There followed an incredible misinterpretation: Burma switched from left-hand to right-hand traffic overnight.
So far, Ukraine’s authorities seem stuck driving down the middle of the road. Inconsistent and non-systemic reforms in customs and tax rules haven’t placed the country inside the top 100 countries to do business in, according to the World Bank. Perhaps more worryingly, heavy-handed ideas, like a transaction tax on exporters and importers, or the car import duty hike that stifled sales, suggest interventionist instincts remain strong.
If the government wants to meet its immediate goals of achieving a minimum of 3-4 percent growth in 2014 and 2015, and raising the share of small and medium businesses from around 10 percent to 25 percent of the economy, more needs to be done. The system needs to be changed, not just greased.
Reducing the income tax from 25 percent in 2011, to 19 percent today (and possibly 16 in 2014) is great, but social expenditures still drive the tax burden to above 50 percent for employers. Likewise, reducing minimum capital requirements for company incorporation is an improvement, but few are ready to set up firms considering the mountains of red tape and corruption that would follow.
Ukraine remains one of the biggest social spenders worldwide, with 18 percent of gross domestic product going to pensions alone, not to mention the de facto subsidies for various utilities and services. But it’s hard to see why: many of these perks disproportionately benefit the rich, are of poor quality, or require additional bribes to actually be delivered.
And it is not like Ukraine’s supposedly helpless pensioners are just waiting to cash in their meager checks. Look at every market, bus stop or metro station in the country and you’ll see them trading for a living. Freer market forces would help, not hurt, them.
Instead the government has turned on the spending tap, hoping to appease an increasingly disgruntled population. Expenditures rose more than 16 percent year on year in January-April, 2013, while revenues grew by less than five. To make up the difference, it is borrowing heavily on foreign markets, and saturating the local one with domestic bonds, which has taken its toll on lending.
Burma recently made global headlines by opening up its markets and freeing its imprisoned opposition leader; investment soon followed. There is a lesson in it for Ukraine.
