KIEV, Dec. 8 – The government plans to narrow Ukraine’s budget deficit to 3% of gross domestic product in 2011, according to a draft that will be submitted to Parliament later this week.

The draft, approved by the government on Wednesday, was calculated to reflect lower taxes on big companies incorporated into the new Tax Code approved last week.

The government’s earlier plans, released before the new tax legislation had been approved, called for a 2011 budget with a deficit at 3.5% of GDP.

“There was a very hot discussion today, because this budget is not an easy one as the world is still facing a financial crisis,” Fedir Yaroshenko, the finance minister, said. He said the government, by cutting taxes, planned to encourage economic growth in 2011.

The anticipated 2011 budget deficit will be narrower compared with budget deficit of 5.5% of GDP that is expected in 2010, and shows the government has been viewing the level of the current deficit as unsustainable.

The draft budget will now probably be submitted to Parliament within days, most likely by Friday, according to Yaroshenko.

The government recently expanded corporate tax cuts as part of a massive tax system overhaul for the next five years.

The corporate tax will be gradually reduced to 16% in 2014 from 25% currently. The legislation calls for cutting the corporate tax to 19% in 2011, to 18% in 2012, to 17% in 2013 and to 16% in 2014.

The tax cuts are supposed to generate an additional 4 billion hryvnias in funds for businesses around the country annually, according to the government.

The tax changes are supposed to help the economy expand 4.5% on the year in 2011, up from an expected 4.1% growth in 2010, according to the government. The hryvnia, the local currency, is expected to hold its ground against the U.S. dollar at the level of 7.95 hryvnias per dollar in 2011, according to the forecast.

The government delayed by almost three months the 2011 budget draft due to massive opposition to the new tax legislation, mostly from small businesses that had feared they would come under increased tax pressure.

Thousands of small business owners went on a protest action on Nov. 22 and had persisted for more than a week until President Vikor Yanukovych last week had vetoed the tax legislation, submitting new amendments to Parliament.

Prime Minster Mykola Azarov, who was widely criticized encouraging increased tax pressure on small businesses, on Wednesday accused the protesters of undermining his budget drafting.

“The delay with its approval was caused by those who had been preventing the timely approval of decisions that are vitally important for the country,” Azarov said. (tl/ez)