Income in Ukraine: An Overview
Ukraine is one of Europe’s poorest countries, despite its vast natural and mineral resources. In terms of average income in Ukraine, the population’s financial-wellbeing is relatively low.
Ukraine’s state statistics service reported a record low 8.6 percent increase in wages in November 2020 despite a global economic recession. This low rate increased wages for only 6.1 percent of the population. Meanwhile, the average wage still has not overcome the 2014 war as it remains 17 percent lower than in 2014.
The average monthly nominal wage in Ukraine in November, 2020 equalled 8454 UAH (around 285 EUR / 342 USD). This is 65 percent of the average monthly wage in the European Union in the same period.
Income in comparison to European countries
Ukraine’s average income stands lower than those of the developed EU countries. For instance, in Lithuania the average takes-home pay was 737 EUR in December 2021, while household disposable income was 800 EUR. In other Netherlands, average income amounted to around 3200 EUR in 2017 with average disposable income in the same year registered at 2523 EUR.
On a global scale, Ukraine ranks near the bottom of World Bank’s Human Development Index rankings. The Index evaluates life expectancy, literacy levels, educational enrollment, health-care, and per capita earnings to provide an overview of countries’ human development.
The statistic data from World Bank states that, as of 2019, the per capita GDP at purchasing power parity in Ukraine was USD 7,997.4. This indicator lags significantly behind the per capita GDP in European Union countries. For instance, the per capita GDP at purchasing power parity in Germany in 2020 reached USD 44, 768.7.
Reasons For Low Average Income In Ukraine
Ukraine’s low average income can be attributed to a combination of internal and external factors. The US sanctions imposed after Moscow’s annexation of Crimea in 2014 limited foreign investments and triggered an economic recession. Moreover, the break of trade relations also led to a reduction in the production and export of industrial products. This reduction in exports has had a direct impact on the country’s economic growth and financial prosperity.
Furthermore, the chronic Ukrainian corruption and widespread white-collar crime is also responsible for the low average income in the country. According to Middle East Institute recent report, Ukrainian politicians and civil servants have forged close relationships with the Ukrainian oligarchs. In consequence, the country has been unable to break free from its current economic stagnation as corruption often directly contradicts national economic policy.
What Are The Factors Affecting Average Income in Ukraine?
External shocks, such as the US imposed sanctions, have had a significant impact on the Ukrainian economy and consequently on the country’s average income. Moreover, the low average income can be attributed to the causes mentioned above, such as corruption, the lack of capital and innovation, and the deteriorating political and economic situation in the country.
Apart from this, education and qualification also have a major influence on income in Ukraine. Government salaries tend to be significantly lower than those offered by private institutions in Ukraine. For instance, government officials with higher education receive two to three times less than those employed in the commercial or private sector. Income inequality, especially among those with higher educational qualifications, remains increasingly high in Ukraine.
Income Tax Rates in Ukraine
The taxation system in Ukraine is mainly collected through two different taxes. Those are personal income tax and corporate income tax. In 2021, the personal income tax rate in Ukraine was set at 5 percent. On the other hand, the general corporate income tax in Ukraine is set at 18 percent yearly.
Taxpayers in Ukraine also can pay reduced rates of 2 percent on royalties for copyrights, patents, trademarks, and inventions under the Companies Law in Ukraine. Interest payments, capital gains, and dividends are also subjected to a 5 percent tax rate in Ukraine.
Effect of Pandemic and Outlook
The Covid-19 pandemic has affected Ukraine’s population and created even greater income inequality. As a result, thousands of Ukrainian citizens have experienced financial struggles due to their reduced incomes. Moreover, the focus of the national budget has shifted from social and healthcare needs to military and defense needs as a result of ongoing military conflict in the Eastern part of the country.
Analysts expect the economic and financial situation to improve in 2021, with economic growth projected at 2.5 percent this year. However, it is uncertain how the end of the pandemic will affect Ukraine’s economic outlook. The average income in Ukraine is likely to remain relatively low in 2021, even as the economic growth rate increases.
Economic Policy Changes
To improve the average income in Ukraine, the government has proposed a series of economic policies. This includes tax breaks for businesses in certain industries, as well as changes to the taxation system that are aimed at increasing the income of the Ukrainian middle class.
The government has also proposed raising the minimum wage and introducing a minimum Social Security Benefit to help those who are on the lowest wage level. Furthermore, the government is also looking to implement a number of programs aimed at generating new jobs and aiding small businesses. These include offering grants and providing technical assistance to those businesses hoping to launch their operations.
Innovative Stimulus Programs
The government of Ukraine has been encouraging innovative businesses and entrepreneurs. This is in an effort to support the digital transformation and start-up ecosystems. This initiative has been welcomed and supported by the World Bank and the European Investment Bank.
The government has also been providing small businesses with financial assistance through business incubators and innovation labs. This has been helping enterprises to launch their activities while also providing practical support and training for up-and-coming entrepreneurs.
Conclusion
Ukraine’s average income levels remain significantly lower than those seen in developed European countries. This is a result of internal and external factors, including US-imposed sanctions, economic stagnation, widespread corruption and inadequate taxation system. False Ukrainian economy is likely to remain in trouble, unless proactive economic and fiscal reforms are implemented by the government.
