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Human rights in Ukraine – 2006. XIV. Some aspects of socio-economic rights



The basic international documents establishing minimum standards for social and economic rights are the International Covenant on Economic, Social and Cultural Rights. the European Convention on Social Security and the European Social Charter. These are aimed at giving real substance to the provisions affirmed in the Universal Declaration of Human Rights. (1948).

Ukraine’s ratification of the European Social Charter in 2006[2] which carries with it the commitment to implement its provisions serves once again to emphasize the importance of this category of rights for the country. In fact, however, not all of the Charter’s provisions have been ratified, these being up to Article 27 (including six of the nine which are mandatory in accordance with Part III of the Charter: 1,5,6,7, 16 and 20) as well as 74 points. As Deputy to the Minister of the Ministry of Employment Natalya Ivanova stated, at the present time it is impossible to say whether the three other mandatory Articles can be ratified in 2007 since Ukraine needs to find an additional 2.5 billion UAH in order to fully ensure implementation of its commitments under these Articles.[3]

According to the provisions of the European Social Charter, each State must present annual reports on how they have applied the Charter. According to Henrik Kristensen, Executive Secretary of the Secretariat of the European Social Charter, Ukraine is due to present its first report in October 2008. The reporting is dividing into four thematic groups, namely: employment, training and equal opportunities; health care, social security and social protection; labour rights; children, families, migrants. Each State must present a report on one of these groups once in four years. The European Social Charter could in general become an important vehicle for the creation of effective mechanisms for defending socio-economic rights in Ukraine.

The Ukrainian Constitution affirms the following socio-economic rights:

- Everyone has the right to a standard of living sufficient for himself or herself and his or her family that includes adequate nutrition, clothing and housing (Article 48);

- Citizens have the right to social protection that includes the right to provision in cases of complete, partial or temporary disability, the loss of the principal wage-earner, unemployment due to circumstances beyond their control and also in old age, and in other cases established by law (Article 46);

- Everyone has the right to labour, including the possibility to earn one’s living by labour that he or she freely chooses or to which he or she freely agrees.

The State creates conditions for citizens to fully realise their right to labour, guarantees equal opportunities in the choice of profession and of types of labour activity, implements programmes of vocational education, training and retraining of personnel according to the needs of society.

Everyone has the right to proper, safe and healthy work conditions and to remuneration no less than the minimum wage as determined by law.

The employment of women and minors for work that is hazardous to their health is prohibited.

-  Citizens are guaranteed protection from unlawful dismissal. The right to timely payment for labour is protected by law. (Article 43)

In addition, the Constitution guarantees each citizen the right to health protection, medical care and medical insurance (Article 49) and the right to education (Article 53).


However these provisions are of an overly populist nature and undermine confidence in the Constitution as a law of direct force, since they will never be achieved as fully as suggested in the text.  It would be much more correct to state that the substance and commitments of the State to ensure these rights are defined in separate laws.

There are a huge number of laws and subordinate normative acts for ensuring socio-economic rights. These do not constitute an integrated whole and in many cases are not adequate to safeguard these rights. The State also lacks the financial resources to implement what is declared in the Constitution.

1. The right to an adequate standard of living

The level to which the State safeguards this right indicates its commitment to ensuring the welfare of its population and to the social focus set out in the Constitution. The quality of life is in general a difficult concept containing a number of economic, political and social parameters.

There are several quite different methods for estimating the quality of life, with these apply anywhere from three to twelve parameters. The simplest (and most heavily criticized) is the Physical Quality of Life Index proposed by David Morris. This contains only three factors: infant mortality; life expectancy at the age of one, and basic literacy. An economic component is not taken into consideration at all. In the evaluation system applied by the UN there are four parameters: life expectancy at birth; literacy among the adult population; the spread of all forms of education and the Gross National Product in dollars per head of population[4]

Two other systems for determining quality of life are more complex. Each has nine factors, but these differ considerably. The first is the London-based Economist Intelligence Unit’s Quality of Life Index. This offers the following factors and indicators for them:  1. Material wellbeing, measured in GDP per person in dollars; 2 Health: Life expectancy at birth; 3. Political stability and security; 4. Family life: divorce rate; 5. Community life (including church attendance); 6. Climate and geography; 7. Job security: unemployment rate; 8. Political freedom; 9. Gender equality. Of the countries in their study, Ukraine was only in 98th position. 

