Russia - 154 on the List of 178 Most Corrupt Countries

[mendeleyev]

Did any of you catch the interview on Bloomberg Television with President Medvedev on 26 January from Davos? I didn't see it--busy with coverage of Domodedovo, but received a transcript copy from the Presidential Press office.

From the looks of the transcript, Bloomberg reporter Ryan Chilcot was respectful and did a good job of controlling the interview while pulling no punches and he artfully challenged the President a couple of times. Medvedev countered well for the most part, including an artful dodge of whether or not he would stand for re-election in 2012.

Corruption and protection for minority business investors were the main points of the interview. Chilcot also brought up the Mikhail Khodorkovsky case (he will be tried a 3rd time, by the way, to be announced next year. He'll be 65+ when, if ever, released and that would likely put him well past another Medvedev term and then 2 Putin terms.)

The entire dialogue was over 20,000 words so I won't post it here, but will post just the opening question and the President's response to give an idea of the tenor of the discussion:


RYAN CHILCOTE, BLOOMBERG TELEVISION: Mr. President, thank you very much for joining us. You want to turn Russia into a modern country. You've got McDonalds. You've got shopping malls. You've got sushi. What's missing?

PRESIDENT OF RUSSIA DMITRY MEDVEDEV: What’s missing? More common things like infrastructure, business infrastructure, and legislation to properly regulate that business activity are missing. The official establishment, the bureaucracy, lack proper legal consciousness. And a well-developed judicial system is missing. Once we have all that, and provided there is no corruption, it would mean that Russia is ready to steam ahead along its modernisation track.

[Boethius]

That's pretty honest.  I'm impressed.  I wish Ukrainian presidents were that forthcoming.

[dbneeley]

All taxes are paid by individuals. If a "corporate tax" is levied, it is simply reflected in the cost of the goods and services of the corporation in terms of higher prices.

At present, the tax code is a labyrinth that is as much an overt effort to manipulate the economy as it is a revenue generation mechanism. The government believes it knows better than the people how money should be spent. Thus, there are many methods in the tax codes which a phalanx of high-priced tax specialists are required to take full advantage of that can lead to lower tax burdens.

The U.S., I understand, has the highest corporate tax rates in the world at present. Thus, there is a huge incentive to fashion its business to take advantage of every legal method of tax avoidance. In the process, that can make them in other ways less competitive on the world stage.

There is absolutely nothing wrong with seeking to minimize taxes for either individuals or corporations. To say it is "corrupt" merely indicates a lack of understanding.

A flat tax or a consumption-based tax would be far more equitable and eliminate most loopholes.

David

[Boethius]

All taxes are paid by individuals. If a "corporate tax" is levied, it is simply reflected in the cost of the goods and services of the corporation in terms of higher prices.

In theory, all taxes are paid by individuals, and most taxing legislation recognizes this through theories of integration,  But, it is not completely accurate, particularly when cross border or treaty shopping occurs. 

There is absolutely nothing wrong with seeking to minimize taxes for either individuals or corporations. To say it is "corrupt" merely indicates a lack of understanding.

True, tax minimization strategies are acceptable.  But there are many strategies which go beyond mere minimization, which is why most taxing legislation now contains anti avoidance provisions.

A flat tax or a consumption-based tax would be far more equitable and eliminate most loopholes.

Consumption taxes are not equitable, as they hit the poor harder than they do the rich.  There is a significant amount of scholarly research in this area.

Flat taxes also do not work particularly well if there is volatility in other government revenues.  Corporate flat taxes would also interfere with government policies which are used to stimulate the economy, particularly in industries that drive economic growth. 

[dbneeley]

In theory, all taxes are paid by individuals, and most taxing legislation recognizes this through theories of integration,  But, it is not completely accurate, particularly when cross border or treaty shopping occurs. 

True, tax minimization strategies are acceptable.  But there are many strategies which go beyond mere minimization, which is why most taxing legislation now contains anti avoidance provisions.
Consumption taxes are not equitable, as they hit the poor harder than they do the rich.  There is a significant amount of scholarly research in this area.

