“No taxation without representation” was the rallying cry of the American colonists in the run-up to the War of Independence. Taxation issues arising from decades-long overspending on the military in the national conflict with England are what brought down the French monarchy and cost Louis XVI his head. Strangely, Emanuel Macron overlooked this history when he imposed new taxes on gasoline a couple of years ago in an attempt to both raise revenues for the state and implement a “green” agenda to appeal to the environmentalists. Thus, he spawned the ‘yellow vests’ movement that caused havoc across France and has not entirely gone away up to the present.
As a professionally trained intelligence analyst, Vladimir Putin has always understood the connection between taxation and revolutions better than other heads of state. As a result, when he came to power in 2000 one of the first major reforms he oversaw was the imposition of a very low flat rate income tax. Once in place, this had the immediate effect that was widely foreseen by political analysts in Russia and abroad: it cut away nearly all of the possibilities of graft and corruption in administration of taxes on the general population. There was nothing ‘negotiable’ to encourage bribe giving or taking.
What few commentators picked up at the time or since is what this approach would mean ultimately for the political pact between Citizens and Power. All that we have heard is about a different pact: Power ensures rising prosperity and Citizens keep their mouths shut and make no claims.
So where would the State get its income to meet budgetary obligations? In the distant past, during tsarist times the Russian state took in 32% of overall revenue from the excise and other taxes on vodka, which was a state monopoly. In the early years of the newly independent Russian Federation, this income collapsed when the government farmed out the income to a limited circle of favored charitable organizations and friends. In 1995 that amounted to $200 million a month disappearing from the state coffers. What gradually came to replace excise tax and to rise to about 40% of total state budgetary income was tax on oil and gas, coal and other extractive industries. Western analysts direct attention to this number, which they explain as indicative of the overconcentration of the Russian economy on oil and gas and failure to diversify its economy. Yet, in the writings of the same analysts we find tucked away the fact that oil and gas account for just 15% of Russian GDP. In fact, the Russian economy is becoming ever more diversified, not in small measure due to Western sanctions.
The 40% of all budgetary revenue flows number is the standard today and was cited just a couple of days ago in expert articles appearing in the daily news digest Johnson’s Russia List. The number came up in the context of the meetings in Glasgow to deal with climate change and the concerted efforts of global leaders to sharply reduce reliance on fossil fuels. Russia’s contradictions in planning for increased production of these fuels while striving to become carbon neutral by mid-century were what underlay the attention to the role of fossil fuels production in covering the Russian state’s financial needs.
What these and other Western experts do not talk much about is the peculiarity of Russian taxation on energy producers. Russia chiefly taxes their export earnings and does not impose more than nominal excise taxes on fuels consumed within Russia. By contrast, in Belgium and many other European Union countries the high price of fuel is due to very high taxation at the gas pump. That is to say, the Russian consumer does not feel the weight of regressive taxes on consumption at home. Indeed, in terms of advanced industrial countries, of which Russia is one, the income and excise tax burdens on Russian citizens is minimal.
To my mind it is most striking that this arrangement is not called out by the myriad analysts who daily are looking for reasons to pillory the Russian ‘regime’ for depriving its citizens of political rights and enforcing autocracy. The logic is clear: the Russian citizen has little reason or justification for feeling aggrieved over his slight political weight because he pays next to nothing in taxes.
©Gilbert Doctorow, 2021