The second index with nine factors was first proposed 25 years ago by the organization International Living, Their factors are: 1. The cost of living; 2. Leisure and recreation; 3. The economic level; 4. The state of the environment; 5. Civil liberties; 6. Health; 7. The development of infrastructure; 8. Personal security; 9. Climatic conditions[5]

In order to assess the situation in Ukraine, we can cite the following data.  A sociological survey[6] showed that on average Ukrainians receive 780 UAH per family member, while they consider that an average income of 1,638 UAH is sufficient to have a normal life. At the same time, 7% of the respondents said that they had to economize even on food. 20% had enough for food, but needed to save or borrow to buy clothes or shoes. This would suggest that more than a quarter of the Ukrainian population is living below the poverty line. 34% of those surveyed said that they had enough for food and necessary clothing, but purchases like a good suit, a mobile telephone or the most basic appliances were already problematical. 26% reported big problems in buying large appliances. Only 11% of those surveyed said that the only difficult purchases would be a car, land for a dacha or a flat.

The same survey showed that 41% of the respondents rated their material situation as average; 31% - lower than average; 14% - low and 4% said that it was very low. It should be mentioned that by no means all of the 7% who reported having to be frugal with food items rated their material situation as being very low. Furthermore with an average desired monthly income per member of the family of 1,638, requirements differed significantly depending where a person living. Those in rural areas said that 1,358 would be sufficient per person per month, while those who lived in towns and cities estimated they would need 1,537, with the figure for regional centres reaching 2,053 UAH.

The issue of poverty can thus be seen to be quite acute.  State policy needs to resolve issues connected in the first instance with a proper level of pay for workers in all spheres of the economy, State guaranteed income for vulnerable groups in society via social benefits on the basis of social standards and guarantees of employment as a means of ensuring a reliable source of income for workers.

However at the present time we see a fairly unique situation with poverty where the problem is most acute for the working part of the population. According to the Minister of Employment and Social Policy M. Papiyev, as of June 2006 814 thousand people had pay lower than the legally fixed minimum wage, while 2.76 million were living on pay lower than the subsistence minimum for able-bodied people.[7]

This is confirmed by figures from the Ukrainian State Committee of Statistics:[8]

Table 1.

It can be seen that even figures from State statistics show that on average 7.5% of those working receive pay lower than the legally established minimum wage. If one leaves out Kyiv city, then this figure will be higher than 10%, and in many western regions of Ukraine it reaches 13-14 %.

These indicators clearly highlight the full extent of the failure to safeguard people’s right to a decent standard of living. 23.7% of the population (which is nearly a quarter) receive wages lower than the subsistence minimum. Only in 5 - 7 regions is the situation somewhat better, while in the others it is considerably more serious.  For example, in the Ternopil region the number of workers who earned less than the subsistence minimum came to almost 37%. This, then, is the standard of living in Ukraine at the present time when even people working not only do not receive the official minimum wage, but cannot ensure a basic subsistence minimum.

Despite these figures, the end of 2006 was marked by the tabling, discussion and passing of a Budget for 2007 which did not allow for an increase in real minimum social standards. The Budget approved, for example, a subsistence minimum for people unable to work, form 1 January 2007 of 380 UAH, from 1 April 2007 – 387 UAH, and from 1 October 2007 – 395 UAH. At the same time, according to preliminary calculations from the President’s Secretariat, the subsistence minimum for that social group as of 1 October 2006 stood at 381 UAH, on 1 November – almost 391 UAH, and the predicted figure for 1 January 2007 was 406.6 UAH.[9]

It is important also to bear in mind that according to the Law “On Mandatory State Pension Insurance”, the minimum size of an age-related pension for people unable to work is fixed as the subsistence minimum for people who have become unable to work. The amount fixed from 1 January 2007 for the subsistence minimum for people who have become unable to work will accordingly lead to each pensioner allocated the minimum pension not receiving at least 20.6 UAH. It should be mentioned that the pensions of almost 12 million pensioners depend upon the subsistence minimum for people who have become unable to work. This figure determines both the size of State social assistance for vulnerable groups in society (assistance to people who have been disabled since childhood, children with disabilities, help for looking after a children, assistance to single mothers, help for children under a guardian or being cared for, assistance with burial costs, etc).

