Bulletin of the regional transparency. Issue 2

We offer to your attention the second issue  of the analytical-information product of the International Centre for Policy Studies, "Bulletin of the regional transparency", which was developed in the framework of the project "Transparency, financial health and competitiveness of the local self-government in Ukraine" being implemented by ICPS and Slovak non-governmental non-profit organization INEKO with the financial support of the U.S. Embassy in Ukraine. The Bulletin contains the review the work of the Project, as well as a variety of materials devoted to increased transparency, financial viability and competitiveness of the local authorities, as well as issues related to the coverage of the decentralization reform. In this issue we offer to your attention materials on: Presentation of transparency rating in 22 regions of Ukraine by experts of ICPS (Ukraine) and Transparency International Slovakia; A violation of the procedural issues in Khmelnytsky City Council during preparation for the next session; Procurement of Chernivtsi City Council with used trolleys in emergency condition; Analysis of the position of the city of Odessa in the transparency rankings of the cities; Abuse in the city Kropivnitskyi in the greening of the city; Exposing individual schemes, discrimination of bidders in public procurement; Recommendations to local authorities on how to improve the transparency and openness of budget processes with participation of citizens. Full version of the Bulletin is available here: /assets/uploads/images/images/eu/nl_02_07_17_.pdf...

ICPS Press

Presentation of the transparency ranking of Ukrainian regions

International Centre for Policy Studies together with Institute of social and economic reforms continues to work on the project "Transparent, Financially Healthy and Competitive Self-governments in Ukraine​". The issue of transparency of local self-government is one of the two components of the project, along with financial health. So now we present the ranking of transparency of 22 regions of Ukraine in the form of a web platform which highlights all of the rating indicators, as well as recommendations for improving the level of transparency of the regional councils. ICPS expert Svitlana Radchenko noted that  in order to assess the transparency 22 regional councils used the data obtained from the following sources: • Answers to the questionnaire submitted by  ICPS to 22 regional councils. Each questionnaire contained 16 questions • Respond to requests for information sent by ICPS unofficially through a third party ("request of a secret client"). Each query contained three questions and was aimed at identifying the response of regional councils to requests from ordinary citizens • Information  that is publicly available on official websites of regional councils • Information from the profiles of regional councils in the social network Facebook 22 regional councils were assessed, with the exception of the temporarily occupied territories and the Crimea. Two regions (Donetsk and Luhansk) were excluded from the ranking due to differences in the competence of the regional councils and ad hoc civil-military administrations introduced in Donetsk and Luhansk oblasts by the President of Ukraine due to  anti-terrorist operation on the territory of regions. These administrations have partially taken over the functions of local self-government and executive power. In the process of monitoring of official websites of regional councils  by ICPS experts 67 indicators in nine (9) key areas have been allocated, they  reflect the situation on transparency of the regional councils. The most important areas were  the information policy, budgeting, citizen participation and professional ethics and conflict of interest. The overall rating can range from 0 % (worst score) to 100 %(best score). Three areas now have the highest level of transparency in our rating. However, as we see even these regional councils have a lot of work to be done, because the best result is only 58.5 %. Mostly low positions in the ranking are associated with two factors:  1) lack of basic information on public procurement and disposal of assets of the regional council at the web site. It is worth to be noted that some areas have a fairly full web site at the first glance due to the presence of all main sections (such as Zhytomyr region council), but if you search the required information, it turns out that this sections are not informative enough for citizens. 2) the presence of a large amount of information on the website, but a physical inability to find it due to uncomfortable interface. Therefore, some regional councils formally publish data, such as the Declaration on assets and income of the regional head or the deputies or other officials of the council, however, the search for such information, even purposeful, may take an extremely long time. Michal Pesko (Transparency International Slovakia) presented the Slovak experience in the use of ratings to increase the transparency of local governments. It should be noted that the transparency of regional councils is the first one implemented in Ukraine. We believe that the results will contribute to increase of the the level of transparency of regions in Ukraine....

