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Monday, April 25, 2011

Russian PM cracking wise about taxes and government planning

From today's rbc.ru (my translation, which is a way better than Google's ;)
"Prime minister V. Putin says it is a bad idea to increase federal revenue by increasing tax rates... This is a bad decision he said. We have to optimize tax and fiscal load on the economy so the business has stimuli for further development.


V. Putin has emphasized that the norm and the rule [of government financing] in Russia should be a low and even better a zero budget deficit...".

Not so bad for a politician I guess. Oh, wait - there's more...

"...V. Putin said he considers a goal of 6.5-7.5% inflation level to be a realistic for 2011... "We have to keep the price increases at the level of 6.5-7.5%. This isn't an easy task considering inflation rate we are currently experiencing, but it is doable." Prime minister has added that by 2014 inflation rate has to be about 4-5%."

Now for the government which runs official level of inflation right under 10% it sounds like a sane talk. However, when you come to think about this it sounds pretty scary. Here's the thing:
  • inflation comes as a direct result of increasing monetary base (a.k.a. money printing). There's no such thing as 'price inflation': prices are going up because more money are competing for the same amount of goods
  • inflation is a highly convenient way of financing public debts and politically motivated projects
  • inflation is a hidden tax thus one really doesn't need to increase visible taxes as you borrow and then pay back with a cheaper money
  • inflation is a plain daylight robbery of savers and people on a fixed income (senior citizens and alike). And everybody else but perhaps in a lesser extent as you can invest in volatile equities such as stocks which are somewhat growing with inflation
Now, the guy is actually promising to go easy and take less income out of his subjects pockets by printing less money. Basically what he is saying is that they are going to lower the tax rate from about 23% (13% of flat income tax + about 10% of the inflation rate) to about 20% by the end of this calendar year (although, this is a hard task according to the quote above). And this is all being said along with the proposal not to burden the businesses with disproportional taxes. The situation is even more grim because of 18% VAT in Russia.

Don't get me wrong - I am not picking on PM Putin. Not at all. Well, not on him alone anyway. In the US the situation is kinda the same or worst than that, because the taxes are higher (e.g. much bigger government to feed) and Quantitative Easing (known as 'money printing') happens like there's no tomorrow). US is staying afloat for now because there are nations who are willing to import US' inflation (e.g. China, Japan, etc.). Russia doesn't have the luxury of inflation's export - they just have oil and natural gas.

Euro is in the same boat as USD and is getting worst by the day with sovereign debt crises looming over the European Union.

Now, it is interesting to watch how people of Russia are 'diversifying' into USD and Euro. Not because these currency are stable, but because they decline on a slower pace than russian rouble. What an unpleasant surprise is awaiting these folks just around the corner.

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