Another aspect of the 2007 Budget which provoked public criticism was the size of the minimum wage. This was approved from 1 January 2007 at 400 UAH per month, from 1 July 2007 – 420 UAH, and from 1 December 2007 – 480 UAH.  If in 2005 there was a 40% increase in the minimum wage, and in 2006 – a 20% rise, in 2007 this was planned at being only 12.5% This sharp slowdown in the rate of growth of the minimum wage will have an adverse effect on the conditions of pay for workers at an absolute majority of businesses in Ukraine since the pay rates of their workers are, in accordance with industrial agreements and collective contracts fixed in relation to the size of the minimum wage..

Bearing in mind the predicted level of inflation in 2007 (according to independent Ukrainian and international experts, this will be around 11%), as well as the rising income tax burden for individuals, it would be fair to say that for the first time in recent years, there has been an actual fall in the real minimum wage. The latter is used for calculating the salary of approximately 10 million people in Ukraine, for example, State Sector workers, including doctors, teachers, scientists and employees in the cultural sphere.

The consideration and approval of such a Budget aroused a wave of indignation among ordinary members of the public. For example, in October 2006 pensioners launched a protest against the restriction in social parts of the Budget. They made an appeal calling for “a suspension of the actions of the Government aimed from 1 January 2007 at eliminating the pension services of the Ministry of Internal Affairs and other “enforcement structures” and transferring their functions to the Pension Fund.”[10]

After the public became actively involved, and following lengthy consultations with the President, the Verkhovna Rada passed a Resolution “On reviewing the subsistence minimum and size of the minimum wage in 2007” which slightly increased social standards. The President in turn signed the Law “On the State Budget fir 2997”.  It must, however, be noted that the increase in such indicators envisaged in the Resolution is contingent upon the results of the planned revenue or of preliminary calculations of GNP, and may, consequently, not happen.

In determining how the right to an adequate standard of living is observed, another aspect must receive consideration. 2006 was marked by a wave of increases in tariffs for housing and communal services, this leading to a further drop in people’s standard of living. The average housing and communal charges for each individual had risen in December 2006 by 76% from the same period a year earlier. Together with electricity (based on a calculation of 100 Kilowatt p//h), these charges came to 277.64 UAH which is 21.7% of an average monthly salary (against 15.5% in December 2005). The highest average housing and communal services were in the Dnipropetrovsk, Volyn, Vinnytsa and Chernihiv regions (32.9 – 30.0% of the average monthly wage)[11]

The inability of the population to pay the increased rates for housing and communal charges is confirmed by the increase in arrears. These had increased in December 2006 by 5.2% and on 10 January 2007 stood at 7,177.7 million UAH.  On average people were 6.5 months in arrears with their payments. During the year, these arrears increased in all regions, with the most significant rises being observed in the Kyiv, Chernihiv, Odessa, Rivne, Khmelnytsky, Chernivtsi, Volyn, Zhytomyr and Cherkasy regions (33.5 – 24.0%)

Table 3.

The situation with payment of housing and communal charges[12]

(in millions of UAH)


We would note that instead of taking the high level of poverty in Ukraine into account and bringing in economically justified housing and communal charges, these were not established in a transparent manner and the quality of the services in many cities fails to meet any recognized standards.  Especially worthy of note is the rise in public activity against unwarranted rises in tariffs throughout the country. Even Deputy Prime Minister V. Rybak was forced to acknowledge that not all regions had established economically justified tariffs[13]  In addition, the Deputy Prosecutor General, T. Kornyakova stated that housing and communal charges had been increased without justification and with infringements of legislation. She cited a number of examples involving the addition to the charges of expenses not foreseen by legislation. The Uzhhorod water and sanitation enterprise had, for example, added a charge for their representative services, although what such services entailed was unclear.  In the Odessa region a charge had been added for enterprises’ hopeless debt, while in the Zaporizhya region there was a charge for the repair of cars not on the balance books of the housing and communal authority. In Kirovohrad region the hiring of a car for a private businessperson at a cost of 5 thousand UAH per month had been placed among housing and communal services, The water and sanitation authority in the city of Chernivtsi had decided to improve social and cultural provisions at the residents’ expense, with 0.5 million UAH added to the tariffs for this purpose.   Furthermore, despite the fact that the Cabinet of Ministers had allocated grants from the State Budget to repay debts from previous years of communal service enterprises, the latter were continuing to add this indebtedness to the calculations for housing and communal charges.[14]