ICPS Press

Pension reform: challenges and prospects

Attempts to implement pension reform in Ukraine have been undertaken for the last 25 years. However, the result is not comforting. Working Ukrainians have no stimuli to pay pension contributions; there is a chronic deficit of the Pension Fund, which puts pressure on the state budget; at the same time, the amount Ukraine spends for pensions is almost the biggest amount in the world (in percent of GDP), and until recently had a very high ‘labor taxes’, encouraging the motivation of business to go into shadow. Reforms are difficult to undertake due to many objective and subjective factors, including the complex demographic situation, high level of involvement through the shadow economy, imbalances in the budget and political populism. After the completion of the Revolution of Dignity we are witnessing a new wave of attempts to improve the existing pension reform, which is carried out in terms of attention from the international community, primarily the IMF, as well as in the conditions of fierce political competition. After gaining independence, Ukraine, which inherited a Soviet pension style, began questioning whether the formation of a new pension system, which would be consistent with current socio-economic conditions would be possible. Since independence was gained, there have been several attempts of systemic changes to the pension system. One of the key efforts was the adoption of a very progressive law ‘On mandatory state pension insurance’ in 2003. The new law provided for carrying out the pension system reform in Ukraine, the establishment of solidarity, mandatory public and private pension systems, and also related the level of pensions to the length of professional experience and wages in Ukraine. However, in practice the law has not led to real reforms, has not solved the problem of the permanent deficit of the Pension Fund, has not provided the implementation of a state funded system of pension provision and cannot guarantee a decent level of pension provision for citizens. This happened due to a number of circumstances, in particular: - During consideration of the law within parliament, the norm on long-term sustainability of pension systems and the rate of gradual increase in the retirement age to 60 years for women and 65 years for men was eliminated. - The law did not solve the problem of privileged pensions: ‘VIP-retirees’ continued to receive pension much bigger than objective economic circumstances could maintain. - The law also did not solve the problem of high tax burdens on the Salary Fund associated with pension contributions. - The entry into force of a second level of pension reform (obligatory state insurance) was postponed until the adoption of a separate law on the launch of the Cumulative Fund of obligatory pension insurance However, the populism of politicians in the race for electoral support was the biggest problem. Buying electoral loyalty of pensioners became a trend. For example, from 2002 to 2010, the minimum amount of pensions increased by 9 times, while the average salary increased only by 3.4 times. Another problem is the existence of privileged pensions and early retirement for certain segments of the population. As a result, Ukraine was in a vicious circle of rising budget deficit accompanied by the demographic problem. Increasing pension costs, it increased the deficit of the Fund. The simultaneous worsening of the demographic situation reduced the possible options to solve the problem. Difficult demographic situation in Ukraine considerably complicates the design and implementation of pension reform. One of the main demographic problems of Ukraine is the very high premature mortality and, as a consequence, one of the lowest in Europe, life expectancy, particularly among men. One of the controversial parameters of the demographic situation in Ukraine is the fact that Ukraine is one of the oldest countries in the world. It is true, if we take into consideration only index of 60+, the proportion of the population over 60 years of age. However, the proportion of people aged 65+ in Ukraine is lower than in the EU (15.6 per cent vs 18.9% in EU in average) due to the fact that in the interval from 60 to 65 years a quite large number of people are dying. One should also consider the fact that in Ukraine the average life expectancy of men is lower than in most developed countries. However, not only the absolute age of retirement and average life expectancy at the time of retirement preferential early retirement are important. Ukrainian women take one of the highest places in the world for life expectancy during retirement period – so, in 2012, it  amounted to 23 years, which exceeded their average seniority. For men the average life expectancy at the time of retirement is equal to 14 years, which is comparable to the similar indicator in other countries. At the same time, in Ukraine, almost half of men retire at age 60 and the rest - at 40, that is actually the average age of retirement is 55 years. Another threatening trend is the aging of the population. The future level of population ageing and demographic burden will grow due to the reduction of the working period of the population. This will contribute to a catastrophic reduction in the birth rate that occurred in the 1990s. As a result, as of 2017 in Ukraine there is the situation when for 12.5 million of pensioners there are 26 million people of working age of which only 176 million people are employed. Only 10 million of them pay UIP - base for the formation of the Pension Fund. The budget for 2017 stipulates the Pension Fund deficit in the amount of 141.5 billion, representing 5.5% of GDP. Thus the Pension Fund is able to finance a deficit to less than half of its costs. A similar situation was observed in 2016 – for the volume of the Pension Fund in the amount of UAH 257 billion the deficit was equal to UAH145 billion. Now in Ukraine the pension costs amount to 15% of GDP, which is one of the highest in Europe and significantly higher than many countries with significantly higher levels of aging such as Sweden, Finland, UK, Norway, Switzerland. The retirement age in our country remains one of the lowest in Europe – in fact, taking into account privileged pension at the age of 55, compared to 63.1 years in average in the EU countries. The average duration of employment in Ukraine – that is, the period during which a person earns a pension is the same for men and women (about 34 years). Also in 2016 in Ukraine there were 830 000 individuals under pension age, who received