Flat taxes also do not work particularly well if there is volatility in other government revenues.  Corporate flat taxes would also interfere with government policies which are used to stimulate the economy, particularly in industries that drive economic growth. 

The idea that consumption taxes are not equitable merely indicates you are unfamiliar with the provisions of the suggested "fair tax" -- which makes provision for that factor.

The "government policies which are used to stimulate the economy" have generally been abject failures while dramatically increasing the national debt. Again, it seems you are relying too much on theoretical, and flawed, analyses.

David

[Boethius]

Consumption taxes are, in fact, levied nationally in Canada, where I live.  There is a huge body of research on the inequity of consumption taxes, not only by the Canadian Tax Foundation in Canada, but also in other jurisdictions which levy consumption taxes.  Almost all of those countries also have graduated tax rates.  And, those consumption taxes, including very high (usually) taxes on gas, are why those countries can, unlike the U.S., lower their corporate tax rates.  Nevertheless, I suppose I do not understand anything about taxation, notwithstanding that I have advised some of the largest resource based companies in my country on taxation matters through the years. 

I will not speak for the U.S. economy, but fiscal policies in Canada through the mid 1980’s to the early 2000’s did, in fact, reduce the debt, eliminated the deficit, and stimulated the Canadian economy.  The oil and gas industry, for example, would not have developed at the rapid pace it did were it not for 100% rates of depreciation and special treatment for investments, such as flow through shares.  The same can be said of Canada’s mining industry, which went from being a small player to international status.

[Daveman]

...  There is a huge body of research on the inequity of consumption taxes,

Admittedly, I'm no economist, but I am curious as to what the inequity would be?  As at first glance, it would seem the most equitable system possible..

[Boethius]

If you make $5000 a year, a consumption tax hits you harder than if you make $50,000 a year.  Many jurisdictions with value added or goods and services taxes compensate for this by giving the poor tax credits or refunds, but those are still woefully inadequate.  So, the poor bear an unfair, or disproportionate, burden.

[acctBill]

Did any of you catch the interview on Bloomberg Television with President Medvedev on 26 January from Davos? I didn't see it--busy with coverage of Domodedovo, but received a transcript copy from the Presidential Press office.

From the looks of the transcript, Bloomberg reporter Ryan Chilcot was respectful and did a good job of controlling the interview while pulling no punches and he artfully challenged the President a couple of times. Medvedev countered well for the most part, including an artful dodge of whether or not he would stand for re-election in 2012.

Corruption and protection for minority business investors were the main points of the interview. Chilcot also brought up the Mikhail Khodorkovsky case (he will be tried a 3rd time, by the way, to be announced next year. He'll be 65+ when, if ever, released and that would likely put him well past another Medvedev term and then 2 Putin terms.)

The entire dialogue was over 20,000 words so I won't post it here, but will post just the opening question and the President's response to give an idea of the tenor of the discussion:


RYAN CHILCOTE, BLOOMBERG TELEVISION: Mr. President, thank you very much for joining us. You want to turn Russia into a modern country. You've got McDonalds. You've got shopping malls. You've got sushi. What's missing?

PRESIDENT OF RUSSIA DMITRY MEDVEDEV: What’s missing? More common things like infrastructure, business infrastructure, and legislation to properly regulate that business activity are missing. The official establishment, the bureaucracy, lack proper legal consciousness. And a well-developed judicial system is missing. Once we have all that, and provided there is no corruption, it would mean that Russia is ready to steam ahead along its modernisation track.

Mendeleyev, quite an honest assessment by Medvedev. I'll bet when he's watching the interview back in the Kremlin with other Russian officials and the Russian oligarchs they'll all crack up laughing when that part of the interview comes on.  Who among the Russian officials truly wants "legislation to properly regulate that business activity" or "legal consciousness" or "well-developed judicial system" or the other trappings of a modern an just government and economy?  Certainly not Putin or Medvedev or anyone else currently in power in Russia.  

[Anotherkiwi]

If you make $5000 a year, a consumption tax hits you harder than if you make $50,000 a year.  Many jurisdictions with value added or goods and services taxes compensate for this by giving the poor tax credits or refunds, but those are still woefully inadequate.  So, the poor bear an unfair, or disproportionate, burden.

