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View Diary: Richest 2% Should Pay Taxes for the Other 98%. Tax the Rich, Says Ukraine Prime Minister Yatsenuk (123 comments)

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    Mark Lippman, Lawrence, bear83, mookins
    The economic turmoil reflects recent political instability. But Ukraine’s economic problems were long in the making. Dodgy economic policy, distaste for reform and endemic corruption have brought the country to its knees.

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     A major target for reform were Ukraine’s cushy energy subsidies. The state gas company, Naftogaz, only charges consumers a quarter of the cost of importing the gas. Cheap gas discourages investment: Ukraine is one of the most energy-intensive economies in the world and domestic production has slumped by two-thirds since the 1970s. The IMF ended up freezing the deal in 2011 after Kiev failed to touch the costly subsidies.

    In other areas reform has been half-hearted. The government did meet its public deficit target of 2.8% of GDP in 2011. Yet this was achieved by skimping on capital expenditures while overspending on wages and pensions: hardly the recipe for sustainable economic growth. Progressively lowering the rate of corporation tax has also weakened the state’s finances.

    Corruption and poor governance are other major problems. The Ukrainian shadow economy is one of the biggest in the world—at around 50% of GDP, according to IMF research. Businesses operating underground tend not to pay taxes, further depriving the government of funds. And last week Ukraine’s new prime minister estimated that $37 billion had gone missing during Viktor Yanukovych’s rule.

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