 In many regions (cities) campaigns have been launched calling for a reduction in the unjustified tariffs and it should be noted that in some cities this has had a positive impact. For example, in Kyiv after the authorities decided to impose what were probably the highest tariffs for housing and communal serives in the whole country without providing any grounds, the public came out in protest, and as a result the tariffs were virtually halved.

2. The right to social protection

With the transformation to market conditions where people decide themselves what kind of economic activities to undertake and in the main are personally responsible for their material wellbeing, social protection of the population takes on a particular importance,  While the State’s role has changed given the new circumstances, one of its main functions remains that of ensuring social protection. The aim here should be to create a system which guarantees each citizen a level of social security in keeping with his or her labour contribution to his/her personal welfare.

The right to social defence involves ensuring a certain subsistence minimum. A system of social welfare must, however, avoid wage-levelling and encouraging dependence in the division and enjoyment of benefits and must heighten motivation to work, creating the conditions for people to most fully achieve their potential.

The system of social protection we have at present in Ukraine cannot boast of any great achievements with regard to the above-mentioned aims. In many cases, its failings are leading to a deepening of the social disproportion within the country. . The scale of social assistance is also inadequate especially in the light of the figures for typical incomes given above. According to figures from the Ministry of Employment and Social Policy,[15] at the end of 2005 377.3 thousand low-income families were receiving social aid. In 2005 this aid totalled 1,029.9 million UAH, while the average monthly payment came to 171.47 UAH. 1,091, thousand people were receiving assistance for families with children, and the overall amount for such assistance in 2005 came to 1,686,1 million UAH.

An example of the shortcomings of the system of social protect can be seen in the way subsidies are provided. These are a form of State aid to named families for the payment of housing and communal services, purchase of liquefied gas, hard or liquid burner fuel[16]

At a time when in effectively all regions of Ukraine the price of housing and communal services has risen, the very existence of such a system should guarantee those on low incomes with social protection and the possibility of paying out no more than 15 – 20 % of their income.  It must however be said that the State has not ensured the necessary protection for poor Ukrainians since the system for social subsidies is not transparent, clear or comprehensible to the average members of the public and the procedure for receiving subsidies is humiliating.  As a result of this, thousands of people who are entitled to subsidies on the basis of their actual income do not receive them.

In connection with this, the Ukrainian Helsinki Human Rights Union addressed an appeal to the Government and the Verkhovna Rada in which it pointed to the problems in raising housing and communal charges and the ineffectiveness of the existing system of subsidies[17]

The appeal states that the system of subsides is lacking in transparency and is not understood by

Ukrainians for the following reasons:

  • There are at least 77 legal acts regulating these subsidies, while the given procedure is not regulated by any law, but merely by Resolutions of the Cabinet of Ministers of Ukraine and other subordinate legislation;
  • Legislation fails to provide clear and understandable criteria for receiving subsidies;
  • As a result of the previous points, the average Ukrainian does not understand his / her rights and has no idea whether s/he is entitled to subsidies.

It was pointed out also that the procedure for obtaining subsidies is degrading, with people being asked for vast numbers of documents which they spend hours in queues to receive. The situation is exacerbated by the fact that one needs to go through all this procedure to get the subsidies each year which could be prevented by introducing a system whereby people must inform the authorities of any changes in their circumstances. In addition, there are indeed thousands of people who are entitled, on the basis of their level of income, to subsidies, but are deprived of the possibility of enjoying this right due to normative limitations which do not take account of the objective circumstances of their life.

It should be mentioned that in response to this appeal the Cabinet of Ministers introduced some changes to facilitate the provision of subsidies to those on low incomes, pensioners and others. For example, on 12 December 2006 the Government passed a Resolution “On simplifying the procedure for providing subsidies to compensate payments for housing and communal services for the payment of housing and communal services, purchase of liquefied gas, hard or liquid burner fuel”. This allows for a reduction in the number of documents which must be provided in order to be awarded subsidies; an extension to the time period for submitting documents under conditions where the prices and tariffs for housing and communal services are being increased; the allocation of subsidies where there are arrears on housing and communal charges as well as milder fines where a person has submitted documents with incorrect information.

