The Reform Program “Free Economy”

The Reform Program “Free Economy”
Michael Chernyshev, Daniil Monin
FREE ECONOMY INSTITUTE
September 18, 2017

TABLE OF CONTENTS
Foreword 4
Judicial System 5
PRIVATE COURTS (TRIAL COURTS) 5
MUNICIPAL COURTS (TRIAL COURTS) 5
COURTS OF APPEAL 6
SUPREME COURT 6
GENERAL PROVISIONS OF THE JUDICIAL SYSTEM REFORM (NOT APPLICABLE TO PRIVATE COURTS) 6
Law Enforcement Authorities 7
POLICE 7
PROSECUTION OFFICE 7
SECURITY SERVICE OF UKRAINE 8
GENERAL PROVISIONS OF THE LAW ENFORCEMENT REFORM 8
Armed Forces 9
PROFESSIONAL ARMY 9
RESERVE ARMY 9
ARMED POPULATION 10
GENERAL PROVISIONS OF THE REFORM OF THE ARMED FORCES 10
Modern State 11
DECENTRALIZATION OF PUBLIC ADMINISTRATION 11
PUBLIC SERVICE 11
SCIENCE 11
HIGHER, VOCATIONAL AND SPECIAL EDUCATION 12
SECONDARY SCHOOLS AND PRE-SCHOOL INSTITUTIONS 12
HEALTHCARE SYSTEM 12
HOUSING AND PUBLIC UTILITIES SECTOR 12
ZONING AND LAND USE PLANNING 13
ENVIRONMENTAL PROTECTION 14
HAPPY CHILDHOOD FOR EVERYONE 15
PENSION SUPPORT 16
SOCIAL ASSISTANCE TO DISABLED CITIZENS 19
USE OF MODERN INFORMATION TECHNOLOGY 19
Economy 20
FISCAL POLICY 20
PUBLIC EXPENDITURE POLICY 20
PUBLIC REVENUE POLICY 21
Михаил Чернышев ©
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TAX SYSTEM 21
FORMATION OF MUNICIPAL (LOCAL) BUDGETS 23
CUSTOMS SERVICE 23
FREE MOVEMENT OF CAPITAL 23
PRIVATIZATION AND MANAGEMENT OF STATE PROPERTY 23
AGRARIAN SECTOR 24
ENERGY SECTOR 24
DEBUREAUCRATIZATION 24
Combating Corruption 25
MINIMIZING THE MAIN SOURCES OF CORRUPTION 25
Political System 26
THE MERGER OF PRESIDENTIAL AND GOVERNMENTAL BRANCHES OF EXECUTIVE POWER 26
Evaluation of New Economic Policy in Five-Year perspective 28
MINIMIZING THE SHADOW ECONOMY 28
FOREIGN INVESTMENT 28
INFLATION 29
CASH PAYMENTS 31
INTERNAL COMMODITY TURNOVER 32
DOMESTIC MARKET 32
PRICING POLICY 33
GDP GROWTH 33
REVENUE OF THE EXISTING TAX SYSTEM 38
REVENUE OF THE NEW TAX SYSTEM 39
STATE REVENUE FOR 5-YEAR PERSPECTIVE 39
EVALUATION OF COMPENSATORS FOR REVENUE REDUCTION 42
REDUCTION OF TAXES IN EXPENDITURE 43
REDUCTION OF EXPENDITURE ITEMS OF THE BUDGET 43
CONSOLIDATED BUDGET OF UKRAINE IN THE 5-YEAR PERSPECTIVE 46
GRAPHS OF REDUCTION OF TAX BURDEN ON ECONOMY AND PUBLIC EXPENDITURES 51
THE POLICY OF WORKING WITH THE PUBLIC DEBT 52
DEALING WITH THE PUBLIC DEBT IN THE FIVE-YEAR PERSPECTIVE 53
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FOREWORD
The authors of this document have set themselves ambitious objectives:
• To liberate the economy from interference of the state;
• To eliminate the main causes and sources of corruption;
• To achieve the GDP of USD 200 billion or even more in 4-5 years;
• To ensure a leap in the economic development and to reach the first place in the world in terms of the GDP
growth;
• To reach the first place in the world in terms of ease of doing business and the economic freedom index.
Of course, achieving such objectives requires extraordinary approaches and ideas. This document introduces
a new economic policy of the state assuming a radical simplification of the tax system and tax administration
system. It proposes a new vision of structural reforms in the public sector, the functions of which, according to
the authors, should be reduced as dramatically as possible.
The authors focus on calculations and modeling. As a result, the document presents a consolidated budget of
the state balanced for a 5-year perspective designed for the new economic policy and structural reforms in the
public sector.
Michael Chernyshev https://www.facebook.com/chernyshev.michael
Daniil Monin https://facebook.com/daniil.monin.7
Free Economy Institute https://www.facebook.com/FreeEconomyInstitute 
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JUDICIAL SYSTEM
Private courts (Trial Courts)
• Private courts operate on a commercial basis in forms of a personal entity or a legal organization.
• Private courts are trial courts, along with municipal ones. Citizens and organizations themselves decide in
which court they want to apply — in a private one or in a municipal one.
• A private court independently selects and appoints its judges.
• A private court independently sets a price of its services and a procedure for their payment by the parties of
a trial or by other parties, that may be involved.
• A private court has rights to be guided by any existing legislation, including legislation of other countries. As
well as any legislation developed or adapted independently by the court, other courts, associations of
courts, other organizations or individual authors.
• A private court can take a case only if both parties (the plaintiff and the respondent) agree to be heard in
that particular court and by that particular judge.
• A decision of a private court comes into force only if both parties of the case agree with the court decision.
• A decision of a private court is mandatory for execution by both parties and the relevant bodies of local and
republican self-government (state executive bodies).
• A decision of a private court cannot be appealed in an appeal court or the Supreme Court of Ukraine.
• Any of the parties of a court case may withdraw its consent to the court decision at any time (as well as
after the decision of the court comes into force).
• Вместо обжалования решения частного суда, в случае несогласия одной или обеих сторон
судебного процесса с вынесенным частным судом решением, любая из сторон имеет право
обратиться в другой частный суд или в муниципальный суд (суд первой инстанции) Украины. При
этом, предшествующий такому обращению судебный процесс и соответствующее решение частного
суда не принимаются во внимание муниципальным, апелляционным и Верховным судами Украины.
• Instead of challenging the decision of a private court, in case of disagreement of one or both parties on a
private court decision, either party has a right to apply to another private court or to a municipal court (trial
court) of Ukraine. In that case, the judicial process and the relevant decision of the private court that
precedes such an appeal are not taken into account by the municipal, appellate and Supreme courts of
Ukraine.
Municipal Courts (Trial Courts)
• Judges are appointed using the procedure described in the chapter “General Provisions of the Judicial
System Reform".
• Courts shall be funded from the relevant municipal budgets and by litigants.
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Courts of Appeal
• Judges are appointed using the procedure described in the chapter “General Provisions of the Judicial
System Reform".
• Courts shall be funded from the central budget of Ukraine and by litigants.
Supreme Court
• It shall be located in the UK (or other fair jurisdiction).
• Judges shall be citizens of the UK (or other fair jurisdiction). After the eradication of corruption in the judicial
system of Ukraine, the court shall be transferred into Ukraine and judges shall be replaced with citizens of
Ukraine.
• It shall be funded from the central budget of Ukraine and by litigants.
• It shall perform the functions of the constitutional, supreme and cassation courts.
• The judgments of the court shall result in dismissal, deprivation of the right to engage in judicial activities and
prosecution of lower court judges whose decisions were abolished by the Supreme Court with a resolution
that a lower court (courts) has adopted a deliberately unlawful judgment.
• When the Supreme Court of Ukraine returns to the territory of Ukraine, the appointment of judges of the
Supreme Court of Ukraine is carried out using the procedure described in the chapter "General Provisions
of the Judicial System Reform".
General Provisions of the Judicial System Reform (not applicable to private courts)
• The salary of judges shall be one of the highest in the country.
• Maximum transparency of the work of judges. Video-recording of court sessions shall be allowed by default.
• The use of electronic technology for document flow, adoption of judgments, election and recall of judges
(referendums of non-confidence in judges).
• The procedure for the appointment of judges:
a. Qualification requirements to the judges are formulated in the Constitution and a law of Ukraine.
b. When a vacant position of a judge appears, a contest is announced and all applicants within 30
days submit applications to include themselves in the list of candidates for posts of the judge.
c. Within 60 days all applications for the office of the judge are publicly available and checked by
active citizens to ensure that candidates meet the qualification requirements. If a candidate who
does not meet the requirements is found, the candidate is excluded from the list of candidates by
a judicial decision on an appropriate appeal of any citizen of Ukraine.
d. Among the candidates who remained on the list after such a check, an open lottery is held. With
the help of which a candidate is chosen to fill the vacancy.
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LAW ENFORCEMENT AUTHORITIES
Police
Municipal police (police of settlements)
• The chief of the municipal police shall be elected by direct vote of the population of the respective
settlement.
• The municipal police shall be funded from the respective municipal budget and shall fulfill its duties in the
territory of this settlement in accordance with and within the framework of laws of Ukraine.
National police
• The chief of the national police shall be elected (appointed) by the central government of Ukraine.
• The national police shall be funded from the central budget of Ukraine and shall act in accordance with and
within the framework of laws of Ukraine.
• The national police shall fulfill its duties throughout Ukraine. It shall be used to provide assistance to the
municipal police and local governments, and as the reserve of the armed forces.
General provisions on the police
To ensure effective and reliable registration, prevention and investigation of offenses, equipping the police with
technical means shall be radically improved. First of all, it concerns the means of video and audio recording of
offenses. Its main purpose is to exclude the possibility of groundless accusation and prosecution by law
enforcement officers of a citizen who has not committed an offense. The salary of police officers shall be one
of the highest in the country.
Prosecution Office
• The procedure for the appointment of prosecutors:
a. Qualification requirements to prosecutors are formulated in the Constitution and a law of Ukraine.
b. When a vacant position of a prosecutor appears, a contest is announced and all applicants within
30 days submit applications to include themselves in the list of candidates for posts of the
prosecutor.
c. Within 60 days all applications for the office of the prosecutor are publicly available and checked
by active citizens to ensure that candidates meet the qualification requirements. If a candidate
who does not meet the requirements is found, the candidate is excluded from the list of
candidates by a judicial decision on an appropriate appeal of any citizen of Ukraine.
d. Among the candidates who remained on the list after such a check, an open lottery is held. With
the help of which a candidate is chosen to fill the vacancy.
• The Prosecution Office shall be funded from the central budget and shall act in accordance with laws of
Ukraine.
• The institute of private prosecution shall be introduced. A citizen shall have the opportunity to use services
of a private lawyer (prosecutor, investigator) instead of the state prosecutor (investigator) or to investigate
and represent himself/herself (as the prosecution) in the court independently. 
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Security Service of Ukraine
• The Security Service of Ukraine (SSU) shall attend to the protection of the constitutional order, counter-
intelligence and counter-terrorism.
• The SSU shall be freed from its non-relevant functions, e.g. from the investigation of financial and economic
crimes.
General Provisions of the Law Enforcement Reform
• The total number of law enforcement officers shall not exceed 150,000.
• If they violate civil rights and freedoms of citizens, law enforcement officers shall be inevitably held liable,
including criminally.
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ARMED FORCES
Professional Army
• The army should be small, but professional. It should consist of highly paid, constantly trained servicemen
armed with the most modern weapons and equipment.
• The principal task of the army is not to ensure the defense of Ukraine’s borders simultaneously along their
entire length. It is impossible in the modern world, especially if we take into account our geographical
position. The mission of the army is to be as mobile as possible and, when the enemy invades, instantly
inflict unacceptable damage on it that will prevent any attempted re-invasion for a long time. At the same
time, the losses of the Ukrainian army should be minimal. This shall be achieved through the mass use of
the most modern unmanned equipment, precision-guided munitions and electronic warfare, as well as
through the asymmetric warfare strategy.
The approximate number of the professional army shall be from 50 to 100 thousand servicemen.
Reserve Army
In the event of a protracted military conflict, the national military reserve shall be deployed. The following
persons shall be used as the national military reserve:
• Reservists, i.e. citizens owning personal small arms (sub-machine guns, machine guns, sniper rifles),
specialists operating modern high-tech weapons and equipment, as well as persons who previously served
in the professional army of Ukraine. Those citizens shall participate in military trainings twice a year where
they shall develop and improve their skills in handling their weapons and skills in operating relevant
equipment and weapons. At the same military trainings, reservists shall work out plans of action in the event
of an aggressor’s military invasion. Reservists shall buy personal small arms and equipment themselves at
their own expense.
• Law enforcement officers. They shall participate in military trainings together with reservists twice a year on a
rotational basis.
Military commissariats shall be reformed into specialized units whose task is to organize and to conduct year-
round trainings and exercises of military units of the reserve army – reservists and law enforcement officers. In
the event of a military conflict, officers of military commissariats shall complete and command combat units of
the reserve army consisting of the citizens trained by them.
In terms of the quality of weapons, the speed of deployment and readiness for military operations, the national
military reserve far surpasses the volunteer battalions and the army of recruits of 2014-2017.
The approximate number of the national reserve shall be 400 thousand people.
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Armed Population
• To repel and deter (prevent) a mass invasion of the enemy into the territory of Ukraine, all citizens of Ukraine
shall be allowed permanent possession of rifled firearms, including bearing short-barreled rifled firearms.
• Owners of personal fire arms shall undergo a one-time mandatory training course (training) and additional
courses (at a personal initiative) on the safe storage of weapons, its effective use, both as a means of
protection and as personal weapons in the event of an armed foreign intervention. Such training courses
shall be organized and conducted by military commissariats (including in the course of trainings conducted
by them for reservists and law enforcement officers).
The approximate number of armed population that is able to resist an armed aggressor and to conduct
guerrilla warfare shall be several million people.
General Provisions of the Reform of the Armed Forces
• The state shall not provide servicemen with housing, loans and health insurance. The state shall provide
servicemen with the military pay that will allow them to rent and buy housing, pay for a high-quality medical
insurance.
• The state should not manufacture weapons. Weapons and military equipment shall be manufactured by
private enterprises. The best weapons and equipment shall be procured for the Ukrainian army on a
competitive basis. At the same time, no preferences should be given to Ukrainian manufacturers. 
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MODERN STATE
Decentralization of Public Administration
• The artificial division of Ukraine into regions and districts shall be canceled.
• Administrative boundaries shall be marked between settlements.
• Full self-government shall be ensured at the level of settlements.
• The share of taxes collected by the state and intended for local budgets shall be distributed and allocated
directly to local governments of settlements.
• Local governments shall be fully responsible for the development of their settlements.
• Settlements may be united only on the basis of referendums of the population of the respective settlements.
• Local governments shall act on the basis of and within the framework of laws of Ukraine.
Public Service
• Significant reduction in the functions of state authorities, transfer of appropriate powers to local
governments, introduction of market risk management mechanisms instead of administrative control
instruments.
• Algorithmization of the majority of service functions and reduction of the human factor in making permissive
and service decisions.
• Reduction of the number of public officials by 80 %. Salaries of employees of the state apparatus shall be
increased at the expense of the resulting saving.
• Implementation of a system for regular monitoring of real incomes in the commercial sector and raising the
level of incomes of public officials to the average market level of remuneration of qualified specialists in the
private sector.
• Reappointment and employment of public officials on a competitive basis.
• Introduction of instruments of control (including by the public) over activities of public officials, their expenses
and lifestyle.
• Introduction of a system of independent monitoring of the attitude of the public towards the quality of the
new public service.
• Implementation of online services, one stop centers of administrative services (instead of service centers
under each ministry).
• Development of unified databases and data exchange between registers to improve the efficiency of
decision making.
Science
State research institutions shall be privatized or liquidated. Research and development shall be undertaken by
private higher education institutions and private research organizations.
