Kiev: How to liberalize Ukraine

The Free Market Road Show 2015 tour made its stop in Kiev, the capital city of Ukraine. Although the country is still suffering the aggression of Putin’s Russia, the event was focused on what to do to solve Ukraine’s economic problems. Particularly under the severe fiscal constraints the country is going through.

Entrepreneur and venture capitalist John Chisholm recommended that the focus should be on “stimulating growth.” To ease the tight fiscal situation, the MIT graduate said that Ukraine could cut government spending and sell state assets.

Adam Martin, a young and talented economist from the Free Market Institute, said that Ukraine should not fall to the siren calls of inflate the national debt away. “Deficits are future taxes”, explained Martin, “all that deficits do is to obscure who will pay the tax.” Something else that Ukraine should avoid at all costs, according to the American economist, is to rely on foreign aid. “The foreign aid curse is much worse than the natural resource curse”, concluded Martin.

Barbara Kolm, the Director of the Free Market Road Show and Austrian economist, was very direct in her recommendations. “You will never fix the budget by raising taxes” said Kolm who also pointed that Ukraine should not copy the example of the European Union. “Look to Singapore: pay (a few) bureaucrats very well, respect the rule of law, and keep taxes low” was Kolm’s main piece of advice. She also suggested that LEAP zones might be hekpful to attract foreign investment.

Finally, Prince Michael of Liechtenstein gave a brilliant talk of reforms under the light of the successful case of his own country.

He stated at the beginning that “balancing budget is always difficult.” Tax systems, particularly in Europe, have become too complex and too big. That is why the cost of tax collection is rising. What is more, “in some countries more people are hired in the tax agency than in the food chain.”

Prince Michael stressed the importance of stability and clear rules: “Businesses can live with risk but not with regulatory insecurity.” Therefore, something like “retroactive taxes” is nonsensical.

A tax system should be, above all, simple. And “mutual trust” between tax payers and tax collectors must be restated.

Finally, Prince Michael said that supranational institutions like the European Union are indeed positive for a country like Ukraine. However, “solutions have to be locally found.”