The issue of social security must also be addressed. The right to such protection is guaranteed by the Constitution in Article 46 which states that “This right is guaranteed by general mandatory state social insurance on account of the insurance payments of citizens, enterprises, institutions and organisations, and also from budgetary and other sources of social security; by the establishment of a network of State, communal and private institutions to care for persons unable to work.” It also stipulates that pensions “shall ensure a standard of living not lower than the legally established subsistence minimum.”[18]

The European Social Charter could play an important role in guaranteeing social protection. This states that “With a view to ensuring the effective exercise of the right of elderly persons to social protection, the Parties undertake to adopt or encourage, either directly or in co-operation with public or private organisations, appropriate measures designed in particular

 a) to enable elderly persons to remain full members of society for as long as possible, by means of: adequate resources enabling them to lead a decent life and play an active part in public, social and cultural life;

b) at provision of information about services and facilities available for elderly persons and their opportunities to make use of them[19]

At the same time, work is still continuing in Ukraine on refining the pension system. This includes work on introducing a cumulative level of mandatory state social insurance and on optimizing the mechanisms for paying out pensions for work in dangerous conditions. As a result of the reform, the social insurance system in Ukraine will have three levels. At the first – solidarity – level, all people working pay compulsory contributions. These are used for payments to pensioners and entitle workers to themselves receive a pension on retirement. The third level involves individuals in a system of private pension care by entering into the relevant agreements with non-State pension funds. The first and third levels are already functioning in Ukraine however the second – accumulation – level has yet to be introduced.  This, for example, allows for insurance contributions made to the Pension Fund to be divided. The larger part will continue to be added to the solidarity pension system; however the smaller part, which will from a legal point of view be considered the worker’s personal property, will be added to an Accumulation Fund. This will be invested in the economy and the profits gained will also be deemed the worker’s property. From the money gathered throughout their working life in the Accumulation Fund, individuals will receive payments which will form a supplementary pension. If the person dies, the money in the Fund will go to his or her heir[20]

It should be noted that in every country, pension reform is planned over 40-50 years and calculated for a full 75. Ukraine’s pension laws which got through parliament only after enormous difficulty in June 2003 are also calculated over an extremely long period. They combine international experience adapted for Ukrainian conditions, and domestic elements. However, this has proved easy only on paper. Even before the official start in January 2004, the strategy plan had begun to collapse, and after some dubious actions from the executive, and later the legislative branch of power, the reforms stopped completely.  This was seen, for example, in a move away from the insurance principles for building a solidarity system. An increase in pensions to the minimum subsistence minimum not from the State Budget, but using money from the Pension Fund has led to problems arising in their differentiation since it could take ten or more years for this pension to be renewed within the solidarity system.  Since in the next five – six years women are not going to extend beyond the minimum pension, and if all, regardless of how long they have worked or their salary, are left “on the minimum”, then the insurance principles are not working. For men the situation is slightly better with the differentiation between pensions already beginning to slowly be restored. However this will only reach the main bulk of pensioners in six or seven years. Therefore the only possibility for accelerating this process is to launch the second level, i.e. a mandatory accumulation system.

Problems arise here, however, as well. The introduction of a second stage of pension reform had been planned for 2007, but at present a later period is being considered due to the financial instability of the Pension Fund, a slowdown in economic growth in Ukraine, as well as to a certain lack of technical readiness. However the longer the launching of a mandatory accumulation system is delayed, the more this will cost the country. It will lengthen the transitional period when, because some of the money is being channelled towards accumulation, the Pension Fund receives less money while a considerable number of people continue receiving a pension only via the solidarity system and this will cost the country dear.[21]

