The ministry of Social Policy of Ukraine faces an existential challenge, which the minister outlined in the podcast ‘Dialogues’ as the need to conclude a new social contract. At the heart of this process lies a financial question: how will society, the state and business agree on the distribution of public goods? These goods, which Denys Ulyutin compares to 200 apples, are worth 8 trillion hryvnia in financial terms, or $200 billion in GDP.
Financial ‘maturity’ and GDP distribution
Denys Ulyutin, Minister of Social Policy, Family and Unity of Ukraine, emphasises that the public good in the country currently amounts to 8 trillion hryvnia of GDP. The main task is to decide how to distribute these $200 billion among different social groups. The minister notes that a mature state should primarily support those who cannot provide for themselves, such as the elderly and children. However, there is also an alternative approach, where more resources are directed towards able-bodied citizens for development, so that the total amount of ‘apples’ (GDP) increases. The current social contract is described as an ‘old building’ with a large number of social payments and benefits. These payments overload the system.
Risks and external financial dependence
The issue of financial stability is becoming particularly acute. Since 2022, Ukraine has been living off international partners. All payments, except for military ones, are made thanks to this assistance. The minister notes that social spending is second only to defence spending. The country’s budget is half of its 200 billion GDP. Current consumption exceeds production (200 apples are produced, but 250 or even 400 are consumed), which is unrealistic in the long term. The minister calls this financial issue an ‘adult response’ that cannot be about ‘everything for everyone.’
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Pension reform as a financial test
Pension reform is defined as a key test to check society’s readiness for a new social contract. The minister emphasises that the International Monetary Fund is interested in this reform because of the need for a financially sustainable model. The World Bank also supports it, as it should reduce the number of people living on low pensions.
The key behavioural change in the pension system concerns the financial responsibility of citizens. Young people need to start thinking about saving in order to relieve the burden on the state. At the same time, the minister emphasises that the Single Social Contribution (SSC) is not a tax. The SSC should be viewed as part of the salary that is transferred to insurance savings – that is, it is a pension, savings for the future.
New model for financing social services
As part of social sector reform, a transition to a new financial model is underway. Instead of maintaining the entire system, payment for social services themselves is being introduced. This creates a market in which both businesses and local governments can be service providers. The transition to the procurement of social services makes it possible to attract higher-quality specialists by offering higher salaries, which was impossible under the old tariff scales. The ministry intends to create a fully functional social services procurement agency similar to the National Health Service of Ukraine (NSZU), using the Social Protection Fund for Persons with Disabilities for this purpose.
The economics of deinstitutionalisation
Even in the field of child protection, there are financial arguments in favour of reform. The minister notes that the institutional system draws more money from the budget than family or family-like forms of upbringing. This means that, despite popular belief, institutional care is much more expensive for the state. Thus, deinstitutionalisation is not only a humanitarian but also an economically advantageous solution.
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