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Higher, Vocational and Special Education
• Transition to private education. All state educational institutions (except for secondary schools and pre-
school institutions) shall be privatized. Educational institutions that are not able to acquire their customers
shall be liquidated.
• Private educational institutions and their teachers shall not be subject to certification and regulation by the
Ministry of Education.
• The state shall stop funding education of students in educational institutions while giving opportunity for
students who study for budgetary funds to complete their studies to graduate from the educational
institution.
• The state shall stop to pay scholarships to student.
• Educational institutions shall be regulated solely by their own rules of admission when admitting applicants.
Secondary Schools and Pre-School Institutions
• The policy “money accompanies children” shall be implemented at the first stage. This applies to both public
and private schools. Private schools and their teachers shall not be subject to certification and regulation by
the Ministry of Education.
• In the second stage, those public secondary schools and pre-school institutions shall be privatized that
failed to compete with private institutions and turned financially insolvent because they have failed to attract
the necessary number of students or external financial assistance from individuals, commercial and
charitable organizations. Educational institutions that have failed to acquire their customers during
privatization shall be liquidated.
Healthcare System
• At the first stage, the reform shall be implemented that has been currently (in 2017) developed and
proposed by the Ministry of Health of Ukraine – “The national healthcare service buys health for citizens for
their taxes”. (Draft Law “State Financial Guarantees for the Provision of Medical Services and Medicinal
Products”).
• At the second stage, a full transition to private insurance medicine shall be carried out. That is, the
healthcare system designed as a result of the reforms carried out at the first stage continues to work, but
the state stops paying for health insurance and compensating people’s expense for the purchase of
medicines. People will make agreements with insurance companies and pay for their services themselves.
Housing and Public Utilities Sector
• Buildings shall be funded and managed by their owners – individuals or legal entities, including associations
of co-owners of apartment buildings (condominiums).
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• Building management shall mean: external and internal renovation of buildings; provision of electricity, gas,
hot and cold water supply; drainage of water from the building; garbage disposal; landscaping of the
adjoining territory; construction, maintenance and repair of utility systems; connection to/disconnection from
their utility systems of other buildings on a contractual basis; use of the building for commercial purposes; a
free choice of suppliers of necessary services.
• Building owners shall independently decide what services should be received for the building directly from
providers of such services, and what services should be received through the intermediary, i.e. the
management company.
• Management companies may only be private, both independent and established by the group of owners of
buildings for the management of which they have been established.
Zoning and Land Use Planning
• The local government of the settlement must have "Zoning and Land Use Plan" of the settlement.
• "Zoning and Land Use Plan" regulate the zoning of the territory of the settlement - the division of the
settlement into the districts for the permissible purposes of using the land plots.
a. The use of areas established by zoning can be as follows: residential, business, commercial,
industrial, agricultural and others (including mixed ones).
b. Classification of the use of areas should be based on the rigidity of restrictions, ranging from a
purely residential area to an unrestricted area.
c. Zoning may include restrictions on site size, height and size of buildings, and density of land
settlement.
• "Zoning and Land Use Plan" as well as all changes and additions introduced to them are approved in
general referendum by citizens of Ukraine who live in the given settlement.
• Changes and additions to the "Zoning and Land Use Plan" cannot be introduced more than once a year.
• Zoning is not retroactive — restrictions apply only to buildings and sites that are built or rebuilt after the
adoption of the "Zoning and Land Use Plan" or after making appropriate changes and additions to them.
Zoning has the retroactive effect on restricting the use of property only with the official consent of its owner.
• The owner of a land plot is not required to obtain any building permit or permit for other use of his site, if the
activities carried out by him on this site do not violate the current "Zoning and Land Use Plan".
a. An exception is the placement of harmful (in accordance with the law of Ukraine) production. In
this case, the owner of the site is required to obtain permission from the local government
authority by concluding an appropriate agreement, ratified by local referendum (see section
Modern State - Environmental Protection).
• The only possibility for the owner to use his site for purposes that do not comply with the current "Zoning
and Land Use Plan" is the introduction of appropriate changes to these rules by the local government and
the ratification of these changes in the relevant referendum.
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Environmental Protection
As part of the implementation of the Free Economy Reform Program, it is proposed to refuse completely from
the state environmental tax, and to grant the right to local governments to regulate issues of placing potentially
harmful production facilities at their respective territories independently.
The following procedure for such regulation is established:
• The categories of production facilities that are potentially harmful to the environment, the conditions for their
placement and the levels of permissible environmental pollution shall be determined by the laws of Ukraine.
The categories of production facilities that may not be located in Ukraine shall be defined separately.
• The local government shall make an agreement with an enterprise (belonging to the category of production
facilities that are potentially harmful to the environment) to which it gives a permission to carry out relevant
activities on its territory. Such agreement shall specify the amount and procedure for payment of
environmental compensation by the enterprise and the requirements for the organization of this production
concerning the preservation and restoration of the environment. The agreement shall also specify the
amount and procedure for payment of penalties and further actions of the parties in the event one of the
parties fails to fulfill the terms and conditions of the agreement.
• In the event the activities of the enterprise damage the ecology of another community (above the level
established by the law), the enterprise shall make an agreement with the local government of such
settlement to pay the environmental compensation in order to resume its operation. The terms and
conditions of such agreement do not need to be the same for different settlements.
• The conclusion, amendment and termination of the agreement between the enterprise and the local
government, as well as the decision on filing a claim against the enterprise under the agreement shall be
approved (ratified) by the general referendum of Ukrainian citizens residing in the corresponding settlement.
• The entire amount of the environmental compensation received from the enterprise shall be distributed in
equal shares among all citizens of Ukraine residing in the corresponding settlement.
• Those enterprises that have already paid the environmental tax at the time the reform program is launched
shall be entitled to pay the environmental compensation in an amount not exceeding the amount of the
environmental tax that has been paid earlier, provided that they do not increase the damage to the
environment (for example, by expanding the existing or organizing a new production facility that is potentially
harmful to the environment). Otherwise, they shall make a new agreement with the local government to have
the right to place their production facilities on its territory (including the right to operate the existing
production facilities).
• The amounts of the environmental compensation paid by the enterprise shall be subjects to the standard
expenditure tax at the rate of 4%.
The environmental compensation paid directly to the local community for the location of production facilities
that are potentially harmful for the environment (in conjunction with the institute of local referendum) is a reliable
protection against possible abuses of local governments in this matter. Moreover, the proposed procedure for
placing production facilities that are potentially harmful to the environment will provide a fair balance between
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the potential damage that can or is caused by the enterprise to the environment and the economic benefit for
the local community and the economy of the country as a whole.
Happy Childhood for Everyone
In connection with the implementation of the new economic policy, a sharp increase in the material welfare of
citizens of Ukraine is expected. Thereby:
• the living standards of children living with their parents will significantly improve;
• the number of children in the residential care system will dramatically decrease;
• the number of adoptions of orphaned children by citizens of Ukraine will significantly increase.
The rapid growth of the Ukrainian economy will increase Ukraine’s popularity in the world, which will, among
other things, lead to an increase in the number of adoptions of orphaned children by foreign citizens.
Besides, the existing system of keeping children in residential care facilities is incredibly expensive and
incapable of meeting children’s needs. Therefore, it is proposed to move from the institutional placement to the
system of services for children and families in the system of public care for orphans and children deprived of
parental care – adoption, placement into family forms of care, and reunification with parents.
Basic characteristics of the system of services for children and families:
• Specialized public authorities shall carry out purposeful, proactive activities to ensure a quick adoption of
children and their reunification with their families. The process of adoption shall be simplified as much as
possible. The principal task of the state shall consist in providing each child with a happy childhood in a
well-off and loving family rather than in long-term care of children.
• Any child may be adopted by both citizens of Ukraine and citizens of other countries that, according to the
laws, are not included in the list of countries where children may not be taken.
• The need and duration of supervision of living conditions of adopted children shall be established by the
court. The court-appointed supervision shall be carried out:
a. on the territory of Ukraine – by persons appointed by local governments, with the participation of
non-governmental organizations;
b. on the territory of other countries – by employees of embassies and consulates through local
guardianship organizations and other similar organizations.
• Children adopted by foreigners shall reserve a lifelong unconditional right to obtain Ukrainian citizenship.
• Public temporary care facilities shall be organized in the form of family-type children’s homes for temporary
residence and care of under-aged children who are in the care of the state (until they are adopted). Such
facilities shall be married couples owning homes in the form of an apartment or a house, where it is possible
to provide each child with a separate room of his/her own. The number of children living simultaneously in
one temporary care facility shall not exceed 5, including their own children, if such married couple has any.
This married couple shall have the same rights and duties in respect of the children who are brought up in
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their family-type children’s home, as if they were adoptive parents for those children. Except that they, unlike
adoptive parents:
a. receive public funding for the maintenance of children in their temporary care (clothes, shoes,
food, medicines, pocket money) and salary for their work on care for those children and raising
them;
b. a child shall be raised only until he/she is adopted by other people or until he/she reaches the age
of majority;
c. have the opportunity to adopt a child who is in their temporary care, but at the same time they
cease to receive funding for his/her maintenance.
• Children living in temporary care facilities shall attend common (public or private) secondary schools and
attend common (public or private) pre-school institutions. At the same time, the education of orphaned
children shall be funded on the grounds common to all children of Ukraine and in the same amount on the
principle of “money accompanies the child”.
• Raising children in temporary care facilities (temporary care facilities) shall be funded from the local budget.
Additional funding and other material and non-material assistance from individuals, public and commercial
organizations shall be encouraged.
• Temporary care facilities shall carry out their activities under the supervision of local governments and non-
governmental organizations.
Pension Support
• A full transition to independent servicing of citizens in private pension funds (Ukrainian and foreign) and other
means of self-provision of passive incomes in old age shall be carried out. Such passive income can be
income from own real estate, dividends received from commercial enterprises, royalties and stock market
shares. A significant assistance in retirement age can be financial assistance provided by children and other
relatives.
• The state pension will continue to be paid but only to those who have already received it at the start of the
reform. In addition, the state pension (in the form of a basic social benefit in old age) will also be paid to
those who do not have time to accumulate money for a pension in a private pension fund before retirement,
i.e. those who will retire within 15 years after the start of the reforms.
• The amount of the state pension paid to today’s pensioners will not change, but it will increase annually
(indexed) by the amount of inflation.
• The size of the state pension that will be paid to those who will retire within 15 years after the start of the
reform will be the same for all those who retire during this period and will annually increase (indexed) by the
amount of inflation.
• The state pension will be paid without any additional conditions. That is, it will be paid even if a pensioner
continues to work or has any other additional sources of income. In other words, the state pension will be
paid to the citizen regardless of his/her financial status.
• The state pension will be paid directly from the budget. Therefore, the pension fund will be liquidated.
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• All current pension payments will be verified at the start of the reform, i.e. the check of fairness of their
accrual and subsequent cancelation for those who receive groundless assistance from the state.
• The allocation of the state pension will stop after 15 years after the start of the reform. All citizens retiring
after the expiration of this period can only rely on the income they previously ensured for themselves –
pensions they have accumulated themselves in private pension funds and other sources of income.
• In spite of the fact that all citizens will have to take care beforehand to have passive income sufficient for
their living, and the state will not provide anyone with pension or any other non-repayable social benefits in
old age, those who need it will be able to use state pension loans.
Rules for obtaining state pension loans by citizens of retirement age:
• Citizens of retirement age who, after reaching the retirement age, temporarily or permanently have no means
of subsistence for any reason can easily open a pension credit account in any bank (the bank only checks
the citizenship and age) and receive a pension loan on a monthly basis in the amount established by the
laws. The amount of such loan and the interest rate shall be the same for all beneficiaries.
• The beneficiary of the pension loan must repay it, including interest accrued thereon.
• Rules for the repayment of the pension loan:
a. The loan shall be repaid by the beneficiary of the loan independently, when he/she has such an
opportunity and desire;
b. When any amount is credited to any of the accounts of the loan beneficiary (other than the
pension credit account), 50% of the credited amount shall be automatically debited as a
repayment of the debt. The account holder may freely dispose of the remaining funds after such
debiting his/her account in accordance with the general taxation rules. If he/she wants, he/she
can voluntarily use them for additional repayment of the debt on the previously received tranches
of the social loan;
c. When selling/buying real estate and property equal thereto (or in case of conveyance by
inheritance), the beneficiary of the loan shall repay the entire amount of the debt on the received
pension loans;
d. In the event of death of the beneficiary of the pension credit loan, the debt on the loan shall be
repaid by heirs to his/her property. Each heir shall repay a part of the loan in proportion to the
inheritance he/she receives. In the absence of heirs or their refusal to receive the inheritance, the
loan shall be repaid at the expense of the funds received by the state from the sale of the
unclaimed part of the inheritance at an open auction;
e. The amount of the pension loan left after the death of its beneficiary due to the lack of inheritance
or its insufficient value shall be written off as a bad debt.
• Fundamental differences between the pension loan and ordinary bank loans:
a. The pension loan shall be granted from the budget. Banks are only agents to administer such
loans.
b. Any citizen of Ukraine who has reached retirement age can receive the pension loan. This does
not require any permit, collateral, guarantors or a good credit record.
!17