The Accumulation Fund will be formed from money which has up till now been going into the solidarity pension system, and with the creation of the Fund it will lose a certain amount of income. It is therefore vital that the sources and mechanisms for compensating these losses are specified so that future pensioners do not establish their payments at the expense of today’s pensioners. Optimum insurance contributions to the Accumulation Fund also need to be established. The size of the contributions needs to be fairly high so that the Accumulation Fund provides a significant addition to the pension from the solidarity system.  And since it is to be paid from a worker’s pay, this will also need to be increased. Here there could be problems with State sector workers in whose case it is not clear whether they can count on the possibilities of the State Treasury. Other workers will also be relying on employers who must increase the fund for wages. Overall, what is involved is the need to allow for the redistribution of insurance contributions between employers and those insured, taking into consideration the payments of insurance contributions by the employees to the Accumulation Fund.  The demographic situation in the country is developing in such a way that soon one worker will through his or her contributions be paying for one pensioner (it is predicted that in 2010 the load on one worker will be 0.9 pensioners, and by 2015 0.93 already. The Accumulation system must therefore be introduced before 1 January 2009.

There is also a certain problem in the difference between the retirement ages for men and women. The average life expectancy of a woman who has reached retirement age is 23 years. That means that she will live on the pension as many years as she worked to receive it. While a woman is bringing up a child up to the age of three, her contributions to the Pension Fund are made for her, calculated on the basis of the minimum wage. However during other years of her working life, the average pay of a Ukrainian woman does not exceed 70% of her male counterpart. This is not discrimination since one cannot say that in the same position a woman in our country receives less than a man. It is simply that women hold different positions.  An average salary which is 70% of that for men is a good European indicator, and in the next decade it is unlikely to become higher, or if so, only rising to 71%. The conclusion from this, given the shorter period for accumulating pension contributions and the significantly longer period during which they receive a pension, is that women’s pensions, especially taking into account the future mandatory accumulation system, will be 50% of that for men. A woman cannot accumulate more, however certain benefits regarding consideration of insurance length of payments or of salary could be taken into consideration. Yet this is not a solution. If the likely duration of life after retirement and, accordingly, the actuary calculations on, for example the monthly payments from the accumulation system are calculated using differentials for men and women, there will be completely disaster with the pension coming to 30% of a man’s pension. This would represent a violation of women’s pension rights[22]

Reform of social protection is vital for Ukraine. One of the directions of such reform is the introduction of a single social contribution with this going back a long way. In autumn 2002 the first draft law “On a single social tax” was prepared and tabled for consideration by the Verkhovna Rada.  The motives behind this draft law remain relevant today also, namely to bring business and accordingly wages, out of the shadow economy and make them more transparent. The draft law did not get through, yet within literally a few months a new draft law “On a single social contribution” had been tabled, and the following year – “On a single social contribution and the administration and book-keeping for a single social contribution ". However neither these documents nor those that followed on the same issue elicited much interest from parliamentarians.

.In 2006 a huge number of draft laws on this subject were tabled in the Verkhovna Rada. One can highlight here the draft law submitted by Deputies from “Nasha Ukraina” [“Our Ukraine”] (S. Bychkov and V. Sretovych) “On a single social contribution”. This envisages the consolidation within one body which would carry out all the functions of social funds: collecting money; maintaining a database about contributors; controlling levying of payments. It suggests fixing the rate for this single social tax at 20% of wages[23] Bychkov and Sretovych’s initiative was not alone. In June the Verkhovna Rada registered an analogous draft law on introducing a single social contribution from Vitaly Khomutynnik and Ludmila Kyrychenko, and then in October by Viacheslav Bohuslayev and Yaroslav Sukhy [all four represent the Party of the Regions).

Then in December a draft law from the Government “On a single system for collecting and book-keeping of contributions for mandatory State social insurance”. This draft law, like its predecessors, envisages instead of four addresses (the Pension Fund, the Unemployment insurance Fund, the Industrial Accident and Occupational Diseases which have caused Disability Fund; and the Social Insurance Fund for Temporary Disability) single deductions from wages for social purposes, and then the State will distribute money to all the necessary social funds. It is envisaged that the book-keeping on money for the social protection of the population will be better, and the authors of the draft law therefore think that the State will be able to control and manage this capital more efficiently. The reform should, in addition, help to reduce the shadow pay sector. To achieve this, it is envisaged that the size of the single social contribution will be reduced in comparison with present social security deductions. The creation is also planned of a State register of social insurance which would contain information about payers of a single social contribution and a registered of those insured in the form of electronic documents confirmed by electronic signatures. Should this draft law be passed, the plan is to create an accumulation system for pensions and social payments which will be calculated taking into consideration data from the single electronic base.[24]

We should mention that this draft law also envisages the distribution of expenditure on social insurance between the employer and the worker, with the former’s share being reduced and the employee’s increased. Some authors even propose dividing the contributions equally between them, arguing that in this case the worker will have more control over the efficient use of the money being paid for social insurance. However on the example of the profit tax from individuals which is paid directly by hired workers, we can see that as a result of this control from the workers’ side over the efficient use of the contributions made is far from high.