Goods and Services Tax here in New Zealand was increased from 12.5% to 15% from last October.  As it has always applied to everything I totally agree with your contention about the poor being hit far harder than the rich.  We also do not have any tax credits to offset these expenses, as everyone pays income tax from the first dollar earnt.  Coincidentally, our main opposition party in Parliament has just announced that part of their income tax policy will be to make the first $5,000 of income tax-free...did I mention that we have a general election later this year?   :evil:

It was interesting working in the Solomon Islands at the end of last year to see that their GST (10%) is NOT universal - for example, soft drinks and restaurant meals are taxed but bottled water is exempt.

[mendeleyev]

Mendeleyev, quite an honest assessment by Medvedev. I'll bet when he's watching the interview back in the Kremlin with other Russian officials and the Russian oligarchs they'll all crack up laughing when that part of the interview comes on.  Who among the Russian officials truly wants "legislation to properly regulate that business activity" or "legal consciousness" or "well-developed judicial system" or the other trappings of a modern an just government and economy?  Certainly not Putin or Medvedev or anyone else currently in power in Russia.

 

Often it seems that Mr Medvedev desires to move the ideals of democracy ahead more quickly than Mr Putin and on that front there are key differences between the two men. Whether those differences will widen enough that Medvedev could swing the country in a democratic direction more quickly (now he is moving things gradually in baby steps) would depend on the backing of enough Oligarchs to press forward more aggressively.

It's interesting to see the language between the two. In the first 12-18 months you'd hear things like "the president has requested the Prime Ministers office...." and the terminology used was very cordial, bordering on submissive. Beginning last year when Mr Medvedev replaced many of the staffers that Mr Putin had picked for him, language began to change and it's not unusual now to see/hear terms like "the president has directed or instructed" the PM's office in intergovernmental communications. In a few instances, such as the crash of the airplane carrying Poland's President, the terminology was that Mr Medvedev had "ordered" the Prime Minister to take a series of actions.

Oddly enough the two agree that they are best suited as a tandem in their current roles. Mr Putin hates diplomacy. He loves to be the centre of attention and that would be one of the main reasons for a return, yet he despises the day to day meetings with leaders of other countries and the diplomatic travel that comes with the job at the top. He'd rather pose in the wild while bare chested and shooting a lion than to be in a conference at the UN.

Mr Medvedev on the other hand, relishes the role of being the top diplomat. It fits his style hand in glove, so to speak. Mrs Medvedeva, Svetlana, joins the president in this role well as a gracious and capable first lady. For just one example of how they team well together see this article from the Mendeleyev Journal.  

The President and Mrs Medvedeva represent nearly the perfect family couple on the Russian stage as well. An excellent example was when they decided (Mrs Medvedeva's idea) to become the first family to take the Russian census in 2010. They opened the presidential residence to the media and a young female census taker came calling to do the survey. It was staged nicely to say the least. You can see that event at this edition of the Mendeleyev Journal.

Prime Minister Putin and Mrs Lyudmila Putina however, are sometimes rumoured to be estranged (some say that he has a thing for younger women) and about the only thing they seem to share in public is a love for dogs. They do not make a very good "diplomatic" couple on the world stage. See this article on the Putin dogs in the Mendeleyev Journal.

To understand how the two work together a little background is in order because in truth, the relationship between President Medvedev and Prime Minister Putin is anything but simple. For certain despite what you see often in foreign media, Dmitry Medvedev is no puppet and strangely enough Vladimir Putin intensely dislikes puppets and Dmitry Medvedev is not expected to play that role.

One should remember that they met as students of law and economics many years ago. President Medvedev is a legal scholar, a professor of law and he has taken steps in several key areas that Vladimir Putin allowed to go unchallenged. As president, Mr Medvedev has begun a thorough reform of the military structure, has begun an anti-corruption program, has introduced far-reaching economic initiatives to broaden Russia's economic influence in areas beyond natural resources, and has begun to form the basis for a more independent legal system.

