Email This Post - Print This Post Print This Post

The greatest dynastic struggle between two queens that is recorded in European history was the rivalry over the throne of the 16th century British empire between Elizabeth I of England and Mary, Queen of Scots, The contest was decided by bribery, knives, explosives, multiple murder, forgery, extortion, espionage, entrapment, torture, a rigged court, and finally the executioner’s axe. Even that was misaimed, and required three blows to kill.

Mary lost; and it was Elizabeth’s historians who got to tell the story. Mary deserved to lose, they said.But truth to tell, it was the Scottish lords who first murdered Mary’s husband Darnley, the King of Scotland;dethroned and imprisoned her; and forged the evidence that helped lead to her execution. Her son James betrayed her in a deal with Elizabeth to stake his own claim to the throne, and her spymaster Walsingham fabricated a plot to trap Mary into committing treason

Just imagine how the history of the Russian succession of President Vladimir Putin will come to be written, and by whom.

This month, for the first time since he came to power five years ago, Putin’s standing in the polls has dropped so fast and so low – maybe as many as 30 percentage points below the published numbers -that the president can no longer be confident of assuring his own succession. If he cannot do that, he and his allies realize they may soon be at the mercy of their opponents. In the fractious and unconfident staff that surrounds the president, this has triggered the worst fears they have known – for their own futures. Their loyalty, never certain in Putin’s mind, is in grave doubt; their ability to manage the state, never assured before, has become even more unlikely now. The regional lords, elected or appointed governors, have discovered they can defy the Kremlin with a few hundred elderly protesters on the streets.

And the business lords, the dozen or so oligarchs, each worth a multiple of a billion dollars, have revived the confidence to replace Putin with their own candidate. This combination of forces has provoked the most serious crisis of political power in Russia since Boris Yeltsin began his challenge to Mikhail Gorbachev in 1989. By English standards, the methods used then were relatively bloodless, although that’s no guarantee for Russia’s time ahead.

But wait a minute. This is not a history to be dictated by the winners of the 1990 contest that is obliged to repeat itself. Putin may be desperately short of voters, soldiers, and prosecutors. But he has restored the one state power that can save him this time round. It’s the power to tax.

Yeltsin abrogated that power, allowing his supporters and ^financiers to pay none, and ensuring that the voters would have no alternative but to accept a 100-percent income tax rate – the non¬payment of salaries. Putin’s “monetization” reform was premised on the quaint notion that the government’s services should be paid for at cost, and that incoming tax revenues on wealth would be more than adequate to pay for public expenditures aimed at poverty. Although he has yet to admit that the theoreticians whose plans he accepted were the same men who implemented Yeltsin’s perverse income tax, Putin has realized the colossal mistake he made in withdrawing the in-kind social benefits Yeltsin left alone, and replacing them with less cash than they cost.

The fiscal gap, Putin has been told by Finance Minister Alexei Kudrin – he learned his tax craft during the Yeltsin years as apprentice to Anatoly Chubais, the most hated man in Russia then – will cost Rb200 billion ($7.1 billion) to cover. That Putin has no choice now but to spend that money to end the state robbery of the poor, and to assuage the voters, is admitted by all, including the president. The choice that is still his to make is where and how to find this money. When the history of the Putin succession comes to be written, it will be said that Putin’s choice for how to raise that money will have decided the leadership of the country beyond the parliamentary elections of 2007, and the presidential election of 2008. Those government officials, who are already staking their own futures with someone other than Putin, the cash cannot, and should not be raised by a large increase in taxes this year.

But for Putin, a tax aimed directly at his sworn enemies, the most unpopular men in the country, ought to be the natural remedy for this crisis. And he does not need fresh manpower, nor new laws, to do so. All Putin must do is to order Kudrin’s finance ministry and the federal tax authorities to enforce the existing tax provisions on transfer pricing and tolling. A report by the Tax Ministry to the Prime Ministry last September spelled out how these schemes have been used for years to cut corporate taxes to a fraction of the legal obligation. Other tax avoidance schemes, using, for instance, the letter of regional tax laws in Chukotka – Abramovich’s territory -but violating the reinvestment provisions of those laws, have been exposed by the Accounting Chamber, especially for such beneficiaries as Abramovich’s Sibneft. However, the tax bills have not been delivered.

If he decides to do so, Putin can afford to be generous. According to a recent report by Fridman’s Alfa-Bank, “though there seems to be a general understanding in the market that more ‘prophylactic’ back tax claims for other oil producers may emerge, the general consensus is that they will not be anything comparable with the scale of Yukos’s penalties.” In other words, if Putin decides to enforce the tax laws against the oligarchs’ enterprises, he can afford to waive penalties and interest. He will have his $7 billion for the benefit of Russia’s urban poor. And before he attempts to introduce monetization of municipal housing benefits, he will be able to demonstrate to the voters that the rich will have already paid what the law obliges them to.

Call this the monetization of oligarch theft. It is so obviously Putin’s choice now that every man and woman in the street knows what is at stake if he fails to make the choice. For Alfa-Bank, “the continuing uncertainty over this issue is quite irritating, and will surely continue to weigh on overall sentiment.” Putin now must choose whether it will be he or his detractors who will decide the sentiment that will prevail in Russia.

Leave a Reply