so-called "early" retirement. Therefore, the development of a draft pension reform occurred in a rather complex and stressful conditions. In May 2017, the Cabinet of Ministers under pressure of the IMF approved the draft project of a long-awaited pension reform. The current version of pension reform includes the following key points: - Increase of the years of pensionable service from 15 to 25 years According to the government's proposed reform, the retirement age remains at 60 years for persons with an insurance period of 25 years. Now those who are 60 years old have the right to a retirement pension. The law specifies that these individuals must have been insured for 15 years. From January 1, 2004 only the years of pensionable service are important for the accruals for pensions. Thus from this time the work book is not a confirmation of insurance. And the flexible corridor in the retirement age is introduced as well as the possibility of compensation of losses of insurance — citizens who do not have enough years of work experience in order to satisfy the requirement with minimum experience, will be able  to pay contributions for the missing years (maximum 5 years). The draft reform project does not stipulate the raising of the retirement age, as demanded by the IMF. - “Modernization" of pensions. 50% of pensioners will have increased pensions For this, the government introduces single rules of determining of the amount of pension payments. The introduction of new formula for calculating pensions for a uniform approach to the ‘old’ and ‘new’ pensioners using the average wage level UAH 3764,40 is planned. That is, it turns out that the rate at which pensions are calculated will be increased almost three times. According to Prime MinisterGroysman, as a result of this ‘modernization’ up to UAH 3 764,40 more than 5 million pensioners, from October 1, 2017 will receive the increase of pensions of UAH 200 to UAH 1 thousand per month. The introduction of such provision is due to the fact that a lot of pensioners who retired 10 years ago, get less pension than others who began to receive pensions recently. As of today, the amount of the pension depends on three factors: the employee's salary, length of service and average wage in Ukraine, which is applied when calculating pensions. The average salary is growing every year, therefore, the pensions of Ukrainians should be recalculated but the last time such a recalculation took place in 2012 with the use of the average wage in Ukraine in 2007 - UAH 1197,91. During this time the average salary in Ukraine, which is applied when calculating the pension, increased to UAH 3764,4, or by more than three times. In a result, 2/3 of the pensions did not even reach the subsistence level. - The taxation of pensions is abolished From 1 October the taxation of pensions for working pensioners was abolished. Now the pensions, the amount of which exceeds UAH 12 470 (10 living minimums), are subject to taxation by the tax to incomes of physical persons at the rate of 18% and military duties at the rate of 1.5% of such excess. - The abolition of the special conditions of retirement Pensions for years of service will be assigned only for the military people. The reform also stipulates that from January 1, 2018 the right for pensions for years of service for employees in education, health, social protection and other categories is revoked. The proposed tool is another method that should allow the government to reduce the number of pensioners. - The establishment of a special regime for workers with harmful working conditions. The draft reform provides that the company instead of reimbursement of pensions will pay a higher UIP for their employees engaged with harmful working conditions (with a gradual transition to a funded pension system). The draft proposes that for the persons who perform work in harmful and dangerous working conditions additional UIP should be paid – in the amount of 15 %. That is, in general, for such employees the company will pay the single contribution at the rate of 37%. For all other categories of workers eligible for early retirement in hazardous working conditions, additional UIP will be equal to 7%. That is, in general, the employer will pay for such employees UIP at a rate of 29%. It is also stipulated that additional contributions of UIP from January 1, 2019 for employees younger than 35 years will be accumulated in their individual pension accounts - The annual transfer of pensions The draft stipulates an automatic rate of annual indexation (recalculation) of pensions to protect against inflation. It is planned that the recalculation will take into account the financial possibilities of solidarity system — that is, if there is the growth of the economy and the budget is filled better. In this case, the government noted that indexation would be tied to the growth rate of average monthly salary for three years — not less than 50% of this growth and not less than 50% of the consumer price index - 15% reduction in pensions for working pensioners was abolished From October 2017 the government proposes to abolish the 15-percent reduction of pensions for working pensioners. Among 2.3 million working pensioners the pensions are now reduced for 494 thousand of them. The draft project offers that those who work, should receive wages and pensions in full. - Increase of social standards It is stipulated that in 2017 there should be a second increase of social standards by 5% - from the 1st of October. The minimum pension in this case will be equal to UAH 1373. The increase in pensions will affect 9 million pensioners. Thus, the government took a step towards fulfilling one of the main requirements of the International Monetary Fund for Ukraine to get the next tranche. However, the further fate of the proposed reform will depend on the Parliament and it is expected that it will cause fierce battles. Overall, the proposed reform is focused on the reduction of chronic shortage, modernization and increase of efficiency of functioning of the solidarity level of the pension system, including due to the unusual combination of elements of a funded system, however, it practically does not affect the problem of formation of the second and third levels of the pension system. Therefore, the reform proposed by the government can hardly be called a fully-fledged systemic reform that will radically change the existing pension reform. It is also worth noting that the formation of an effective pension system requires a series of reforms in related areas - financial, tax and social ones.  ...