c. The beneficiary of the pension loan receives a new loan tranche on a monthly basis, even if there
are any outstanding previous tranches.
d. In practice, the pension loan is repaid only when its beneficiary has funds to repay the loan. At the
same time, there is no specific deadline to repay it.
In general, the rules for the provision of state social assistance in the form of the pension loan are drawn up in
such a way that monthly financial assistance they need can be guaranteed to all really needy people of
retirement age without any bureaucracy. On the other hand, such rules make it unprofitable to receive such
assistance by those who do not need it. In addition, since financial assistance will actually be distributed
through market mechanisms, rather than through bureaucratic decisions, there will be no need for a large
number of public officials to administer this process.
Note: Applying such financial assistance rules may result in private banks being interested in granting pension
loans. This can further reduce the corresponding costs of the state, and hence the tax burden on the
economy. 
!18

Social assistance to disabled citizens
• State social assistance to disabled citizens is carried out on the basis of a verified single database and only
in the minimum required amount.
• Social assistance for incapacity for work can only be given to disabled citizens of Ukraine who have reached
adulthood. (Rules for the provision of social assistance to minors are described in the section "Happy
childhood for all").
• Approval of applications for social assistance for disability and verification of the relevant database is carried
out by a specialized state commission and public medical commissions with local self-government bodies.
• Social assistance to disabled citizens is provided in the form of specialized monthly loans:
a. pension credit (designed to ensure the personal needs of the recipient of the loan);
b. social credit (it is possible only as an addition to the pension loan and is intended for payment
of care services for the recipient of the loan).
• The size of the pension loan for disabled citizens and the interest rate coincide with the size of the pension
loan and the interest rates for citizens of retirement age. The size of the social loan and the interest rate are
established by law and are the same for all of its recipients.
• Terms and procedure for the repayment of social credit coincide with the procedure and rules for repayment
of the pension loan, which are described in the section "Pension Support".
• Pension loan is issued from the central budget, by a decision of a specialized state commission. Social
credit is issued from the local budget, by decision of the public medical commission at the local
government.
• Agents for administration of pension and social loans are banks. Therefore, all existing state social funds are
liquidated.
• All non-monetized benefits and subsidies are canceled. All social assistance is provided exclusively in a
monetized form.
• The liberation of the economy from tax oppression and state bureaucracy will lead to a sharp increase in the
people’s incomes. That, in turn, will lead to the development of the volunteer movement and the provision of
additional social assistance for disabled citizens in the form of charity.
Use of Modern Information Technology
• Public services. All interactions of the state with individuals and business shall be in the electronic form and
accessible through the Internet.
• State registers. All key state registers shall be in the electronic form.
• Interactions of state authorities. All interactions between state authorities (as well as interaction of
employees within the same authority) shall be in the electronic form. 
!19

