Ukrainian parliament passes minimum wage increase

Ukraine’s parliament, the Verkhovna Rada, has passed a bill introducing changes to the country’s national budget of 2020 and increasing the minimum wage by 5.86%, from Hr 4,723 to Hr 5,000 ($182).

During an extraordinary session on Aug. 25, the bill received 295 votes, far more than the 226 required to pass.

Initiated by President Volodymyr Zelensky, the bill comes into force on Sept. 1.

This is a planned move. On Aug. 1, the Cabinet of Ministers approved a schedule for raising the minimum wage. The next increase is planned for Jan. 1, 2021, when it will rise to Hr 6,000, and then to Hr 6,500 in July.

Expenses for raising the minimum wage will be taken from money used to service the national debt. The Ukrainian government has saved Hr 3.5 billion ($127.6 million) due to the difference between the actual and previously forecasted exchange rate of the national currency, the hryvnia.

In addition, money for raising the minimum wage will be taken from taxes, planned to be increased to Hr 541.3 million ($19.7 million) this year.

Since the single social contribution for individuals registered as private entrepreneurs is pegged to the minimum wage, it will rise from Hr 1,039 to Hr 1,100 ($40).

“The government’s calculations show that raising the minimum wage will make it possible to bring it in line with the real subsistence minimum and stimulate consumer demand for Ukrainian products,” Prime Minister Denys Shmyhal wrote on Telegram.

But experts claim that raising the minimum wage may have negative consequences. State enterprises, like the Ukrposhta postal operator, will be forced to increase salaries for tens of thousands of their workers, Daryna Marchak, head of the Center for Public Finance and Governance at Kyiv School of Economics, told Ukrainian media Hromadske.

However, it may cover the deficit of the Pension Fund, Marchak said.

Still, the risks remain, according to some experts surveyed by Hromadske. Businesses may choose to enter the shadow economy to avoid the tax increase. If that happens, the number of officially employed people will decrease and Ukraine’s budget will receive less tax income.