ICPS Press

British General Election Results

                      Cameron Gibson, visiting expert, University of the West Scotland Following the election of yesterday, the British political landscape has been thrown into short-term turmoil. The Prime Minister, Theresa May called this election in order to gain a mandate for Brexit and to consolidate her parliamentary majority. This morning, she has lost that majority, having now been left with a slim minority and the loss of eight former cabinet ministers. The Conservative’s loss has been Labour’s gain with the party being voted in 31 more seats than previous election. The Scottish Conservatives also gained support north of the border, with the Scottish National Party losing 19 seats than before. However, given the need for 326 seats to form a majority government, a hung parliament has been declared (with the Conservatives carrying 316 and Labour at 261). It is this status that informs the immediate aftermath of this election.  Attempt to govern The Conservatives could attempt to govern as the minority party, and this seems the most likely of options. The Conservatives could draw upon the support of the DUP and other interested parties to push their agenda through the House of Commons. Whilst the first past the post system used to elect representatives is designed to elect a workable majority, there have been examples of minority rule, from Harold Wilson’s 1974 Labour government; James Callaghan’s 1976 Labour government; John Major’s 1992 government and David Cameron’s 2012 Conservative-Liberal government. However, a slim minority is susceptible to being short term, such as Wilson’s 1974 government which lasted for seven months, and ever reducing workability, such as Callaghan’s 1976 government. It would also that the party in power cannot fully implement their manifesto or policy ideas without sizable opposition. However, minority governments are additionally open to equal claims of stewardship, with both the Conservatives and Labour. A situation may arise where May cannot form a minority government, so it is then up to the Head of State to assist in the forming of a government.   A coalition of some form A coalition of some form may pursued, either a Conservative-Democratic Unionist Party one which would allow the Conservatives to govern sufficiently, or an uneasy Conservative-Labour coalition. Whilst these parties are viewed as opposites in terms of social and economic ideology, it would not be the first time there has been a Conservative-Labour coalition. The National Government, which composed of members of the Liberal, Conservative and Labour party, ruled in some capacity from 1931 to 1940. As this election was called in order to give a mandate for the Brexit negotiations, it could be said that a coalition of any form would be more appealing than a short term minority government or the prospect of another election, given what faces the country in the coming months. This is one theory (in addition to the day-to-day practicalities of running a government effectively) that may gain traction in the coming hours as party leaders jostle for position. May’s position untenable? Another possible consequence of this election is that Theresa May reconsiders her position of leader of the Conservative party. The Parliamentary Party, it has been said, aren’t pleased with losing a majority and whilst MPs are being cautious in this immediate period, it is worth remembering that the party traditionally are quick to reward success and even quicker to punish failure. Nevertheless, there is no clear view on the future of May in the Cabinet and a leadership contest will inevitably lead to another general election, which may bring further damage. May will wish to bring stability to the situation throughout the day, but criticism over her actions is mounting. Postponing of Brexit talks? The overarching concern of this election result is where it leaves Brexit. Whilst the need to leave the European Union has been accepted by the main political parties, this result throws up ambiguity over negotiations. This morning there are two schools of thought on this matter: one, which argues that the election changes nothing and negotiations can still occur in the agreed timeframe and secondly, that there could be the postponing of talks until a clear direction in leadership is found. This would be a practical suggestion, which is also based upon the idea that no serious discussion will occur until after the German elections. Given the nature of elections and the result, the situation in Downing Street this morning is highly fluid. What has been discussed are only possible outcomes of this election and Britain will gain a clear idea of what type of governance it will receive over the course of the day and the weekend. The only concrete conclusions that can be drawn is that the Conservatives have lost their previous majority, a rise in support for Jeremy Corbyn and Labour, a revival of the Scottish Conservatives with a fall in support for the SNP and that any government will be a minority and by that nature, highly dependent upon compromise to deliver day-to-day governance. ...