ECONOMY
Fiscal Policy
• Maximum simplification of the tax system and tax administration system.
• Absolutely new tax system.
• A drastic reduction in the level of redistribution through public finances to the level of 30-32 % of the GDP at
the start. It is achieved due to the cancelation of taxes in the expenditure of budgets and cancelation of part
of the functions of the state.
• Further reduction in the level of redistribution through public finance in subsequent years. It is achieved due
to the launch of structural reforms in the public sector, transfer of some of the functions of the state to the
business segment, control of public expenditure against the background of a rapid growth of the economy,
effective unshadowing of the economy. The section “Evaluation of New Economic Policy in Five-Year
Perspective” provides a five-year forecast of public revenues and expenditures.
• Reduction of the level of public debt to the GDP. It is achieved through drafting surplus budgets in three
years after the launch of the reforms, and also due to the GDP growth while the public debt does not
increase.
Public Expenditure Policy
• Reduction of the expenditure on the state apparatus. It is achieved through a significant reduction in the
number of public officials.
• Maintenance of the share of expenditure on defense at the current level. The Armed Forces shall be
modernized and reformed through a drastic reduction in the number of servicemen. Increased funding for
the army shall be due to the growth of the nominal official GDP.
• Maintenance of a share of expenditure on law enforcement authorities at the current level. Law enforcement
authorities shall be modernized and reformed through a drastic reduction in the number of officers.
Increased funding for law enforcement authorities shall be due to the growth of the nominal official GDP.
• Reduction of expenditure on education. Higher education and specialized educational institutions shall be
privatized. At the first stage of the reforms, state funding will be received only by secondary and pre-school
institutions.
• Reduction of economic expenditure of budgets. To upgrade the infrastructure and bring it to the level and
quality of advanced countries, the functions of construction of new and upgrading existing infrastructure
facilities shall be transferred to private companies on a concession basis. (An appropriate concept of
funding and management of infrastructure facilities has been developed).
• Reduction of budget expenditure on medicine. It is achieved due to the transition to insurance medicine.
• Reducing of expenditure on pension payments. It is achieved due to the cancelation of the pay-as-you-go
pension system and the transition to private pension insurance. A full verification of current pensioners shall
be carried out.
!20

• Reduction of budget expenditure on social benefits. It is achieved due to the introduction of a tool for the
verification of beneficiaries of social benefits with monitoring of the financial status of the beneficiary, as well
as through restraining the growth of social expenditure at the level of inflation amid the active growth of the
economy of the country.
Public Revenue Policy
The public revenue policy envisages that the public revenue will reduce to the level of 30 % of the GDP at the
start of the reform. Further reduction of the tax burden on the economy shall be carried out due to effective
unshadowing of the economy and reduction of the share of non-tax revenue in the consolidated revenue of the
state.
Tax System
In the conditions of modern Ukraine, the tax and customs systems must meet the following requirements (our
position coincides with the Bendukidze Free Market Center in this issue):
• Simplicity – a small number of taxes with an easily identifiable tax base, unified rates of customs duties.
• Fairness – no benefits, exceptions and privileges.
• Neutrality – the types of taxes and methods of their administration should not distort the incentives of
economic agents urging them to choose areas, way and structure of activity for the sake of effective
minimization of taxes.
• Efficiency (consistency) – the tax system shall provide sufficient income to maintain a balanced (in the short,
and surplus in the medium term) budget. The challenge is to achieve this result against the background of a
reduction in the number of taxes and their nominal rates.
• Competitiveness – given the complex “credit” record of Ukraine, its tax system shall be more attractive to
investors than the systems of Central European countries and states with a similar level of development.
To achieve the success, the reform should guarantee the irreversibility of the reduction of the tax burden for
taxpayers in the medium term (obstructions for procedure for increasing rates or introduction of new taxes,
perhaps, there will be the need for constitutional changes and the introduction of “organic laws” that have a
special procedure and priority). It is also necessary to draw a line under the past (tax and property amnesty):
this will allow the fiscal service to focus on the administration of the current tax revenue, and business – both
old and new – to play by the same rules.
A full reboot of the fiscal service shall be performed as well. Its personnel shall be reduced to 1,000 employees
at the first stage, and to 100 employees at the second stage.
!21

Changes in taxes and duties:
• The division into a common and simplified taxation system shall be canceled. All the enterprises,
entrepreneurs and private individuals shall be subject to the same taxation rules and tax rates.
• All existing taxes and duties shall be canceled. The following taxes and duties shall be canceled: income
tax, VAT, UST (unified social tax), MT (military tax), IIT (individual income tax), unified tax, turnover tax, duties,
property tax, transport tax and all other taxes and duties.
• Two taxes shall be introduced.
- EXPENDITURE TAX at the rate of 4 %. The expenditure tax shall be imposed on all legal entities and
individuals, including: payments for raw materials, materials, components, equipment, real estate;
payment of non-cash salaries, office rent, payment for contractors’ services; payments for goods and
services for personal consumption and other expenditures. (The tax shall not be imposed on
expenditures in the form of non-cash payments coming to Ukraine from abroad, as well as operations
for depositing and withdrawing deposit and loan funds).
- TAX ON WITHDRAWING MONEY FROM THE BANKING SYSTEM OF UKRAINE at the rate of 10%.
The tax on withdrawing money from the banking system of Ukraine shall be imposed on: transfer of
non-cash funds abroad (without taking into account the purpose of payment); withdrawal of cash from
a bank account at the bank’s cash desk or through an ATM. (Assessment and payment of this tax
exempts the payer from payment of the expenditure tax on this payment).
The new tax system stimulates the work of capital within the country and imposes the tax on the withdrawal of
capital from Ukraine. The lowest taxes on salaries (only 4%) and the absence of the income tax shall stimulate
the development of intellectual labor and investment in human potential.
Changes in the administration of taxes:
• The mandatory registration of business entities shall be canceled. Since all the enterprises, entrepreneurs
and private individuals are subject to the same taxation rules and tax rates, there is no need for special
registration, notification or obtaining permission to conduct business.
• The compulsory use of fiscal registrars is canceled.
• Tax reporting of taxpayers shall be canceled. Since taxpayers do not calculate and pay taxes themselves,
they do not need to account for them and file reports to the tax service.
• Tax audits of taxpayers shall be canceled. Since taxpayers do not account for taxes and do not pay their
taxes themselves, there is no need to verify the accuracy of tax accrual and payment.
• Banks shall become tax agents for non-cash settlements. At the moment a client transfers money from the
bank account, the bank additionally debits this account with 4 % of the amount being transferred as the tax
on the expenditure of the holder of this settlement account.
• Tax payers themselves become tax agents for cash payments. Payment of such taxes is not mandatory.
!22

Formation of Municipal (Local) Budgets
The municipal budget has two sources of revenue:
• 100 % of the expenditure tax on the purchase of real estate and movable property equal thereto located
(registered) in the territory of this settlement.
• N % of the expenditure tax and N % of the tax on withdrawing money from the banking system of Ukraine
on any financial transaction of a legal entity or individual owner of real estate and movable property equal
thereto if this property is located (registered) in the territory of this settlement. N = P (V/A), where A is the
total value of all relevant assets (real estate and movable property equal thereto) of the person performing
the financial transaction, V is the total value of its assets in the given settlement, P is the share of local
budgets in the revenue part of the consolidated budget of Ukraine established by the law.
• P % of the expenditure tax and P % of the tax on withdrawing money from the banking system of Ukraine
on any financial transaction of a legal entity or individual that does not have assets in Ukraine and in respect
of which the given settlement is indicated as the default recipient of the tax. (The default recipient of the tax
is indicated by an individual and a legal entity at their discretion when opening an account with a bank),
where Р is the share of local budgets in the revenue part of the consolidated budget of Ukraine established
by the law.
Customs Service
Within the new tax system, the assessment and collection of taxes shall be carried out automatically by the
banking system. In addition, there are no import and export excises and duties in the new taxation system.
Therefore, the customs service shall be exempted from such functions as ensuring the collection of customs
duties and excises, control of the accuracy of assessment, timeliness and completeness of payments,
application of measures to enforce them. In fact, the new tax system shall liquidate such a concept as
smuggling and all the problems associated with it in Ukraine.
Free Movement of Capital
• All restrictions of the National Bank of Ukraine related to the transfer of foreign currency and opening of
foreign currency accounts, both domestically and abroad, shall be removed.
• All restrictions on cash settlements shall be removed. (With the exception of payment for movable and
immovable property subject to the state registration. Such property can be purchased only using bank
transfers).
• Enterprises and individuals shall be entitled to make settlements in a foreign currency.
Privatization and Management of State Property
• Sale or liquidation of all state-owned enterprises. (The value of the assets amounts to UAH 1.35 trillion).
• Sale (privatization) of state lands. (The size of the assets is 11 million hectares).
• State-owned enterprises and lands shall be sold at open international auctions. Auctions for the sale of
state property shall be prepared and held by a specially established body.
!23

Agrarian Sector
The agrarian reform envisages that the state ceases to be engaged in the agriculture. The Ministry of
Agriculture shall be liquidated. The moratorium on the sale of agricultural land shall be removed. An open land
market shall be established.
Energy Sector
• Privatization of enterprises in the energy market.
• Liberalization of energy markets and their de-monopolization.
• Ensuring energy independence and a dramatic increase in energy efficiency.
Debureaucratization
• The mandatory registration of economic entities shall be canceled. This will greatly simplify doing business,
involve the broad masses of people in business activities and serve as an additional factor in unshadowing
of the economy.
• State monitoring of economic activity of enterprises shall be canceled. There are courts and anyone can file
a lawsuit against an enterprise that violates the laws. There are law enforcement authorities that, if
necessary, are able to force the offender to execute with the relevant judgment. They are enough. There is
no need to interfere with business and create a breeding ground for corruption.
• Any extraction permits shall be canceled. There should be a possibility to buy a plot of land at an open
auction. If there are any mineral recourses on this plot of land and their extraction is not legally prohibited,
the owner of the land shall be entitled to extract them without the need to obtain any permits for this. If the
extraction of this type of mineral resources is subject to a rent (according to the laws), the extracting
company (or the owner of the land) shall pay this rent.
• Amendments shall be made to the laws related to the following areas of economic activities: establishing
enterprises, obtaining construction permits, connecting to electricity supply system, registering property,
obtaining loans, protecting investors, taxation, international trade, enforcing contracts, resolving insolvency
issues (bankruptcy procedure). These amendments to the laws shall ensure that Ukraine wins the first place
in the international rating of ease of doing business – Doing Business Report.
• Municipal (local) budgets shall automatically receive their own statutory share of taxes on a monthly
(possibly, on a daily) basis without any special instructions from officials of the central government
apparatus.
!24

COMBATING CORRUPTION
Minimizing the Main Sources of Corruption
The basic approach to addressing the problem of corruption consists in creating conditions to minimize
corruption due to structural reforms in the public sector and economic policy rather than in establishing anti-
corruption agencies.
Successful solution of such a complex task is achieved due to:
• Cancelation of the licensing system for business and entrepreneurship;
• Absence of any state interference with entrepreneurial activities (up to the absence of tax reporting and tax
audits);
• Minimizing the tax burden, which makes it possible to conduct a successful business without the use of
schemes;
• Absence of the control functions of the customs in respect of imported goods and ensuring the collection of
customs duties and excises;
• Monetization and veriﬁcation of all social assistance;
• Minimizing the state’s engagement in economic activities;
• Maximum introduction of information technology and openness in the activities of government authorities
and funds.
!25