Last year, and some might see this as a test of his reelection prospects, a presidential think-tank went public with proposed radical changes in Russia. Known as The Institute of Contemporary Development (INSOR), whose board of trustees is chaired by President Medvedev, INSOR outlined a vision of Russia's future in a 66-page report entitled "21st Century Russia: the Image of Tomorrow We Want."

Their proposals were named as “Russia’s modernization in 21st century” and I'll post just a few of the recommendations:

First and foremost, the country's political life should be modernized. “Human capital” is of immense value for future development, and it should be independent in its views, realistic and critical in its understanding of reality, dynamic and responsible. Those in power, for their part, should support and cultivate such qualities within society.

New systems of values change the balance of the status of power and society, the state and citizens. Thus, the power should serve the people and must be capable of being self-limiting.

To realize full democracy the country needs both “a strong president and strong parliament”. The presidential term should be cut from six to five years, while PMs should keep their seats for four years. For democracy to succeed, the state needs an effective multiparty system with multiple political parties representing various points of view.

Regional governors, should be elected by direct suffrage, as it was under the presidency of Boris Yeltsin instead of the current appointment system.

Courts should become strong and independent – and that be something the public trusts and believes in. The government should cease control of media, which will become possible as digital television becomes widespread, thus leading to an end to the monopoly of federal channels and one-sided news reporting.

It is necessary to overhaul the law-enforcement system as one of the key reforms in the overall reorganization of the internal security system in the country, and the system should change from its current repressive style to one that puts the security and rights of the people first. The Ministry of Internal Affairs (MVD), Federal Security Service (FSB) and State Traffic Safety Inspectorate (STSI) will need drastic reform or elimination.

In the new model, the Ministry of Internal Affairs will be replaced by a new organisation called the Federal Service of Criminal Police. Special police units would exist in the regions to deal with social security and minor crimes. Instead of internal forces there will be a National Guard, and a municipal militia would be active in cities and villages. The former responsibilities of the liquidated State Traffic Safety Inspectorate would be divided between the militia and a Civil Road Traffic Service.

A newly created Federal Financial Police Service would investigate economic crimes. Two institutes would be created instead of the Federal Security System: the Federal Counterespionage Service and Federal Service for Constitution Security (which would deal with terrorist acts and the prevention of separatist activities).

Participation in the all major global organizations, joining the EU and NATO should be a goal of Russia. In preparation, Russia should form a Common Market among the CIS states with free movement of goods and services, and transport systems should be integrated.

Russia should become a strategic partner of the US. The Commonwealth of Independent States should remain, but on better terms, and Georgia again be offered membership.


I think that most would look at these proposals and recognize that if implemented, these initiatives would amount to a significant departure of the path begun by Mr Putin. President Medvedev said last year in a speech; The tenor of state work, I hope, has changed to a considerable extent. We are endeavoring towards a broadening of competition in economic and politics, towards great openness in state-society relations, and towards a new quality of political, economic, and social culture.

We believe in the vitality of our democratic institutions and in the fact that their persistent development is leading towards the creation in Russia of a flourishing society based on the principles of freedom and justice.

We believe in the rule of law and that we can eliminate corruption from vitally important social institutions and provide each person the opportunity to live by fair and civilised rules.

Finally, we believe in the success of modernization, in the intellectual and creative power of our people. We believe that our Russian entrepreneurs, scientists, and engineers, with the support of the state and cooperation with foreign partners, will make our economy one of the drivers of global development.
  

[dbneeley]

If you make $5000 a year, a consumption tax hits you harder than if you make $50,000 a year.  Many jurisdictions with value added or goods and services taxes compensate for this by giving the poor tax credits or refunds, but those are still woefully inadequate.  So, the poor bear an unfair, or disproportionate, burden.

As I stated previously, you seem to be ignorant of the proposal called the "Fair Tax" in the U.S. Simply because the way consumption taxes are implemented elsewhere is often lacking, that does not mean they must be.

Personally, in the U.S. I would first back a flat tax on income until a Constitutional amendment were passed that would eliminate the ability to assess an income tax at all, at which point it would be replaced by the Fair Tax. The Fair Tax would provide cash payments at the first of each month to offset the tax on goods and services representing food and other necessities of life for the less wealthy.

