mass indebtedness of the population for utility payments,” Liudmyla Cherenko explains. – In May 2015, the procedure for receiving subsidies was simplified. In particular, all restrictions on property status were cancelled, except for a one-time purchase in the amount of more than UAH 50,000, which was made within 12 months before the month of application. That is why the number of appeals increased in 2015. The government assumed that in a maximum of 2-3 years of active activity of the program in 2018 it will decrease again (the number of appeals and the amount of expenses), because the population will get used to the new tariffs (there is such a psychological moment) and nominal incomes will increase. And when in 2018 they saw that it was still a question of large sums (in 2018, UAH 71 billion were spent for subsidies), they began to think seriously about establishing stricter rules and thus reduce the number of those who may apply for subsidies.”

From May 1, 2018, a new procedure for providing subsidies was introduced. For example, those who made a purchase of more than UAH 50,000 could not claim them; whose total area of the apartment exceeds 120 square meters, and the area of an individual house – 200 square meters; if the family has a car the age of which is less than five years; if the household has more than two months of arrears of payment for housing and communal services, etc.

“In addition, there were restrictions on able-bodied family members, relatives, who had to declare their wealth, provide certificates, etc.,” Liudmyla Cherenko continues. - And this to some extent stopped many Ukrainians from applying for subsidies. Thus, self-deaddressing took place. The contingent was artificially slightly reduced.”

People understood that according to the documents, they might have received a subsidy if they had started collecting all the certificates, but it was so difficult that they refused.

“Let’s say a person comes to a social security authority, and they ask where her children are,” Liudmyla Cherenko describes a typical situtation. - She answers that her daughter lives abroad. And then she is asked that this daughter provide a certificate stating that she does not work anywhere, but is registered with the Employment Center. The person replies that her daughter will not be able to give such a certificate. And then employees of a social security authority explain that in this case they will add two more minimum wages to a person’s income. This means that the subsidy of this person will no longer be UAH 500 per month, but UAH 150. And the person thinks: why should I bother, ask my daughter to come from abroad, register with the Employment Center (and you have to appear there regularly), ask for a certificate and all this for 150 hryvnias? This is how additional leaching of the contingent takes place. There are a number of restrictions so that people who can theoretically pay for utilities themselves, do so, rather than contacting social services.” 

Prospects for Receiving Subsidies 

Next year, UAH 36.6 billion should be allocated from the budget for subsidies. This is UAH 11.4 billion less than this year. At the same time, in 2021, gas and electricity prices for the population, according to experts, will increase. Thus, the amounts in payment documents - too. As of November 30, almost 410,000 unemployed people were officially registered in Ukraine, but as a result of the lockdown, their number may increase significantly at the beginning of the new year. Will there be enough budget funds for subsidies? Moreover, according to the state budget for the new year, from January 1, 2021 the minimum wage will increase to UAH 6 thousand, and from December - to UAH 6.5 thousand. And this will also affect the number of subsidy recipients.

“Remember that when, as Prime Minister, Volodymyr Groysman sharply raised the minimum wage from UAH 1,600 to UAH 3,200 from January 1, 2017 (twice), it led to a significant reduction in the number of people who applied for subsidies. What Mr. Zelenskyi is going to do now will have similar consequences. That is, as soon as the “minimum wage” is raised, the number of people who have the right to subsidies will decrease. That is, in this way the state reduces the number of subsidy recipients,” Oleh Pendzyn notes.

In the end, this was confirmed by Finance Minister Serhii Marchenko: “Subsidies are calculated in accordance with the ability of citizens to receive them. We are now significantly increasing the subsistence level, the minimum wage. In conditions when energy prices are quite low compared to previous years, there will be savings in subsidies. These are calculations.”

The Ministry of Social Policy recently boasted that since the beginning of the new heating season, the amount of subsidies has increased 2.5 times. However, experts note, gas prices have also risen.

“Actually, the amount of the subsidy has increased because gas prices have risen,” the interlocutor explains. - Here you can brag as you please, but these are directly proportional things. And when the price of gas we had was UAH 2.5 per cubic meter, it is one thing, and when now the price of gas is about UAH 7 per cubic meter, and in fact a person pays with delivery up to about UAH 9.5 per cubic meter of gas, it is already another situation. And all this praise of the government is completely made up, because the number of subsidy recipients is washed away by raising the minimum wage. Based on this, people can already be told that as soon as the minimum wage is raised by 1,000 hryvnias in the country, they will automatically lose the right to receive subsidies.”

The cost of natural gas for household consumers from the main gazzbuts

Company name

Price of 1 cubic meter of gas incl. VAT (excluding the distribution cost), UAH

August

September

October

November

December

Vinnytsiagaz Zbut

4.50

5.50

6.68

8.85

8.85

Volyngaz Zbut

4.50

5.50

6.70

8.84

8.84

Dnipropetrovskgaz Zbut

4.50

5.50

6.77

8.89

8.89

Zhytomyrgaz Zbut

4.50

5.50

6.81

8.90

8.90

Zakarpatgaz Zbut

4.50

5.50

6.79

8.81

8.81

Zaporizhgaz Zbut

4.50

5.50

6.82

8.96

8.96

Ivano-Frankivskgaz Zbut

4.50

5.50

6.78

8.83

8.83

Kyivoblgaz Zbut

4.50

5.50

6.67

8.82

8.82

Luhanskgaz Zbut

4.20

5.37

6.76

8.29

8.29

Lvivgaz Zbut

4.50

5.50

6.68

8.81

8.81

Mykolayivgaz Zbut

4.50

5.50

6.81

8.94

8.94

Poltavagaz Zbut

4.50

5.50

6.75

7.92

7.92

Rivnegaz Zbut

4.50

5.50

6.78

8.87

8.87

Sumygaz Zbut

4.50

5.50

6.74

8.88

8.88

Kharkivgaz Zbut

4.50

5.50

6.67

8.84

8.84

Khmelnytskgaz Zbut

4.50

5.50

6.79

8.88

8.88

Cherkasygaz Zbut

4.29

5.45

6.66

8.77

8.77

Chernivtsigaz Zbut

4.50

5.50

6.82

8.88

8.88

Chernihivgaz Zbut

4.50

5.50

6.72

8.88

8.88

 

The table is drawn up based on data from Gazoteka service from DiXi Group

Raising the minimum wage does not mean that Ukrainians will become wealthier.

“If in 2019 there really was a reduction in poverty and good prospects, then this year there was a collapse,” Liudmila Cherenko said. – We have a catastrophic situation. Compare: in the first quarter of 2019 there were 14.6 million poor people in our country, and in the first quarter of 2020 – 16.7 million. That is, for the first three months of 2020 (before the introduction of quarantine!), the number of poor people in our country increased by 2 mln. It should be noted that economic problems began in Ukraine in November 2019. And since there were no stocks, no financial cushion in the families (because we were all just starting to come out of the pit), it led to a sudden collapse and an increase in poverty. 2020, of course, will be difficult, and the next year, 2021, will not be better. So far, we do not expect poverty reduction. Only the growth.”

During this period, the government should support the population. Andrii Kompan, Liudmyla Cherenko and Oleh Pendzyn are convinced that first of all small and medium enterprises should be supported, more funds should be allocated for subsidies, and the mechanism of this support should be expanded. Moreover, this will prevent the growth of debt for housing and communal services, and thus - the exacerbation of existing problems in the housing and communal services sector.

Svitlana OLIINYK, specially for Ukrayinska Energetyka

The infographic was prepared by DiXi Group analysts

 


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