POLITICAL SYSTEM
The Merger of Presidential and Governmental Branches of Executive Power
The main objectives of introducing changes in the political system of Ukraine are: to increase the effectiveness
of interaction and interdependence of the legislative, executive and judicial branches of the government; the
elimination of possible stalemate situations in the interaction of various branches of power; excluding the
possibility of usurping the power by one of the branches of power.
The political system of Ukraine in general terms will look like this:
• Ukraine is a parliamentary republic.
• The state power in Ukraine is carried out according to the principle of its division into legislative,
executive and judicial.
• The only body of legislative power in Ukraine is the Supreme Council of Ukraine.
• The supreme executive body is the Cabinet of Ministers of Ukraine headed by the Prime Minister of
Ukraine. The Prime Minister of Ukraine is the Head of the State.
• The supreme body of the judiciary is the Supreme Court of Ukraine.
Deputies of the Supreme Council of Ukraine are elected for 4 years in a nationwide elections, in accordance
with the law on elections.
The Prime Minister (Head of State) of Ukraine is appointed by the Supreme Council of Ukraine.
The powers of the Supreme Council of Ukraine include, among others:
• hearing of candidates for the post of Prime Minister of Ukraine;
• the appointment of the Head of State - the Prime Minister of Ukraine (by a simple majority of deputies
of the Supreme Council of Ukraine);
• hearing annual reports of the Cabinet of Ministers;
• recall of the Prime Minister of Ukraine after hearing the annual report of the Cabinet (by a simple
majority of deputies of the Supreme Council of Ukraine);
• recall of the Prime Minister of Ukraine at any time (by the constitutional majority of the deputies of the
Supreme Council of Ukraine);
• adoption of the state budget of Ukraine.
The powers of the Prime Minister of Ukraine include, among others:
• the deﬁnition of the structure, the quantitative and personal composition of the Cabinet Ministers
(within the budget adopted by the Supreme Council of Ukraine);
• appointment and dismissal of ministers;
!26

• dissolution of the Supreme Council of Ukraine and the appointment of elections for a new composition
of the Supreme Council of Ukraine (through appeal to the Supreme Court of Ukraine in cases
determined by the Constitution of Ukraine).
The powers of the Supreme Court of Ukraine include, among others:
• decision-making on the appeal of the Prime Minister of Ukraine or any citizen of Ukraine on the
dissolution of the Supreme Council of Ukraine and the appointment of elections of a new composition
of the Supreme Council of Ukraine (in cases stipulated by the Constitution). 
!27

EVALUATION OF NEW ECONOMIC POLICY IN FIVE-YEAR
PERSPECTIVE
Minimizing the Shadow Economy
The application of the new economic policy will lead to a gradual decline in the level of the shadow economy
to 8% relative to the official GDP in the five-year perspective.
This decline in the level of the shadow economy is achieved due to several factors:
• Maximum simplifying of the tax system;
• Minimizing of the tax burden that allows the economy to generate profits without resorting to minimizing of
survival mechanisms;
• Minimizing of incentives for smuggling;
• Absence of the income tax and the need to minimize this tax;
• Low rates both on the distribution of dividends within the country and on the withdrawal of dividends
abroad;
• Automatic assessment and collection of taxes.
Foreign Investment
The dynamics of the inflow of foreign investment depends on the growth of the economy. The growth of the
official economy of 10-15 % per year can cause an inflow of foreign investment of USD 10-15 billion annually.
!28
0%
10%
20%
30%
40%
2016 2017 2018 2019 2020 2021
8%8%
12%
17.5%
28%
35%
Level of the shadow economy by years, as percentage of official GDP

Inflation
The level of inflation depends on the policy pursued by the regulatory authority. The National Bank may use
different strategies.
The Ukrainian experience in 2003-2007, as well as the experience of China in the 1980s, shows that inflation is
usually higher amid a rapid economic growth and is at the level of 10-11 %. And it can be even higher if the
policy to restrain inflation is not applied at the level of the state.
One of the mechanisms to minimize inflation in Ukraine (while the import to the GDP ratio is 50 percent) is the
mechanism for strengthening the exchange rate of the national currency. The second mechanism is the policy
to set state-owned enterprises and land pools for auctions (11 million hectares of land is owned by the state).
INFLATION IN UKRAINE DURING PERIOD OF RAPID GROWTH OF ECONOMY
Years 2003 2004 2005 2006 2007
Inflation, % 8.2 12.3 10.3 11.6 16.6
!29
FOREIGN INVESTMENTS, USD BILLION, AND GDP GROWTH, %
-30
-20
-10
0
10
20
30
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Investment, USD billion GDP growth, %

This will facilitate the accumulation of speculative and investment capitals, and also will positively affect the
funding of the primary budget deficit caused by a sharp decrease in the tax burden on the economy.
One can talk about 2 inflation scenarios:
• Maintaining a constant exchange rate and inflation at the level of 10 % a year;
• Downward inflation according to the current forecast of the NBU.
Scenario 1:
Scenario 2:
!30
INFLATION OF 10 %
5%
10%
15%
2017 2018 2019 2020 2021
Inflation
MAINTAINING EXCHANGE RATE
20
25
30
2017 2018 2019 2020 2021
UAH/USD Exchange rate
STRENGTHENING EXCHANGE RATE
20
25
30
2017 2018 2019 2020 2021
UAH/USD Exchange rate
REDUCTION OF INFLATION
5%
10%
15%
2017 2018 2019 2020 2021
Inflation

Cash Payments
At the end of 2016, we can say that 3/4 of the population’s purchases are made for cash. According to the
NBU, cash withdrawal from ATMs two times exceeds payments made for non-cash purchases. And the total
amount of cash withdrawn exceeds UAH 1 trillion.
G
Diagram. Data on the use of payment cards (source – the NBU).
The volume of use of cash is directly proportional to the level of the shadow economy that will decrease in the
course of time. A great incentive factor for transition to non-cash settlements is the tax system itself that
assumes a direct tax for transferring money into cash. It can be predicted that in the ﬁrst year after the reform
is launched cash settlements will decrease by 50-70 % and then will decrease gradually, as cashless payment
means appear in transport, markets and other sales points.
!31
FORECAST OF REDUCTION OF CASH AS COMPARED TO CURRENT LEVEL
25%
50%
75%
100%
2016 2017 2018 2019 2020 2021

Internal Commodity Turnover
The dynamics of changes in the level of commodity turnover in Ukraine over the past 20 years shows that 1%
of the GDP growth contributes to the growth of commodity turnover by 3%.
Domestic Market
Reduction of the tax burden will lead to a sharp improvement in the profitability of business in the country. As
the experience of 2016 shows (decrease of UST), part of the profits will be redistributed to increase incomes of
employees and to increase their salaries. Another source of growth of nominal salaries is a decrease of taxes
on salaries of employees, which will result in an additional 15 % increase in their incomes in the first year after
the launch of the reform. When incomes of the population are taxed at the rate of 4 %, most salaries will be
made legal very soon. Payment of salaries in the form of cash will remain in the “illegal” part of the economy for
internal payments, but its level will decrease in proportion to the reduction in the volume of the shadow
economy.
Generating profit, the economy will come into the investment phase of growth. As evidences by the statistics
of 2004-2016, profit of enterprises is the main investment resource. During this period, 55-75 % of capital
investments were made at the expense of profit. At the same time, investment will be directed not only to fixed
and intangible assets, but also to human capital. According to estimations of Amelin Group, the investment
character of the economy development can generate demand for labor up to 500 thousand jobs a year. This
will promote competition in the labor market and, accordingly, increase the average salary in the country.
Capital investment, taking into account the arrival of foreign investment, can return to the level of 2007, i.e.
30% of the GDP.
!32
GROWTH RATES OF REAL GDP AND RETAIL TRADE (%)
-30%
-20%
-10%
0%
10%
20%
30%
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
-3% -2%
0%
6%
9%
5%
10%
12%
3%
8% 8%
2%
-15%
0%
5%
0% 0%
-7%
-9%
1%
-1%
-15%
-4%
3%
13%
16% 16%
20%
27%
23%
18%
13%
-17%
11%
19%
16%
5%
-18%
-25%
2%
Retail trade growth rate (%) Real GDP growth rate (%)

Pricing Policy
The calculations show that even chains with a low share of added value demonstrate an improvement in the
overall proﬁtability of the chain. At the same time, it is obvious that at the start of the system there will be a
price correction. There will be an increase in the mark-up at low marginal redistributions. On the high-margin
and competitive markets, on the contrary, there may be a slight drop in prices. However, taking into account
the increase in the purchasing capacity of the population, there will hardly be a decrease in the overall price
level, which undoubtedly will contribute to increasing proﬁtability of entrepreneurial activities.
GDP Growth
The GDP growth will be formed on the basis of 2 basic factors:
• Minimizing the level of the shadow economy;
• Increasing investments in the economy.
As shown by the analysis carried out for 20 key countries over a long period, the GDP growth depends on the
level of investments. In developing countries, 3-4 % of investment growth can yield 1 % of the GDP growth. In
Ukraine, it is 3.3%.
!33
CAPITAL INVESTMENTS TO GDP RATIO, %
10%
20%
30%
40%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

Based on the above analysis, investment growth will be able to give rise to the economic growth of 6-8-10 %
of the GDP a year. On the other hand, a decrease in the shadow economy will also increase the official growth
of the economy.
The GDP growth is modeled on two basic scenarios:
1. Inflation at the level of 10 % a year.
2. Damped inflation. 
DEPENDENCE OF GDP GROWTH ON INVESTMENTS
Average Rate of
Accumulation, % of GDP
Average Annual GDP
Growth, %
Ratio of Accumulation to
GDP Growth
2000-2008 2009-2014 
(2010-2014)
2000-2008 2009-2014 
(2010-2014)
2000-2008 2009-2014 
(2010-2014)
USA 22 19 (19) 2.3 1.4 (2.2) 9.6 14 (8.6)
Japan 23 21 (21) 1.2 0.3 (1.5) 18.8 73 (14)
Germany 21 19 (19) 1.5 0.7 (2.0) 13.3 28 (10)
France 22 22 (22) 1.9 0.3 (1.0) 11.9 67 (22)
UK 19 16 (17) 2.6 0.7 (1.7) 7.1 25 (10)
Poland 21 21 (21) 4.0 3.0 (3.0) 5.3 6.9 (6.8)
Romania 25 26 (26) 6.1 -0.04 (1.4) 4.1 < 0 (18)
Turkey 19 20 (21) 4.6 3.6 (5.4) 4.2 5.5 (3.8)
Brazil 19 21 (21) 3.7 2.6 (3.2) 5.0 7.9 (6.6)
China 40 48 (48) 10.4 8.6 (8.5) 3.9 5.5 (5.6)
India 31 35 (35) 6.7 7.4 (7.2) 4.5 4.8 (4.9)
Russia 21 21 (22) 6.9 1.0 (2.8) 3.1 22 (7.9)
Ukraine 23 19 (20) 6.9 -2.9 (-0.3) 3.3 < 0 (<0)
!34

Scenario 1:
GDP (SCENARIO 1: INFLATION OF 10 %)
2016 2017 2018 2019 2020 2021
Official GDP, UAH trillion. 2.383 2.916 3.748 4.640 5.774 6.929
Shadow GDP 35% 28% 17.5% 12% 8% 8%
Shadow GDP, UAH trillion. 0.834 0.816 0.656 0.557 0.462 0.554
Total GDP (official + shadow), UAH trillion. 3.217 3.732 4.404 5.197 6.236 7.483
GDP growth 2.2% 6.0% 8.0% 8.0% 10.0% 10.0%
Inflation index 12.4% 10.0% 10.0% 10.0% 10.0% 10.0%
GDP growth
(official with account of shadow economy)
12.34% 18.54% 13.79% 14.44% 10.00%
!35
GDP (SCENARIO 1: INFLATION OF 10%)
0
2
4
6
8
2016 2017 2018 2019 2020 2021
0.554
0.462
0.557
0.656
0.816
0.834
6.929
5.774
4.64
3.748
2.916
2.383
Official GDP, UAH trillion. Shadow GDP, UAH trillion.

