“Loads of Bull” According to Tihipko

Deputy Prime Minister Serhii Tihipko, in charge of economic reforms ex officio, has aroused scathing criticism by saying that “you should not listen to ordinary people, as far as economic reforms are concerned” and “a nationwide debate on the Tax Code is a load of bull.”

Soviet peasants highly appreciated the tax changes that the chairman of the Council of Ministers, Georgy Malenkov, introduced in 1953. While under Stalin peasants were stripped, like nobody else, of everything in order to recoup war-related losses, carry out industrialization, and develop nuclear weapons, the first thing the new premier did (in spite of Nikita Khrushchev’s resistance, incidentally) was drastically cut or even cancel taxes and duties on collective farms and individual households — before that, taxes had been levied on every apple tree and every hen, both in kind and in cash… Secret services reported to the Kremlin from the provinces that peasants were reading “to tatters” the newspapers with Malenkov’s speech at the Supreme Soviet session and commenting: “This guy is on our side!” Even now, decades later, villagers in northern Chernihiv oblast still characterize Malenkov’s short-time rule as follows: “When Malenkov came, we ate our fill of pancakes.” Maybe, a similar upsurge of social optimism also occurred in Dragonesti, Tihipko’s native village in Moldova… But it is very important to note that Malenkov’s reforms produced a lasting effect: over the following five years the USSR saw a 35-percent growth of its agricultural output! Incidentally, Malenkov also abolished the so-called “envelopes,” i.e., the practice of paying in cash an amount worth three untaxed minimum salaries in addition to the official pay to all Party functionaries — from the central to district committees.

The global crisis has forced almost all countries to tighten their belts: the only difference being in how they go about it. Last Sunday the Swiss took a serious step in a referendum, which may result in their country losing the privilege of being a “paradise for the rich.” Many well-heeled celebrities, including singer Tina Turner, top model Karolina Kurkova, and Formula 1 champions, have chosen Switzerland as their place of residence in order to avoid paying taxes. The Swiss voted in favor of the Center Left’s proposal to impose a minimal tax on the ultra wealthy. The latter were not exactly thrilled, and mounted a large-scale campaign of protest, blackmailing the compatriots with the threat of leaving the country together with the fortunes they had amassed with “backbreaking toil.” In response, the witty Young Socialist leader David Roth sent the billionaire Alfred Schindler an airplane ticket to Bulgaria, hinting that his place is the EU’s most corrupt country.

Interestingly, we have heard no complaints from Ihor Kolomoisky who always ranks as one of Ukraine’s richest people and does not hide that he enjoys not only Ukrainian but also Swiss and Israeli citizenship. (The press constantly reuses a phrase that allegedly belongs to him: “paying no taxes is my fundamental principle.”) Incidentally, not a single more or less noted Ukrainian oligarch has uttered a word of protest over the draft Tax Code. No wonder, as the proposed code in no way restrains them from transferring their super-profits to offshore areas. And it would be naive to expect even an intention to do so from any party in the Verkhovna Rada because, in spite of the proclaimed ideology and even ultra left phraseology, they all live off the hands of these oligarchs. Therefore, it has never occurred to them to propose a “tax on wealth,” i.e., on the personal fortune of our nouveaux riches.

To be fair, the proposal of imposing a “tax on wealth” is not widely supported anywhere around the world. To be more exact, it is being successfully torpedoed. A similar attempt failed in early November at a Washington State referendum. The local legislature intended to levy a 9-percent tax on incomes in excess of half a million dollars. But observers believe that most of the voters decided that if the government is allowed to impose a tax on the rich, it will later fail to resist the temptation of imposing a tax on the middle and poorer classes. This initiative was also ill-timed because, shortly before that, the tax on bottled water and sweets had been raised. Moreover, such business giants as Microsoft and Boeing threatened to leave the state, thus depriving the ungrateful Washingtonians of jobs. In reply, the aggrieved state’s authorities warned the voters that they should no longer reproach them for poor education and health care because they had planned to channel the tax revenue to these sectors. By the way, things are even worse in the once fabulous State of California: while Governor Arnold Schwarzenegger is sharing recollections of his action film roles with Russia’s President Dmitry Medvedev, the state has run up a staggering debt for the federal budget, as far as payment of unemployment relief and issuing of food stamps (there are almost 40 million recipients in the US) are concerned, which requires 40 million dollars a day.

