|
|
Gareth Morgan - From Russia With Love |
These days Russia is a land of contradictions – at least to this set of Western eyes – as it presents a curious mix of economic policies, some of which make Roger Douglas look an apparatchik of the Looney Left, some akin to Michael Cullen’s programme of re-nationalisation, and then there’s the straight corruption and Mafia-style behaviour that is not only tolerated but it appears, encouraged.
All this in a great country that has just farewelled Alexander Solzhenitsyn who in life was always an irritant and at times an enemy of the State, but immediately upon his death, a true Russian hero whose contribution was celebrated by both the father of perestroika Mikhail Gorbachev and the former head of the KGB, Vladimir Putin. These are weird days to be in Moscow.
Let’s begin with tax. The home of Marxism has a flat personal income tax scale – a rate of 13% !! This rate was implemented by Putin in 2001. Combined with a GST of 18%, a tax on dividends of 9% and a corporate tax rate of 24% it can be seen that under Putin there have been big steps to encourage entrepreneurship, as the futility of making anyone better off through progressive taxes has been admitted. Michael Cullen take note.
In fact flat rates of income tax are now commonplace in Europe – in earlier columns I mentioned what we’d seen in Iceland and the Baltic States. Makes you wonder for how much longer New Zealand will trail the world on tax design. Perhaps now we’re the first into recession, an understanding of the counter-productive impact of progressive tax will reach our shores.
Next, today’s Russia presents the conundrum of widespread re-nationalisation of so-called strategic sectors amid a declared move to a more market-oriented economy. This is probably what Putin will be remembered for most and the question still to be answered is whether this is a determined move back to centralised command and control as the supporters of Gorbachev and Yeltsin fear, or whether – as Putin tells the story - he’s searching for some moderation of the obscenity of party members cum oligarch’s inheriting Russia’s major assets and becoming billionaires overnight. It all started with Yukos Oil and the latest re-nationalisation is the formation of a state grain trading organisation. The well-publicised wrangle with BP over the oil joint venture company and the behaviour of Gazprom in manipulating the natural gas market are other examples of just how dangerous it is for large private enterprises to get exposed to the Russian economy.
Indeed the track record under Putin and now Medvedev is not good. In an orthodox capital market, companies whose investors have lost faith suffer shareprice falls and then a raider will swoop on the shares and either restructure the company or sell off the underlying assets for a profit. In Russia it’s all a bit different. It’s the companies that do well are most susceptible to changes of ownership – and it can be swift and ruthless and even fatal. The standard method is for the authorities to announce a fictitious tax liability and when the owner can’t pay up he gets thrown in prison. The raiders then sell the bankrupted company to another firm, so once eventually freed, the owner finds his business well gone, commonly now owned by some company headquartered in an offshore tax haven.
We last saw this type of activity in Uzbekistan where miraculously the owner of the national telecom network was one of the President’s daughters and tales of compulsory seizure of businesses at the point of a gun, were commonplace from those business people we met.
In Russia’s case it is on an altogether greater scale with BP currently embroiled in a squeeze on its JV by its Russian bureaucratic partners and favoured oligarchs in a manner that looks once again very much like a seizure in the making. It does not bode well for economic stability and is akin to Cullen’s takeover of Tranzrail when it was clear he had Toll over a barrel on setting of the line rental.
One of the realities of Russia’s economy that has struck us is the extent to which money made in Russia is being sent abroad – the neighbouring Baltic States being a handy destination for those who can pop over and enjoy their winnings out of the reach of Moscow – but also the preference for Russian businesspeople doing stuff abroad not to repatriate their earnings back to within the clutches of the Russian regime.
How long the economy can thrive with these types of major threats to private property rights and this type of impediment to repatriation of export earnings, is dependent upon how long energy prices will stay high. And in this world of globalisation that appears to be for the foreseeable future anyway.
Russia then, doesn’t have to conform to international norms in all spheres of economic endeavour as a weaker economy would have to – assuming of course that those Russians beyond the wealth belt of St Petersburg and Moscow, remain locked out of the modern economy and have no real way to bash down the door, remaining as they do subjugated to the Russian Mafia which thrives beyond the wealth belt, keeping the peasants at bay.
|
|
FEATURES
Printable version
PDF version