Scenario 2:
GDP (SCENARIO 2: STRENGTHENED EXCHANGE RATE AND DAMPED INFLATION)
2016 2017 2018 2019 2020 2021
Official GDP, UAH trillion. 2.383 2.865 3.558 4.219 5.031 5.786
Shadow GDP 35% 28% 17.5% 12% 8% 8%
Shadow GDP, UAH trillion. 0.834 0.802 0.623 0.506 0.402 0.463
Total GDP (official + shadow), UAH trillion. 3.217 3.668 4.181 4.725 5.434 6.249
GDP growth 2.2% 6.0% 8.0% 8.0% 10.0% 10.0%
Inflation index 12.4% 8.0% 6.0% 5.0% 5.0% 5.0%
GDP growth
(official with account of shadow economy)
12.23% 18.19% 13.55% 14.26% 10.00%
!36
GDP (SCENARIO 2: STRENGTHENED EXCHANGE RATE AND DAMPED INFLATION)
0
2
4
6
8
2016 2017 2018 2019 2020 2021
0.463
0.402
0.506
0.623
0.802
0.834 5.786
5.031
4.219
3.558
2.865
2.383
Official GDP, UAH trillion. Shadow GDP, UAH trillion.

Based on this assessment, we receive the following official indicators of the growth of the Ukrainian economy:
1. The nominal GDP of the country 4 years after the launch of the reform will exceed USD 200 billion.
2. The official GDP growth will be 14-18 %. This will definitely allow Ukraine to take the first place in the
world in terms of the GDP growth rating for several years, which is an additional incentive for investing
in Ukraine.
Such an indicator of economic growth will allow not only to exceed the standard of living of the population
existing before 2014, but also will provide an opportunity to ensure a sustained economic growth in the future.
Subject to keeping inflation at 5 % a year and the GDP growth at 10 % a year and the stable currency, the
economy is able to double the GDP in USD in 5 years.
If the reform is not carried out, its growth will be much more modest and the level of the shadow economy is
unlikely to decrease, despite the steps taken to unshadow business.
!37
GDP OF UKRAINE — SCENARIO 1
2
4
6
8
2017 2018 2019 2020 2021
6.9
5.8
4.6
3.7
2.9
3.73.43.22.92.7
GDP without reform, UAH trillion GDP after reform, UAH trillion
GDP OF UKRAINE — SCENARIO 2
2
4
6
8
2017 2018 2019 2020 2021
5.8
5.0
4.2
3.6
2.9
3.73.43.22.92.7
GDP without reform, UAH trillion GDP after reform, UAH trillion

Revenue of the Existing Tax System
As the statistics of recent years show, the tax burden in Ukraine is about 40% of the GDP. In 2017, taxes have
been increased again through the cancelation of beneﬁts and expanding the tax base.
Based on this analysis, the public revenue has been calculated at the load on the economy of 40% of the
GDP. By 2020, the public revenue will reach the level of UAH 1.36 trillion.
PLANNED PUBLIC REVENUE WITHOUT REFORM
2016 2017 2018 2019 2020 2021
GDP, UAH billion 2383 2675 2915 3150 3407 3684
Public revenue, % 40 40 40 40 40 40
Public revenue, UAH billion . 953 1070 1166 1260 1363 1474
!38
REVENUE OF CONSOLIDATED BUDGET + OWN INCOME OF
PENSION FUND AS PERCENTAGE OF GDP
32%
40%
48%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
PLANNED PUBLIC REVENUE WITHOUT REFORM
400
800
1200
1600
2016 2017 2018 2019 2020 2021
1,474
1,363
1,260
1,166
1,070
953
UAH trillion
Year Revenue to
GDP ratio, %
Own revenue
of the
Pension Fund
to GDP, %
2004 34.4% 8.2%
2005 39.8% 9.4%
2006 40.9% 9.3%
2007 41.0% 10.5%
2008 42.2% 10.8%
2009 42.5% 10.9%
2010 40.1% 11.0%
2011 40.8% 10.6%
2012 42.8% 11.2%
2013 41.9% 11.5%
2014 39.7% 10.6%
2015 41.5% 8.6%
2016 37.7% 4.8%
2017 40.4% 5.6%

Revenue of the New Tax System
To forecast the application of the new tax policy, budget revenue has been calculated based on the existing
economic indicators of 2016. To assess the revenue, the data of Ukrstat, NBU’s Payment Balance, Treasury
and other sources have been used. The calculation has shown that the revenue of the proposed tax system
will amount to 29.5% of the GDP.
State Revenue for 5-year Perspective
The calculation of state revenue for 2 basic development scenarios has been carried out:
1. Inflation of 10% and fixed exchange rate of the national currency;
2. Damped inflation with a gradual strengthening of the exchange rate.
CALCULATION OF REVENUE BY INDICATORS OF THE ECONOMY IN 2016
Base, UAH billion Base, UAH billion Tax rate, % Revenue,  
UAH billion
Official GDP – UAH 2,383.2 billion.
UAH/USD exchange rate - 25.5
Domestic commodity turnover, including: 5,000.0 192.0
Sales to the budget 200.0 0 0.0
Purchases by the population 1,400.0 4 56.0
Business-Business services 400.0 4 16.0
Business-Business goods 3,000.0 4 120.0
Payment of salaries and income (excluding budget) 900.0 4 36.0
Export of goods and services 1,171.0 0 0.0
Import of goods and services 1,289.0 10 128.9
Foreign investment, including: 82.0 4.8
Investment imports 25.0 10 2.5
Investment consumption 57.0 4 2.3
Cash transfers into Ukraine by individuals 105.0 4 4.2
Cash withdrawals 1,038.0 10 103.8
Withdrawal of investment income 131.0 10 13.1
Other income, including: 221.0
Excise tax 89.0
Rent 46.0
Incomes of the NBU 38.0
Incomes of budgetary organizations 48.0
Total revenue, UAH billion 703.7
Revenue to GDP rate, % 29.53%
!39

The calculation has been carried out based on earlier reported estimates of the GDP growth and economic
development, as well as applying additional valuation methods:
• Imports, exports and domestic commodity turnover grow in proportion to the GDP growth.
• The withdrawal of capital and private cash transfers into Ukraine remain at the level of 2016.
• The revenue from the excise tax increases in proportion to the GDP growth.
• The incomes of the National Bank of Ukraine, incomes from rent, and incomes of budgetary organizations
gradually decrease in relation to the GDP.
BUDGET REVENUE - SCENARIO 1: FIXED EXCHANGE RATE, INFLATION OF 10%
Revenue indicator ( UAH billion) Base 2016 Base 2017 Base 2018 Base 2019 Base 2020 Base 2021
Oﬃcial GDP 2,383 2,916 3,747 4,640 5,773 6,929
Shadow GDP 834 816 656 556 462 554
Total GDP 3,217 3,732 4,403 5,196 6,235 7,483
UAH/USD exchange rate 25.5 27.0 27.0 27.0 27.0 27.0
Domestic commodity turnover,
including:
5,000 192 6,118 236 7,861 305 9,735 379 12,112 473 14,537 569
Sales to the budget 200 0 220 0 242 0 266 0 293 0 322 0
Purchases by the population 1,400 56 1,738 70 2,274 91 2,849 114 3,583 143 4,330 173
Business-Business services 400 16 489 20 629 25 779 31 969 39 1,163 47
Business-Business goods 3,000 120 3,671 147 4,717 189 5,841 234 7,267 291 8,722 349
Payment of salaries and income
(excluding budget)
900 36 1,188 48 1,669 67 2,183 87 2,851 114 3,525 141
Export of goods and services 1,171 0 1,438 0 1,697 0 2,002 0 2,403 0 2,884 0
Import of goods and services 1,289 129 1,583 158 1,867 187 2,204 220 2,644 264 3,174 317
Foreign investment, including: 82 5 216 13 324 19 378 22 405 23 405 23
Investment imports 24 2 65 6 97 10 113 11 122 12 122 12
Investment consumption 57 2 151 6 227 9 265 11 284 11 284 11
Cash transfers into Ukraine by
individuals
105 4 111 4 111 4 111 4 111 4 111 4
Cash withdrawals 1,038 104 600 60 600 60 600 60 600 60 600 60
Withdrawal of investment income 131 13 131 13 131 13 131 13 131 13 131 13
Other income, including: 221 277 341 404 479 554
Excise tax - 89 4 
% ВВП
117 4 
% ВВП
150 4 
% ВВП
186 4 
% ВВП
231 4 
% ВВП
277
Rent - 46 2 
% ВВП
58 1.9 
% ВВП
71 1.8 
% ВВП
84 1.7 
% ВВП
98 1.6 
% ВВП
111
Incomes of the NBU - 38 1.5 
% ВВП
44 1.2 
% ВВП
46 0.9 
% ВВП
40 0.6 
% ВВП
35 0.4 
% ВВП
30
Incomes of budgetary organizations - 48 2 
% ВВП
58 1.8 
% ВВП
67 1.6 
% ВВП
74 1.4 
% ВВП
81 1.3 
% ВВП
90
Total revenue, UAH billion 704 809 989 1,169 1,397 1,636
Revenue to GDP rate, % 29.53% 27.74% 26.39% 24.20% 24.79% 23.61%
!40