ICPS Press

British General Election: What It Will Mean For Britain

                             Cameron Gibson, visiting expert, University of the West Scotland On the 8th of  June, Britain votes  to elect a new Prime Minster. This election was the result of the Prime Minister, Theresa May, calling it in order for the British public to have a say in how a ‘Brexit’ Britain and Brexit itself ought to be governed. British governments are elected through a process called ‘first past the post’, where seats (constituencies) are allocated on a majority basis –the candidate with the highest amount of votes wins the seat, and the party will the largest amount of seat in parliament can form a government). Polling suggests that this election will be between two individuals: Theresa May from the Conservative Party and Jeremy Corbyn from the Labour Party. It is these two who wish to become British Prime Minister, to form a government and to shape Britain around their ideas. With this in mind, it is worth considering what this election will mean for Britain and its place in the world. Foreign Affairs Foreign policy has taken central stage in this election, given the fact it has been called as Britain goes into negotiations for leaving the European Union. Such a decision will have implications for trade, immigration and Britain’s position in the world, so it is vital for a prospective Prime Minister to have a coherent foreign policy. Of note this election is NATO, trading relationships and defence. The Conservatives desire a gradual year-on-year increase of 0.5% in defence spending; a commitment to spend 2% of GDP to the North Atlantic Treaty Organisation; expanding transnational involvement with the Modern Slavery Act and the promotion of free trade. This last aspect will involve strengthening partnership and economic ties with the Commonwealth and the United States. Labour wishes to facilitate reform of the United Nations with regards to the veto held by the permanent members of the Security Council and the likelihood of abuses; the formation of a Ministry of Peace department to work on conflict prevention, post-conflict peacebuilding and protecting civilians in conflict; a commitment to the recognition of Palestine and the two-state solution; continued investment into the armed forces; minimising tariff and non-tariff barriers to trade and finally, unrestricted trade of goods and services with the European Union. The possible reform of the United Nations, formation of a new Ministry, pursuit of multilateral nuclear disarmament and necessity to support “meaningful negotiations” with regards to the Israel-Palestine conflict align themselves with the pacifist wing of the Labour party, but may be viewed as overburdening government departments in view of negotiations to leave the European Union. Both parties are discussing the possibilities of trading easily both internationally and within Europe. For the Conservatives this is an ideological position to take, given their support for market forces in economic affairs; for Labour, it is a pragmatic position. Nevertheless, both parties could find it difficult to achieve their aims. The success of which depends on the conditions of negotiation (both through Brexit, with the World Trade Organisation and possible trading partners) and their other commitments vis-a-vis movement of people, goods and immigration. The changing relationship with Europe obligates a focus upon diplomacy and reaffirming trading relationships, hence the strong inclusion of such aspects in both manifestos. However, there remains key policy bias. The Conservatives have historically favoured a strong armed forces and a strong protection of the national interest; whereas Labour have favoured the upholding of international law and promotion of international humanitarian efforts. These biases are clearly illustrated within these manifestos to maintain key party support. Economic Policy The Conservative manifesto is a bid for the centre ground of British politics –witness policies such as an energy cap and a higher living wage. Despite these policies, concessions to low-taxation are multiple. There will be no Value Added Tax, a commitment to maintaining low corporation tax and increasing the personal allowance to £12,500 before taxation. It is clear that through this manifesto, the Thatcherite thinking of the Conservatives is a waning force. Pragmatism is the only show in town, and typically Thatcherite-minded Conservative politicians are backing May due to her support of Brexit. In comparison, Labour under Jeremy Corbyn aims at core Labour supporters, both in language and policy. Like the Conservatives, Labour is committed to no further VAT rises, but that is where the similarities end. Labour wish to increase corporation tax for businesses, a closing of taxation loopholes and empower the HM Customs and Revenue to clamp down on tax avoidance.  