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The Odessa “decentralised” budget

January 18, 2015

As yet it remains somewhat unclear just what exactly “decentralisation” will mean in Ukraine.  Just how much current centrally held power – and which powers (and associated responsibilities) – will be devolved to the regional administrations/local government is unclear.

Likewise questions remain over fiscal decentralisation – particularly so when the 2015 budget is still open to change until 15th February at least, when it is to be revisited by the RADA.

However, like the rest of Ukraine, Odessa has to work within what it presumes it will receive if the budget remains unchanged.  Undoubtedly changes there will be – but whatever!  Therefore, Odessa City Council will consider the city budget on 21st January – even though it may very well be forced to change it, as and when the national budget gets amended.

Possibly the biggest anticipated windfall for the city is to be a 5% tax placed on all alcohol and tobacco products, the duties from which remain with the city administration.  The net figure being whispered within the administrative circles is one of UAH 150 million.  The plan, currently at least, is that these duties go to the development budget for to repair and build new infrastructure within the city.  Thus the more the good people of Odessa drink and smoke, theoretically the swifter the city gets upgraded infrastructure.

A tax of UAH 25,000 on all cars with an engine capacity of 3 litres (3000 cc) or more is anticipated to bring the city an additional UAH 6 million.  (Ergo the city believes there to be 240 cars with engines this size or larger – anybody who lives here would think this a very low figure.)

According to those within the bowels of the city administration, property taxes will remain at the 2014 levels, thus generating about UAH 2 million.  Whether that decision remains unchanged, time will tell, as it always does.

A little more interestingly, the city loses 15% from personal income taxes.  What was once 75% retention is now 60% – with a net loss of UAH 288 million.  10% of those lost taxes now goes to the Odessa Regional Administration, for what will hopefully be well spent on towns and villages elsewhere in Odessa Oblast.

The UAH 288 million of lost taxes, it is claimed, will be compensated by subsidies from the State budget, therefore no fiscal loss to the City is anticipated.  This presumes of course, those subsidies survive any changes to the national budget.

Indeed, without going into unnecessary depth on a city budget yet to be passed, based on a national budget yet to be set in stone for the year, Odessa City Administration expects to raise UAH 3.6 billion in tax revenue within the city limits – an additional UAH 1.1 billion from 2014.  However, having so far only been able to identify where an additional UAH 160 million or so will come from, as detailed above, quite where the majority of this additional UAH 1.1 billion will appear from will hopefully be answered on 21st January.

Odessa Oblast/Regional Administration budgetary deliberations will surely soon follow – though whether that will be prior to, or post, a definitive national budget remains to be seen.

Thus fiscal decentralisation begins to slowly become something of a reality – even if the figures being whispered within the city administration are perhaps not so realistic, or currently rather opaque as to how they will be reached.

Quite when and how (given several constitutional issues) the more thorny issue of devolution of power (and responsibility) arrives, will be on a different timescale.  Even if laws are passed this year, the “start date” may well be 2016 (at the earliest) if passed en masse.  If passed piecemeal, then the less contentious or constitutionally difficult power that are to be devolved to the regions may begin to take place by the summer.

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