Additionally, used items would be exempt--encouraging the reuse of goods where applicable and eliminating the tax reporting and payment worries of people reselling their excess goods--garage sales, thrift shops, and the like.

Because corporations would thus be exempt from income taxes, it would give American exports an automatic advantage to the extent that taxes are paid today.

I suggest before being so down on consumption taxes as a general proposition, you look to see if this sort of system would not be superior to what is now available anywhere.

David

[Boethius]

Unless "American exceptionalism" creates a tax that is unlike any other consumption tax administered in any other jurisdiction anywhere else in the world, my opinion is still backed up by facts.  As I noted, there is a substantial body of scholarly research in this area.

Goods and Services Tax here in New Zealand was increased from 12.5% to 15% from last October.  As it has always applied to everything I totally agree with your contention about the poor being hit far harder than the rich.  We also do not have any tax credits to offset these expenses, as everyone pays income tax from the first dollar earnt.  Coincidentally, our main opposition party in Parliament has just announced that part of their income tax policy will be to make the first $5,000 of income tax-free...did I mention that we have a general election later this year?   :evil:

It was interesting working in the Solomon Islands at the end of last year to see that their GST (10%) is NOT universal - for example, soft drinks and restaurant meals are taxed but bottled water is exempt.

Canada's GST was based on the New Zealand model.  The federal tax dropped from 7% to 5%, eventually (also politically motivated), and most provinces have harmonized collection of sales tax with the feds, so rates vary across the country, from 5% to 15%.  Canada doesn't tax basic foods.  Junk foods are taxed, as are baked  sweetened goods, unless one purchases half a dozen or more.  Medical/dental/pharmaceuticals are not taxed.  Used residential homes are not taxed, but new homes are, with a partial rebate.  It's a minefield.

When Canada's GST was at 7%, coupled with corporate tax rates of between 20% and 25% for small business corporations, many sectors of the economy operated underground.  This was predominant in services industries (mechanics, small stores, and the biggest, construction).  Taxing authorities started auditing as net worth assessments, largely in the construction industry, but it is not as prevalent now that corporate tax rates have dropped.

[Boethius]

Thank you for your posts, mendeleyev.  They are very informative.

Do you mind if I post your link elsewhere?

[dbneeley]

Unless "American exceptionalism" creates a tax that is unlike any other consumption tax administered in any other jurisdiction anywhere else in the world, my opinion is still backed up by facts.  As I noted, there is a substantial body of scholarly research in this area.

Boethius--

It isn't really rocket science to find out about the Fair Tax--which indeed would be a considerable improvement over any existing consumption tax in many regards. Since you seem to be reluctant to take the twenty seconds or so to find out about the most convenient website, here it is: http://www.fairtax.org/site/PageServer

I really don't much care about any "body of scholarly research" that merely examines existing taxes of the kind--we can agree that they are flawed. Instead, it should be relatively easy to design one that overcomes those objections--such as this one.

Too often, "scholarly research" of this type becomes something more for anthropological interest than as a guide for the future.

David

[Boethius]

I have read about the so called "Fair Tax".  As proposed it is not, by and large, very different from consumption taxes in other Western countries, other than the proposed larger lump sum "grant", though some Western jurisdictions also, as I noted, give the poor credits/cash. 

[Anotherkiwi]

...Canada's GST was based on the New Zealand model.  The federal tax dropped from 7% to 5%, eventually (also politically motivated), and most provinces have harmonized collection of sales tax with the feds, so rates vary across the country, from 5% to 15%.  Canada doesn't tax basic foods.  Junk foods are taxed, as are baked  sweetened goods, unless one purchases half a dozen or more.  Medical/dental/pharmaceuticals are not taxed.  Used residential homes are not taxed, but new homes are, with a partial rebate.  It's a minefield...

Just a correction - when I referred to "everything" being subject to GST I was thinking of day to day spending, rather than large items like housing mortgage payments and rents, and overseas travel (which are exempt).

[Boethius]

Understood.  Those things are exempt in Canada as well.

[mendeleyev]

Thank you for your posts, mendeleyev.  They are very informative.

Do you mind if I post your link elsewhere?

Thank you, Boethius. Yes, of course.