There will be no income tax increase for those earning less than £80,000. The economic model of Labour has been clearly influenced by Corbyn and his Shadow Chancellor, John McDonnell. Their desire for taxation and investment is marked Keynesian and it is clear that Labour have been reshaped from the highly successful election winning ‘Third Way’ thinking of Tony Blair. The Union As well as being perceived as ‘Brexit election’, this election carries a significant Scottish Independence dynamic. This issue will be viewed through the prism of the two parties discussed throughout. The Conservatives have benefitted in Scotland from defining themselves as the bulwark against the Scottish National Party and the possibility of another referendum. However, there is a co-dependency between the SNP and Conservative parties –each brings one another joint gains in support. This is the paradoxical nature of politics in Scotland currently. If Theresa May wins this election, it may extinguish the possibility of another Scottish independence altogether, or inflame a greater push for it. However, this seems unlikely, given the drop in s0upport for another referendum, overall disaffection for the SNP’s governance record (especially in education) and the precedent which allows the Prime Minster to grant or deny requests for referendums. The Union looks to be safe, for now. The Parties Regardless of the outcome, Jeremy Corbyn has stated his intention of staying as leader. This is despite a majority of the Parliamentary Labour Party not supporting him. Whatever the result, they may be an opportunity to form an additional party in British Politics for either side. However, this is unlikely to happen. Labour have form when it comes to internal disputes, but can overcome them if they are to govern. Corbyn has strong ‘grassroots’ appeal with activists but has always maintained the position of outsider when it came to party politics. This appeal with activists and groups outwith the parliamentary framework may be enough to bolster him in the short term, but he will have to gain a foothold when it comes to support from the parliamentary party if he is to maintain his position soon after.  Conversely, the Conservatives have rallied around Theresa May, given that the only likely area of conflict for the party –Europe- is being pursued on the terms of the referendum result. However, despite the personal narrative of this election, if the Conservatives do not win, as a party they will not think twice about replacing May, especially as during this election support for the party polled its highest since 1983. However, it is expected that the Conservatives will win this election. Thus, several Tory MPs, it has been said, are looking to be in power for the foreseeable future. Nevertheless, given the outcome of Brexit, trusting polling results has become a suspect practice and with voting underway, it could all change. Conclusion In conclusion, there is a defined choice for Britain to make, despite the Conservative shift to the ‘middle’ ground. A government under Theresa May will be a continuation of the last five years, but with a distinctly pragmatic flavour: low taxation, a strong foreign policy but attempts to answer concerns of living costs and wages. A Britain under a May government will pursue Brexit, yet attempt to foster a new relationship with Europe and trade deals outwith the single market, whilst maintaining a strong commitment to NATO, transatlanticism and the armed forces generally.  Conversely, a government under Jeremy Corbyn will be a marked change from the previous government. An increase in taxation and government expenditure and a foreign policy which is predicated upon involvement in trans-national frameworks such as the United Nations with transatlantic relations conditional. A Labour Brexit, much like a Conservative one, will be reliant upon negotiations in the shape it will take. That said, internal politics (be it Eurosceptic Tory MPs or Labour MPs who supported Remain) will govern the likelihood of concessions made by either government.     ...

ICPS Press