It is worth also pointing out the negative experience of the Russian Federation where a single social tax has been applied since 1999, with the tax not having achieved the expected results or the objectives for which it was created. The reduction in the social burden on employers (from 36% to 26%) did not prove an incentive to legalize salaries. The financial resources of the funds are drained, and funds are being channelled into it from the Federal Budget. In contrast to Russia, we cannot count on our Budget either in the near future, or in the longer term.

The problem is also exacerbated by the inefficiency of the existing social funds.

For example, the Ukrainian Accounting Chamber noted in its report that money in the compulsory Unemployment Insurance Fund in 2005 and the first half of 2006, in certain areas, had not been managed efficiently, this having a negative impact on the socially important issue of guaranteeing employment. Work placement for the unemployed through providing subsidies to employees had, in the main, involved badly-paid jobs which did not encourage people to remain at an enterprise (during 2005 almost every fifth person in such subsidized positions resigned). According to the Accounting Chamber’s information, vocational training for people unemployed was largely given without specific requests from particular employers. Regional and base employment centres ran vocational training for jobs which were not sufficiently in demand on the labour market to ensure that people would find appropriate jobs. .Vocational training for the unemployed did not always comply with the indicators for the regional employment programmes.

It was also established that legislative lack of clarity regarding the types of social, information and consultative services linked with finding people jobs, and the procedure for providing such services led to 6,437 thousand UAH from money allocating on social services being spent on things not directly linked with providing services to the unemployed. The Accounting Chamber drew attention to the fact that temporarily available  money from the Fund had been managed inefficiently and with failure to comply with the Resolution of the Cabinet of Ministers No. 111 from 22.01.2003 regarding the procedure for placing reserves and temporarily available money. The Fund’s board had not adhered to Article 16 § 4 of the Fundamental Law and the above-mentioned Resolution with this resulting in the executive directorate being given the right to contract agreements with the bank and Fund without agreeing this with the board.


The Accounting Chamber also commented upon problems with the work of the Social Security Fund for Industrial accidents and occupational diseases leading to disability. For example, the audit showed that due to the lack of agreed activities of the parties to the social partnership, there were gaps in the normative legal regulation of issues over filling the budget of the Fund as well as managing and using money. Mention was also made of the unsatisfactory state of industrial safety and the work environment at enterprises; the inadequate implementation of industrial safety measures; the failure to introduce already completed scientific measures for preventing accidents into the workplace; the fact that none of the programmes for improving industrial safety, working conditions and the work environment had been carried out on time. This had had a negative impact on social protection, as well as in the enterprises’ interest in improving industrial safety.[25]


3. Recommendations

Ukraine must overcome serious problems, including the lack of individually directed social assistance, the use of insurance funds not as intended, economic distortions, excessive costs of the system of social security. In order to resolve these problems, one can only agree with the following recommendations from international experts:

  1. Tailor social commitments to available resources, this meaning that any increase in social transfers which cannot be financed should be prohibited. The State should also refrain from creating new benefit categories, and benefits which are designed as compensation for damages incurred need to directly depend on the nature of the injuries and their reasons;
  2. Concentrate on reducing poverty, with a system of social protection being created to achieve this end;
  3. Improve benefit targeting. This is needed to ensure that social protection funds actually reach the poor. To achieve this new methods are needed for evaluating the level of poverty, together with poverty mapping;
  4. Reduce the number of benefits and monetize them, with this increasing the level of transparency and responsibility;
  5. Clearly delineate social protection and social insurance. Under insurance programmes there must be a clear link between the size of the premiums paid and the level of compensation which the beneficiary receives. This will promote an increase in the level of legal employment since the size of the payments will be linked with the period and overall amount of contributions. All insured individuals will have to make contributions to all mandatory State insurance funds, with any exceptions needing to be financed from the State Budget, and nor from insurance funds. Only those citizens who have paid all the necessary premiums will be able to receive accident compensation. Similarly insurance funds should stop funding unrelated benefits;
  6. Focus on economic growth, investment and job creation[26]