The calculation shows that a decrease in the level of the shadow economy disproportionately increases the
revenue of budgets. There is a decrease in the level of the tax burden in both scenarios from 29.5 to 24 % of
GDP.
Despite such a low tax burden, due to the GDP growth and the effective withdrawal of the illegal economy
from the shadow, the budget revenue will exceed the budget revenue without the reform in 4-5 years.
BUDGET REVENUE - SCENARIO 2: INCREASED EXCHANGE RATE, DAMPED INFLATION
Revenue indicator ( UAH billion) Base 2016 Base 2017 Base 2018 Base 2019 Base 2020 Base 2021
Oﬃcial GDP 2,383 2,865 3,558 4,219 5,031 5,786
Shadow GDP 834 802 623 506 402 463
Total GDP 3,217 3,667 4,181 4,725 5,433 6,249
Domestic commodity turnover,
including:
5,000 192 6,011 232 7,465 289 8,852 343 10,555 410 12,139 473
Sales to the budget 200 0 220 0 242 0 266 0 293 0 322 0
Purchases by the population 1,400 56 1,703 68 2,147 86 2,566 103 3,085 123 3,562 142
Business-Business services 400 16 481 19 597 24 708 28 844 34 971 39
Business-Business goods 3,000 120 3,606 144 4,479 179 5,311 212 6,333 253 7,283 291
Payment of salaries and income
(excluding budget)
900 36 1,153 46 1,542 62 1,901 76 2,353 94 2,757 110
Export of goods and services 1,171 0 1,387 1,551 0 1,720 0 1,938 0 2,185 0
Import of goods and services 1,289 129 1,526 153 1,708 171 1,893 189 2,134 213 2,405 240
Foreign investment, including: 82 5 212 12 312 18 357 21 375 22 368 21
Investment imports 24 2 64 6 94 9 107 11 113 11 110 11
Investment consumption 57 2 148 6 218 9 250 10 263 11 257 10
Cash transfers into Ukraine by
individuals
105 4 109 4 107 4 105 4 103 4 100 4
Cash withdrawals 1,038 104 600 60 600 60 600 60 600 60 600 60
Withdrawal of investment income 131 13 131 13 131 13 131 13 131 13 131 13
Other income, including: 221 272 324 367 418 463
Excise tax - 89 4 
% ВВП
115 4 
% ВВП
142 4 
% ВВП
169 4 
% ВВП
201 4 
% ВВП
231
Rent - 46 2 
% ВВП
57 1.9 
% ВВП
68 1.8 
% ВВП
76 1.7 
% ВВП
86 1.6 
% ВВП
93
Incomes of the NBU - 38 1.5 
% ВВП
44 1.3 
% ВВП
46 0.9 
% ВВП
40 0.7 
% ВВП
35 0.5 
% ВВП
30
Incomes of budgetary organizations - 48 2 
% ВВП
57 1.8 
% ВВП
64 1.6 
% ВВП
68 1.4 
% ВВП
70 1.3 
% ВВП
75
Total revenue, UAH billion 704 793 937 1,059 1,209 1,351
Revenue to GDP rate, % 29.53% 27.69% 26.33% 25.10% 24.03% 23.35%
!41

Evaluation of Compensators for Revenue Reduction
The state can use the proceeds from privatization of state-owned enterprises, as well as the proceeds from
the sale of the pool of agricultural lands owned by the state as compensators for budget losses. According to
the Ministry of Economic Development, the value of assets of state-owned enterprises is UAH 1.35 trillion, and
the state land pool is 11 million hectares. According to the estimates of economists of IMF-GROUP, if the land
market is lunched, its base cost will be USD 1,100 per hectare with a growth of at least 20 % a year.
Thus, the proceeds from the sale of state-owned agricultural land and property can be an additional source of
income at the level of 2.5-3 % of the GDP, depending on the rate of sale of state assets.
CALCULATION OF REVENUE FROM SALE OF STATE PROPERTY
Base, 
million
ha
Year 1, 
UAH
billion.
Base, 
million
ha
Year , 
UAH
billion.
Base, 
million
ha
Year 3, 
UAH
billion.
Base, 
million
ha
Year 4, 
UAH
billion.
Base, 
million
ha
Year 5, 
UAH
billion.
Sale of state-owned
enterprises
25 33 42 55 71
Sale of state-owned
land (11 million hectares)
2 59 2 71 2 86 2 103 2 123
Income from
privatization
84 104 128 158 194
!42
REVENUE OF CONSOLIDATED BUDGET OF UKRAINE (SCENARIO: INFLATION OF 10%)
600
1,200
1,800
2017 2018 2019 2020 2021
1,636
1,397
1,169
989
809
1,4741,3631,2601,1661,070
Without reform, UAH billion After reform, UAH billion

Reduction of Taxes in Expenditure
As it is generally known, the expenditure part of the budget is built on the inclusion of expenditure taxes into
the budget expenditure. Therefore, an effective way to reduce budget expenditure is to eliminate the state’s
charging taxes on itself.
The amount of state expenditure has been evaluated in case of the reduction of taxes that today are included
in this expenditure. The UST, IIT, military tax, VAT are eliminated in the expenditure.
The calculation has shown that tax reduction can result in a reduction in the expenditure almost by 5% of GDP.
Reduction of Expenditure Items of the Budget
Two basic scenarios for dealing with budget expenditure are considered:
1. “Soft transformation” scenario. It assumes an increase in all current expenditures of the state by the level
of inflation. And the expenditure on the basic functions of the state – defense, courts and public security –
are increased annually in proportion to the GDP growth.
2. “Active Reforms” scenario. It assumes the implementation of all structural reforms of the public sector
described herein. Part of the expenditure items of the budget remains unchanged, but expenditures on
them increase annually by the amount of inflation. Expenditures in the second group of items also remain
unchanged, but increase in proportion to the GDP growth. The third part of the expenditure items is
COMPARISON OF AMOUNT OF STATE EXPENDITURE IN 2016 INCLUDING AND EXCLUDING TAXES
Functions of the state Expenditure
including
taxes, UAH
billion.
% of GDP Expenditures
excluding
taxes, UAH
billion
% of GDP
Official GDP 2383.2 100.00% 2383.2 100.00%
General state functions 134.1 5.63% 124.6 5.23%
Defense 59.4 2.49% 44.5 1.87%
Public order, security and judiciary system 72.1 3.02% 54.0 2.27%
Economic activities 66.2 2.78% 55.2 2.31%
Environmental protection 6.3 0.26% 4.7 0.20%
Housing and public utilities sector 17.5 0.74% 13.2 0.55%
Healthcare 75.4 3.16% 56.6 2.37%
Spiritual and physical development 16.9 0.71% 12.7 0.53%
Education 129.4 5.43% 97.1 4.07%
Social protection 370.0 15.53% 370.0 15.53%
Amount of expenditure 947 39.75% 833 34.93%
!43

completely reduced at the start of the reform. Expenditures on the fourth part of the items are annually
reduced in the course of active reforms.
SCENARIO: ACTIVE REFORMS - EXPENDITURE ITEMS TO BE COMPLETELY REDUCED
Functions of the
state
Expenditure items to be reduced Amount of
expenditure in
2016, UAH
billion
General state
functions
Other general functions of public administration 2.9
Public order,
security and judicial
system
Fundamental and applied research and development in the area of public order 0.1
Other activities in the areas of public order, security and the judicial system 3.5
Economic activities Agriculture 4.6
Fuel and energy complex 1.9
Fundamental and applied research and development in economic sectors 0.8
Environmental
protection
Fundamental and applied research and development in the area of environmental
protection
0.1
Other activities in the area of environmental protection 0.5
Healthcare Specialized and dental polyclinics 2.0
Health resort facilities 1.0
Other institutions and activities in the area of healthcare 7.7
Spiritual and
physical
development
Club facilities 2.4
Other activities and facilities in the area of culture and art 0.9
Fundamental and applied research and development in the area of physical development 0.02
Other activities in the area of spiritual and physical development and information 0.02
Education Postgraduate education 0.8
Extra-curriculum education and activities for extra-curriculum work with children 4.1
Programs of material support of educational institutions 0.3
Fundamental and applied research and development in the area of education 0.6
Other institutions and activities in the area of education 2.8
Social protection Social protection in case of incapacity for work 10.3
Fundamental and applied research and development in the area of social protection 0.02
Other activities in the area of social protection 2.7
Total amount of budget expenditure to be completely reduced at the start of the reforms: 49.8
!44

EXPENDITURE ITEMS TO BE REDUCED WITHIN 5 YEAR PLAN OF ACTIVE REFORMS
Functions of the
state
Expenditure and explanations on changes in the amount of expenditure Amount of
expenditure in
2016
General state
functions
Fundamental and applied research and development in the area of public
administration
Funding from the budget to be stopped, except for funding IT-services
2.2
Debt service
Refinancing of external debts. Reduction of the national debt due to budget surplus after 3
years of the reform
96.1
Funding of the State Fiscal Service
Reduction in the expenditure for the State Fiscal Service by 3 billion to 1.7 billion
4.7
Economic activities General economic, trade and labor activity
Funding from the budget to be stopped gradually at the expense of privatization
2.1
Agriculture: Forestry and hunting
0.1
Agriculture: Fisheries
0.1
Other industries and construction
0.5
Communication, telecommunications and information technology
0.3
Other branches of the economy
5.4
Other economic activities
14.9
Education Higher education. Vocational and technical education
Funding from the budget to be reduced by 20 % per year without inflation indexation due
to:
• reduction in the number of students who study at the expense the budget;
• privatization of state educational institutions.
31.0
Social protection Social protection of the family, children and youth
Verification of beneficiaries. Transition to the unified social standard system. Reduction in
the number of beneficiaries due to the growth of the well-being of population.
40.7
Assistance in addressing the housing issue (including subsidies for public utility
services)
41.6
Social protection of veterans of war and labor. Social protection of the
unemployed. Social protection of other categories of the population.
15.4
!45

Consolidated Budget of Ukraine in the 5-year Perspective
Modeling of the public expenditure in the 5-year perspective shows that in case of strict control of public
expenditure and elimination of part of the state functions, it is to possible to switch to a surplus budget already
in the second year of the reform.
The resulting budget surplus is planned to be used to repay domestic debts and expensive foreign debts, as
well as to increase funding of the armed forces, law enforcement authorities and judicial system. In the future,
it is possible to consider the issue of an even greater reduction of the tax burden. 
!46
CONSOLIDATED BUDGET OF UKRAINE FOR SCENARIO 1: SOFT TRANSFORMATION
600
1,200
1,800
2017 2018 2019 2020 2021
1,636
1,397
1,169
989
809
1,3871,2691,1531,041934
Expenditure, UAH billion Revenue, UAH billion
CONSOLIDATED BUDGET OF UKRAINE FOR SCENARIO 2: ACTIVE REFORMS
600
1,200
1,800
2017 2018 2019 2020 2021
1,636
1,397
1,169
989
809
1,1161,036960907849
Expenditure, UAH billion Revenue, UAH billion

