Archive for June 25th, 2010

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Ukraine & EFTA sign Free Trade Agreement

June 25, 2010
Interfax-Ukraine

Ukraine’s Foreign Minister Kostiantyn Hryschenko has signed an agreement on free trade with the European Free Trade Association (EFTA), which unites Island, Liechtenstein, Norway and Switzerland.

The document was signed during Hryschenko’s visit to Iceland, where he took part in the EFTA ministerial conference, the press service of the Ukrainian Foreign Ministry reported.

Speaking at the conference, Hryschenko stressed that the agreement on a free trade zone between Ukraine and the EFTA countries is “the first document since Ukraine’s entry into the World Trade Organization (WTO) in 2008.”

“We believe that this agreement is one of the greatest achievements of Ukraine’s membership in the WTO. The signing of this document is particularly important, given the Euro-Atlantic aspirations of our country. I am convinced that the efficient implementation of the agreement will promote Ukraine’s integration into the European economic and political space,” Hryschenko said.

The European Free Trade Association (EFTA) is a free trade organization between four European countries, Island, Liechtenstein, Norway and Switzerland, that operates parallel to, and is linked to, the European Union (EU).

Three of the EFTA countries are part of the European Union Internal Market through the Agreement on a European Economic Area (EEA), which took effect in 1994; the fourth, Switzerland, opted to conclude bilateral agreements with the EU.

A step in the right direction!

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Retirement, Taxes and Age

June 25, 2010

Well dear readers, in the UK, State paid pensionable age is going up fro 65 years old to 66 years old…..and probably higher.

Also the ability for employers to say “OK, your 65 now, thanks for your efforts but you outta here” will also be removed.

The reasons for this is the average life expectancy in the UK has risen for men from 71, 30 years ago, to 77.4 and with women it has risen from 77 to 81.6 years over the same 30 year period.

Add into this the baby-boomers of the 1960’s now being in their 40’s and 50’s, a demographic pension crisis is looming in 20 years…….of which I will be a part.

No doubt additional contributions will also be sought by way of tax to prepare for the pension tsunami ahead as well.

What has this to do with Ukraine?

Well, one of the major drains on Ukrainian finances is of course the State pension which is payable at the tender age of 55 years old.

Now life expentancy in Ukraine, according to historical records and World Bank statistics has remained fairly consistant at 68.3 years, going right back to 1962.

http://www.google.com/publicdata?ds=wb-wdi&met=sp_dyn_le00_in&idim=country:UKR&dl=en&hl=en&q=life+expectancy+Ukraine

Discounting any legacy of State pensions paid to people far exceeding the life expectancies in either nation, if an individual retired today in both nations, the anticipated pension commitments prior to death would be 12.5 years in the UK and 13.3 years in Ukraine.

Now the Ukrainian State pension system has a bare minimum monthly 710 UAH payment per pensioner where as the bare minimum pension per month in the UK is £97.  (Not a great deal of difference considering the UK is supposed to be far more “developed”).  This is almost offset by the additional year Ukraine expects to pay a pensioner before death.  (I am sticking to bare minimum payments without enhancements due to circumstances which occur in both nations).

Major differences exist in the ability to collect tax revenue in the nations however.  Where as 50% of people in Ukraine are in the shadow economy and donate nothing by way of “identifiyable taxes”, the vast majority in the UK pay taxes at sourse every pay day.

There are 62 million people in the UK but only 46 million in Ukraine.  Of course if the majority of 62 million pay taxes during their working life but only 50% of 46 million pay in Ukraine, it is hardly surprising that Ukraine’s pension fund is consistantly running at a deficit and consistantly needing additonal funding…….coming from other areas in the budget……with knock on effects for schools, roads, hospitals etc.

So, is the answer to raise the pensionable age from 55 in Ukraine as the IMF suggest?

I don’t think so, as within the average life expectancy figure of 68.3 years for a Ukrainian, men on average die at 62.4 years and women at 74.5 years.  That means a man would have 7.4 years of pension before expected death.  Not unreasonable in terms of time or expenses to the State…….until you take into account Zeno’s paradox. 

(If you are going to Google “Zeno”, dear readers, please be aware that it is likely to boil your brain unless you have a very, very, VERY good mathematical mind.  (Reductio ad absurdum))

Is the answer to cut the basic State pension?  Everything is relative of course, but 710 UAH is about £59 per month.  Trust me here, that is nowhere near enough to survive on in Ukraine. 

Is the answer to scrap the State pension…..or phase it out at least?  Is it time to state that any State Pension Scheme is a giant Ponzi scheme?

Hardly an ingratiating thing to do when trying to get closer to the EU.  In fact every Ukrainian government has always wanted to raise the State pension to take into account that, as I say, 710 UAH is just impossible to survive on each month.

The only answer to this is to capture more taxes from the nation……..by which I mean the 50% that operates in the black economy.

It won’t be popular, it won’t be easy to inforce, the current draft tax code to change things needs radical amendments to its proposed form……but it will hopefully get somewhere close to where it should be before the new tax year on 1st January 2011 and implimentation.

Ukraine also has it’s 1960’s baby-boomers coming through to retirement and State pensionable age and those people are almost upon Ukraine with a pensionable age of 55 years and a declining population, whilst the UK has a growing population, not all of which is due to migration.

Discounting migration and counting birth rate alone, there is a noticeable difference in the social make-up of birth rates between the nations. 

In the UK, women married produce their children in their 20’s and 30’s, not much different to Ukraine.  Unlike Ukraine however, women who do not marry in the UK, between the ages of 35 and 40 are much more likely to produce children, increasing the future tax paying base.

Why is this?  Social stigma or the fact that UK women at that age are more likely to have forged a career that they can return to after several years out bring up a child from 0 – 5?

Anyway, far more important than any loans, the IMF, World Bank, EBRD and the “Big 4” should be assisting Ukraine with a serious tax code reform and strategies to impliment it given an every shrinking population base.

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