 We would add the following recommendations:

1)  Ensure implementation of the Strategy for poverty elimination, promote an important in material well-being, as well as ensuring a proper level of pay in all areas of the economy, no lower than the minimum level so ensure that even the poorest members of society have a decent standard of living;

2)  Promote further increase in the real minimum wage and accordingly other social payments, but not through increasing the State deficit, but by making efficient use of economic growth;

3)  Take a balanced approach in forming tariffs for housing and community services, ensure a transparent and open method for calculating such tariffs, prevent unwarranted increases in tariffs and actively respond to infringements;

4)  Create an effective, simple and transparent system of subsidies as an important element of social protection of the population;

5)  Continue reform of the pension system, begin introducing a second (accumulation) level of this system, giving detailed consideration to the financial aspects involved;

6)  Carry out measures to introduce a single social payment in order to improve the targeting of social assistance, to prevent non-targeted use of insurance funds, as well as to gradually rectify economic distortions;

7)  Achieve growth in a part of the payment for work in the production price, thus increasing the value of labour, and accordingly ensuring the right of citizens to a decent living wage.

[1] Prepared by Maxim Shcherbatyuk, UHHRU.

[2] The European Social Charter (revised). The Charter is ratified with applications by Law No. 137-V from 14.09.:

[3] The European Social Charter (revised) has come into force. Information from the Ministry of Employment and Social Policy.

[4] I. Gusachenko Maybe not brilliant but somewhere we manage to live // Dzerkalo tyzhnya № 30 (609) from 5-19 August 2006

[5]  Ibid.

[6]  The survey was carried out by the Ukrainian Institute for Social Research and the Social Monitoring Centre from 5 to 12 December 2006 in all regions of the country. 2,279 people in total were surveyed..

[7]  Ukraine struggles with poverty among the working population. According to information from Liga-inform

[8]  Figures from the State Committee of Statistics

[9] Suggestions from the President of Ukraine with regard to the draft Law “On the State Budget of Ukraine for 2007”.

[10]  Pensioners “rage” outside parliament, available at the UHHRU site:

[11]  Data from the State Committee of Statistics

[12] Data from the State Committee of Statistics

[13] Deputy Prime Minister V. Rybak is dissatisfied with the way communal charges are being established // Dzerkalo tyzhnya  №43 (622) from 11-17 November 2006 року

[14] Ukrainians are having to pay unjustified housing and communal charges // Ligabusinessinfo:

[15]  Letter No. 2 100/016/123-06 from 04.09.06

[16] Resolution of the Cabinet of Ministers No 89 from 04.02.1995 “On providing the population with subsidies to compensate payments for housing and communal services””.

[17] Appeal from the Ukrainian Helsinki Human Rights Union concerning Reform of the System of Social Subsidies

[18]  Is the right to social security guaranteed?

[19]  Article 23 of the European Social Charter (revised) .

[20]  Information from the Ukrainian National Information Agency “Ukrinform” :

[21]  Ella Libanova: “A woman has less labour rights because of the low retirement age and pay lower than that for men” // Dzerkalo tyzhnya № 22 (601) 10-16 June 2006.

[22] Ella Libanova: “A woman has less labour rights because of the low retirement age and pay lower than that for men” // Dzerkalo tyzhnya № 22 (601) 10-16 June 2006

[23] Bychkov and Sretovych propose a single social contribution // Ekonomicheskiye izvestia

[24] M. Semenchenko: The no-win social soap opera. A single contribution will make it possible to reduce the tax load (Draft law “On a single system for collecting and book-keeping of contributions for mandatory State social insurance”, prepared by the Ministry of Employment and Social Policy) // Den. – 2006, 25 October – p.5.

[25] The Committee on Social Police and Labour has received information from the Accounting Chamber of Ukraine on the results of an audit into the forming and implementing in 2005 of the budget of the Social Security Fund for Industrial Actions and Occupational Diseases

[26] “The State and the Citizens: Delivering on Promises:, 2006 Report of the Blue Ribbon Commission

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