Ukraine’s parliament passed major economic legislation in the wee hours of Monday morning, introducing a budget filled with strict austerity measures, enacting contentious tariffs, and slashing the red tape that has made Ukraine famously unfriendly to business. Perhaps most importantly, the legislation also targets the oligarchical corruption that has been the guiding force in Ukrainian public life. The Financial Times reports:
Officials described the legislation as a new social contract for an economy that has long been seen as controlled by oligarchs.“We worked out the right package which will allow us, on the one side to introduce a fair taxation system, while on the other side to fill the budget,” said Arseniy Yatseniuk, prime minister.Controls were imposed on profits being funnelled to offshore tax havens through transfer-pricing schemes.Oligarchs, Mr Yatseniuk said, “will no longer be able to hide their profits and fortunes in offshore zones”. […]Tax rates will be raised sharply on luxury items including expensive automobiles, passive income, royalties, dividends from offshore entities, cigarettes and alcohol.
As we’ve written, Ukraine’s biggest crisis is its economy, and its economy’s biggest crisis is corruption. Indeed, it’s hard to overstate how deeply corruption has run in post-Soviet Ukrainian society. This new budget won’t cure all of Ukraine’s many ills, but it may go far enough to secure the promised IMF loans that Kiev needs to make it through the next bumpy stretch. There’s still a very long way to go, and it’s likely that effectively taxing the oligarchs will be a hard struggle, but this budget may be the most serious piece of legislation Ukraine has passed since gaining independence from Moscow 25 years ago.