Экономические науки/3.Финансовые отношения

Sagaidak I.V.

Postgraduate Department of Finance Faculty of Economics of Taras Shevchenko Kyiv National University, Ukraine

Interbudget reform in Ukraine: new budget code didn’t promise to give expected independence to local authorities to solve existing problems

Interbudget relations are the main component in the budget process and essential indicator of economical stability. Therefore, continuous improvement of interbudget relations should take place within the current global economic trends, based on national government priorities of financial and economical safety of Ukraine. These changes should be based on strengthening of financial system and empowerment of local governments.

The first ever Budget Code of Ukraine was adopted ten years ago in 2001, which was the first step in state and local budgeting and determined mechanism of formation of local budgets.

Increasing share of interbudget transfers in local budget incomes, small share of local budget incomes in the aggregate, dependence from government in process of local budgets formation and execution - all these shortcomings are hindering the social and economical development of Ukraine.

Therefore, the next stage of development in the public sector Ukraine in 8^th of July 2010 adopted the Law of Ukraine "On Amendments to the Budget Code of Ukraine" in fact - a new version of the document which shall become effective on 1st of January 2011.

The Budget Code of Ukraine defines the interbudget relations as relations between the state, the Autonomous Republic of Crimea and local government budgets to provide appropriate financial resources necessary to carry out the functions envisaged by the Constitution and Laws of Ukraine . [1, hl.13, st.81].

Interbudget relations arise while execution of budgets. Interbudget transfers are covering the gap between local budget incomes and expenses. The need for transfering of budgetary resources within the budget system in which there is an imbalance between the amounts of accumulated funds and the need for them, leads to the existence of interbudget relations.

The reasons for the existence of interbudget relations are:

· Defined in the law division of powers between the executive branch and local authorities;

· Guaranteed financing expenses granted by the state to local authorities;

· The current procedure for separation of incomes and expenditures among levels of government and local budgets of different levels;

· Subsidization of local budgets due to the significant fluctuations in levels of tax capacity of individual territories and objective differences in spending. [2, p. 258].

The main function of interbudget relations is to establish fair and equitable distribution of finances, ensuring consistency between the powers of expenditure stipulated by legislative acts of Ukraine on budgets and budgetary resources.

Imperfection and excessive centralization of local authority influences the quality of regional and local authorities in support of the local budget, an expansionary economic policy aimed to increase business activity on the controlled areas. The consequences of these deficiencies reflected the process of worsened investment and business climate.

One of the shortcomings of the system of interbudget relations, both before and after the adoption of the Budget Code, is its administrative overregulation and only vertical nature: interbudget transfer flows are provided only among the budgets of higher and lower levels which are due to administrative subordination. [3, p. 34].

The main problem of the current budgetary system is luck of proper law regulation of interbudget relations in terms of function division between state and local authorities, difference between real needs of financing, expenditure and sources of funding, imperfect transfer calculation approach and luck of transparency of interbudget transfers.

The ways to improve the management of budget resources stated in the new Code have preserved the distribution of the horizontal structure of the state budget, but made clarify their structure.

The main positive trend of tax and fiscal reforms were trends to reduce the state's role in providing funds for regional development and the simultaneous creation of opportunities for own sources of adequate financial base to ensure effective and balanced territorial development. The new Budget Code of Ukraine has undergone significant changes with the distribution of taxes and tax incomes to the budgets of different levels.

An important change was determination of income sources of budget funds. This innovation brought some stability and predictability in the process of medium term planning budget.

The list of second basket incomes was extended. In addition to the existing list, it included fixed tax on income from business activities, and transferred from the first basket of the penalties, administrative fines and other receipts.

Financial resources were enshrined to each type of expenditure that are considered when determining the amount of interbudget transfers, which are calculated on the basis of state social standards and regulations. Thus, it defines priorities of linking social development to the amount of local spending, which allows to achieve social objectives, targeting of social benefits, increase cost-effectiveness.

Income base of Kyiv and Sevastopol, Crimea and regional budgets in the form of fees, licenses was significantly increased. These incomes are related to the first basket and the effective mobilization of incomes from taxes reduced burden on the budget in terms of need to bring transfers to local budgets. Strengthened income base of cities, towns and villages by including the property taxes and transferred the entire amount of incomes from the land tax to local budgets.

Thus, changes in the Budget Code of Ukraine began the process of optimizing tax and fiscal system at the local level and increased the efficiency of mobilization and expenditure of funds, but it should be noticed that there was no significant change in the system of financial equalization. But despite the positive Change in the Budget Code of Ukraine, Government should continue to provide reforms to improve the system of interbudget relations in the following areas:

1. Increase financial independence of local authorities.

2. Divide power between local authorities and central authorities.

3. Increase inflow of investments to local budgets and enhance infrastructure at local areas.

4. Formula of interbudget transfer calculation improvement.

References:

1. Budget Code of Ukraine of 08.07.2010 year. N-VI-2456 Mode of access: http://zakon.rada.gov.ua/

2. Local finances: a textbook / Ed. AP Kirilenko. - K.: Knowledge, 2006. - 677 p.

3.Financial Restructuring in Ukraine: Problems and directions: Monograph / Science. yet. Fedosov. - K.: MBK, 2002. - 387 p.