Deputy Prime Minister Serhii Tihipko
Deputy Prime Minister Serhii Tihipko

The US has never set itself the goal to build a social state, and President Obama’s “weak and floppy” policies have already seen him branded as a “socialist.” The reason is that Americans still sincerely believe in a fairytale about the boy Johnny who scraped up his original capital by simply speculating on apples: he would buy some on one street and sell them for a higher price on another. A “welfare state” is quite a different thing. High income taxes in Norway are compensated for with a high level of social security which is maintained by public consensus based on Protestant morality. At the same time, the absence of these taxes and high living standards in the Arab states of the Gulf is based on the principle of equitable distribution of the revenues derived from the selling of mineral resources, oil and gas, as well as on the maintenance of competitiveness: no taxes on personal incomes and moderate duties on business activity help attract foreign business and skilled labor. But the bowels of Earth will be, sooner or later, exhausted, and a nationwide debate is already underway there about whether it is time to levy a tax on personal incomes — an idea that does not exactly appeal to both citizens and guest workers. Yet there still is enough time: the Gulf countries are further integrating with the Gulf Cooperation Council and are soon going to have a common currency and passports. A coordinated introduction of taxes has also been planned for 2012.

As is known, the Constitution defines Ukraine as a social state (Article 1, if you remember). Regretfully, this phrase increasingly sounds as a mockery in the conditions when the state is persistently evading responsibility for education, public health, and social security. Meanwhile, the Tax Code was to have prompted this constitutional article to work. And Ukraine ought not to invent a wheel of its own. The experts, whom Deputy Premier Tihipko is so much eager to heed, have been pointing for years to the taxation system of Germany, which ensures a sustained economic development as well as a high level of social security. Without publicly quoting but obviously relying on the works of its great son Karl Marx, the German state redistributes the gross national product by way of clear-cut taxation. (On the whole, in the EU countries, the state takes over up to 70 percent of corporate profits and thus keeps capital within the civilized limits, when it is no longer capable of “committing any crime for the sake of profit.” Under these circumstances, a local capitalist will not part with his money to buy a yacht like that of Abramovich because he will have to pay a substantial tax on it, or to invite Elton John in feathers to his birthday party.) The state budget is formed, above all, on the basis of public incomes (hired workers’ wages and personal incomes of entrepreneurs) which account for 40 percent of all budgetary revenues. The principle is simple: the more incomes an individual draws, the more he or she is able to pay as a tax. And although there are a lot of taxes in Germany — on property, on inheritance, on corporations and even on churches — their level is set depending on the populace’s ability to bear the tax burden. The goal of every new tax reform is to increase the purchasing power and attractiveness of Germany for foreign business. Besides, they work to correct and, naturally, forestall mistakes. Yes, the government has dropped demagogic claims that high excise duties on tobacco will force smokers to give up this nasty habit. A similar abrupt increase in 2001 failed to fetch the expected three billion Euros or reduce the number of smokers. Instead, this resulted in a flourishing black market and contraband from “Young Europeans” and Russia. They have learned the lesson and are no longer experimenting, preferring to gain stable, almost 3-percent-worth, budgetary revenues from the legal sector, thus upstaging “shadow business.” But there is a snag here: Ukrainian-style oligarchic capital badly needs the gray economy, and the state continues to create it by means of a mindless system of taxation and imitation of reforms.

By Ihor Slisarenko (“The Day”)