FORECAST OF THE CONSOLIDATED BUDGET OF UKRAINE (NOMINAL) - SOFT TRANSFORMATION
2017 2018 2019 2020 2021 2017-2021
In UAH billion
Revenue
Internal commodity turnover and income of the population 294 385 481 603 725 2,488
Import and withdrawal from the banking system 238 270 305 350 403 1,564
Excise taxes 117 150 186 231 277 960
Rent 58 71 84 98 111 422
Incomes of budgetary organizations and the NBU 102 113 114 116 120 566
____ _____ _____ _____ _____
Total revenue 809 989 1,169 1,397 1,636 6,001
Tax revenue 707 876 1,055 1,281 1,516 5,435
Non-tax revenue 102 113 114 116 120 566
Expenditure
General public expenditure 143 151 153 143 126 716
including debt service 112 116 115 101 80 524
Defense 54 70 87 108 129 448
Public order, security and courts 66 84 103 126 150 529
Economic activity 61 67 73 81 89 370
Environmental protection 5 6 6 7 8 32
Housing and public utilities sector 14 16 18 19 21 88
Healthcare 62 68 75 83 91 380
Spiritual and physical development 14 15 17 19 20 85
Education 107 117 129 142 156 652
Social protection 407 448 493 542 596 2,485
including pensions 285 314 345 380 418 1,741
____ _____ _____ _____ _____
Total expenditure 934 1,041 1,153 1,269 1,387 5,785
Budget expenditure 934 1,041 1,153 1,269 1,387 5,785
Extra-budgetary expenditure - - - - - -
Deficit (-) or surplus -125 -52 16 128 249 215
Budget deficit (-) or t surplus -125 -52 16 128 249 215
Extra-budgetary deficit (-) or surplus - - - - - -
Public debt 2,055 2,107 2,091 1,963 1,715 -
Gross Domestic Product (GDP) 2,916 3,747 4,640 5,773 6,929 24,005
!47

FORECAST OF THE CONSOLIDATED BUDGET OF UKRAINE (AS PERCENTAGE OF GDP) - SOFT TRANSFORMATION
2017 2018 2019 2020 2021 2017-2021
As percentage of Gross Domestic Product
Revenue
Internal commodity turnover and income of the population 10.1 10.3 10.4 10.4 10.5 10.4
Import and withdrawal from the banking system 8.2 7.2 6.6 6.1 5.8 6.5
Excise taxes 4.0 4.0 4.0 4.0 4.0 4.0
Rent 2.0 1.9 1.8 1.7 1.6 1.8
Incomes of budgetary organizations and the NBU 3.5 3.0 2.5 2.0 1.7 2.4
Total revenue 27.7 26.4 25.2 24.2 23.6 25.0
Tax revenue 24.2 23.4 22.7 22.2 21.9 22.6
Non-tax revenue 3.5 3.0 2.5 2.0 1.7 2.4
Expenditure
General public expenditure 4.9 4.0 3.3 2.5 1.8 3.0
including debt service 3.8 3.1 2.5 1.7 1.2 2.2
Defense 1.9 1.9 1.9 1.9 1.9 1.9
Public order, security and courts 2.2 2.2 2.2 2.2 2.2 2.2
Economic activity 2.1 1.8 1.6 1.4 1.3 1.5
Environmental protection 0.2 0.2 0.1 0.1 0.1 0.1
Housing and public utilities sector 0.5 0.4 0.4 0.3 0.3 0.4
Healthcare 2.1 1.8 1.6 1.4 1.3 1.6
Spiritual and physical development 0.5 0.4 0.4 0.3 0.3 0.4
Education 3.7 3.1 2.8 2.5 2.3 2.7
Social protection 14.0 12.0 10.6 9.4 8.6 10.4
including pensions 9.8 8.4 7.4 6.6 6.0 7.3
Total expenditure 32.0 27.8 24.8 22.0 20.0 24.1
Budget expenditure 32.0 27.8 24.8 22.0 20.0 24.1
Deﬁcit (-) or surplus -4.3 -1.4 0.3 2.2 3.6 0.9
Budget deﬁcit (-) or t surplus -4.3 -1.4 0.3 2.2 3.6 0.9
Public debt 70.5 56.2 45.1 34.0 24.8 -
!48

FORECAST OF THE CONSOLIDATED BUDGET OF UKRAINE (NOMINAL) - ACTIVE REFORMS
2017 2018 2019 2020 2021 2017-2021
In UAH billion
Revenue
Internal commodity turnover and income of the population 294 385 481 603 725 2,488
Import and withdrawal from the banking system 238 270 305 350 403 1,564
Excise taxes 117 150 186 231 277 960
Rent 58 71 84 98 111 422
Incomes of budgetary organizations and the NBU 102 113 114 116 120 566
____ _____ _____ _____ _____
Total revenue 809 989 1,169 1,397 1,636 6,001
Tax revenue 707 876 1,055 1,281 1,516 5,435
Non-tax revenue 102 113 114 116 120 566
Expenditure
General public expenditure 127 120 102 90 73 512
including debt service 105 95 75 60 40 375
Defense 54 70 87 108 129 448
Public order, security and courts 62 79 98 122 147 508
Economic activity 48 44 38 36 36 201
Environmental protection 5 5 6 6 7 29
Housing and public utilities sector 14 16 18 19 21 88
Healthcare 51 56 61 67 74 308
Spiritual and physical development 10 11 12 14 15 63
Education 94 94 95 97 99 479
Social protection 383 412 443 477 515 2,230
including pensions 285 314 345 380 418 1,741
____ _____ _____ _____ _____
Total expenditure 849 907 960 1,036 1,116 4,868
Budget expenditure 849 907 960 1,036 1,116 4,868
Deﬁcit (-) or surplus -40 82 210 361 520 1,133
Budget deﬁcit (-) or t surplus -40 82 210 361 520 1,133
Public debt 1,970 1,888 1,678 1,317 797 -
Gross Domestic Product (GDP) 2,916 3,747 4,640 5,773 6,929 24,005
!49

FORECAST OF THE CONSOLIDATED BUDGET OF UKRAINE (AS PERCENTAGE OF GDP) - ACTIVE REFORMS
2017 2018 2019 2020 2021 2017-2021
As percentage of Gross Domestic Product
Revenue
Internal commodity turnover and income of the population 10.1 10.3 10.4 10.4 10.5 10.4
Import and withdrawal from the banking system 8.2 7.2 6.6 6.1 5.8 6.5
Excise taxes 4.0 4.0 4.0 4.0 4.0 4.0
Rent 2.0 1.9 1.8 1.7 1.6 1.8
Incomes of budgetary organizations and the NBU 3.5 3.0 2.5 2.0 1.7 2.4
Total revenue 27.7 26.4 25.2 24.2 23.6 25.0
Tax revenue 24.2 23.4 22.7 22.2 21.9 22.6
Non-tax revenue 3.5 3.0 2.5 2.0 1.7 2.4
Expenditure
General public expenditure 4.4 3.2 2.2 1.6 1.1 2.1
including debt service 3.6 2.5 1.6 1.0 0.6 1.6
Defense 1.9 1.9 1.9 1.9 1.9 1.9
Public order, security and courts 2.1 2.1 2.1 2.1 2.1 2.1
Economic activity 1.6 1.2 0.8 0.6 0.5 0.8
Environmental protection 0.2 0.1 0.1 0.1 0.1 0.1
Housing and public utilities sector 0.5 0.4 0.4 0.3 0.3 0.4
Healthcare 1.7 1.5 1.3 1.2 1.1 1.3
Spiritual and physical development 0.3 0.3 0.3 0.2 0.2 0.3
Education 3.2 2.5 2.0 1.7 1.4 2.0
Social protection 13.1 11.0 9.5 8.3 7.4 9.3
including pensions 9.8 8.4 7.4 6.6 6.0 7.3
Total expenditure 29.1 24.2 20.7 17.9 16.1 20.3
Budget expenditure 29.1 24.2 20.7 17.9 16.1 20.3
Deﬁcit (-) or surplus -1.4 2.2 4.5 6.3 7.5 4.7
Budget deﬁcit (-) or t surplus -1.4 2.2 4.5 6.3 7.5 4.7
Public debt 67.6 50.4 36.2 22.8 11.5 -
!50

Graphs of Reduction of Tax Burden on Economy and Public Expenditures
!51
REDUCTION OF TAX BURDEN AND EXPENDITURES - SOFT TRANSFORMATION
15%
20%
25%
30%
35%
40%
45%
2016 2017 2018 2019 2020 2020
Public expenditures, % GDP Tax burden on economy , % GDP
REDUCTION OF TAX BURDEN AND EXPENDITURES - ACTIVE REFORMS
15%
20%
25%
30%
35%
40%
45%
2016 2017 2018 2019 2020 2020
Public expenditures, % GDP Tax burden on economy , % GDP

The policy of working with the public debt
Working with the public debt is an important part of the financial system of the state. During the economic
crisis of 2014-2015 and subsequent devaluation of the hryvna, the parameters of the public debt have
significantly grown. As of 01/01/2017, the state debt consisted of 45 billion US dollars of external debts and
685 billion hryvna of domestic debts. The public debt service in 2016 amounted to 99 billion hryvna (34 billion
hryvna servicing of external debts and 65 billion hryvna servicing of domestic debts). The bulk of external
loans, apart from the restructured commercial debt in 2015, have low maintenance rates.
EXTERNAL CREDITORS AND INTEREST RATES
Creditor
Loan
Payment group
Debt on
01.01.2017,  
mln USD
Cost per year,  
mln USD
Interest
rate,  
%
Notes
ОЗДП 2013 year 3,000.00 - - Not being paid. Now on appeal, because Russia won the court and
requires payment of interest of $375 million USD.
ОЗДП 2014 year 1,000.00 18.4 1.84 Under the guarantees of the US government
ОЗДП 2015 year 13,043.33 1,010.9 7.75 Yaresko restructuring with an additional anchor in the form of
payments for economic growth of more than 3% per year from
2021 to 2041.
European Union 2,310.11 25.8 1.12
European Bank for
Reconstruction and Development
591.09 7.1 1.20
European Investment Bank 534.09 5.1 0.95
International Bank for
Reconstruction and Development
5,055.39 91.7 1.81 A lot of projects. Average interest rate.
International Monetary Fund 6,833.09 130.6 1.91 Average interest rate.
International Monetary Fund
(NBU)
6,132.83 120.0 1.96 The figure of percent is approximate. In 2016, the NBU paid 3060
million UAH of interest. In 2016 there was no repayment of the loan.
Canada 295.41 5.9 2.00 Approximate interest rate.
Germany 220.05 7.0 3.18 Approximate interest rate.
RESULT: 41,015.39 1,455.67 3.55%
Other debts 4,589.32 One part without interest. Another part of the guaranteed debt with
an undefined interest rate.
TOTAL: 45,604.71
!52

The Reform Program “Free Economy”

The Reform Program “Free Economy”

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