Thursday, March 20, 2014 1:34 PM

Ukraine to Impose Wealth Tax on Deposits; Run on Ukrainian Banks Coming?

IndexToday has an interesting story on a Ukraine Wealth Tax.

The Prime Minister of Ukraine Arseniy Yatsenyuk proposed on Wednesday 19th of March 2014 the adoption of taxes on wealth of the richest Ukrainians in order to tackle the economic crisis in the country, clarifying that the law will apply to him as well.

The Ukrainian prime minister stated that the proposed tax measures should apply on deposits more than 50,000 hryvnia (less than 4,000 euros). The measure is expected to affect approximately 10% of the population.

During the ministerial council meeting, Arseniy Yatsenyuk cited his own tax return as an example showing that interest on his deposits amounted to 714,000 hryvnia (47,000 euros).

Mr Yatsenyuk specifically stated: "Rich people ought to share their wealth with the country. It is time for justice. It is time to help the country".

The online financial newspaper Ekonomitcna Pravda criticized this initiative with the fear of a massive withdrawal of deposits especially nowadays that the bank sector is in a difficult position because of the political and economic crisis.

The Ukrainian economy is in a terrible position with a public debt of €75 billion, which the country accumulated mostly during the last years, and a huge financial deficit.

Run on Banks Coming?

Certainly, if I had money in a Ukrainian bank I would want to get it out. If everyone could, and did, there would be a massive run on Ukrainian banks.

I picked this story up from ZeroHedge Ukraine Goes Cyprus 2.0, To Tax Deposits Over 100,000 Hryvnia (To Appease IMF?).

He only had these two lines, likely from an economic feed, with and no links.

*UKRAINE PROPOSES NEW TAX ON DEPOSITS EXCEEDING 100,000 HRYVNIA
*UKRAINE TAX PROPOSAL WOULD INCLUDE 1.5% OF ALL DEPOSITS

No Peep in Mainstream Media

This is significant news, but there was not a peep on the Financial Times, Wall Street Journal, Bloomberg, or the New York Times.

The only other reference I could find was Russian News on Rupaper.com: Ukrainian Authorities Suggested to Tax Large Deposits. This appears to be a translation and is somewhat garbled. I will post a paragraphs "as is".

Over 50 thousand hryvnias (5,1 thousand dollars) need to be taxed Interest income of deposits. About it as L_gab_znes_nform reports, the prime minister of the country Arseniy Yatsenyuk declared. According to him, the relevant bill is already submitted on cabinet consideration. Yatsenyuk noted that he is the opponent of a tax on all deposits without exception, and specified that 90 percent of Ukrainians have deposits for the sum up to 50 thousand hryvnias. "Other ten percent rich have to share with Ukraine, it is normal, so does the whole world" — the prime minister declared. Yatsenyuk gave the personal savings as an example. He told that last year gained 613 thousand hryvnias of interest income, and from him didn't levy "any hryvnia taxes". At the end of February of this year the National Bank of Ukraine had to enter restrictions on removal of currency deposits in local banks in an equivalent no more than 15 thousand hryvnias per day. Such decision was made in connection with a mass conclusion of means from banks. According to the Central Bank, only on February 18-20 Ukrainians discounted about three billion dollars. In September, 2012 the Independent association of banks of Ukraine reported that champions by the size of deposits in the country are inhabitants of Kiev. The average size of deposits among capital investors at that time made 26,6 thousand hryvnias. The smallest deposits appeared in Zhitomir area — 3,2 thousand hryvnias.

Capital Controls

As I said, if I had money in a Ukrainian bank, I would want to get it out. But the above article explains limits on withdrawals were placed in February.

I mentioned capital controls on February 28: Ukraine Limits Withdrawals to 15,000 Hryvnia per Day (about $1,500)

Smart individuals likely took out 15 thousand hryvnias per day since the end of February. Really smart (or well connected) individuals wired out everything in January before capital controls were placed.

Moral of the Story

Here's a hint, if you see capital controls, figure a wealth tax confiscation will soon follow. And here's the moral of the story: If you think capital controls may be coming, get your money out of banks now.

Addendum:

The headline links and the articles in question imply a wealth tax on deposits. This translation provided by reader Andrey suggests it is only income that is taxed, not deposits. Either way, the moral of the story does not change, but certainly a tax on income is far less severe than a tax on deposits.

Mike "Mish" Shedlock

The Honeymoon Is Over: Ukraine To Stun Citizens With 40% Gas Price Hike

Submitted by Tyler Durden on 03/20/2014 16:24 -0400

Hyperinflation

Nat Gas

Natural Gas

Reality

Turkmenistan

Ukraine

Back in 2011, when as part of the Arab Spring one after another regime were toppled in North Africa following violent coups, not without substantial support by the US foreign service and the CIA, the local population was delighted - after all there is nothing quite like the specter ofHope and Change to lift one's mood, and murder the reigning dictator. Unfortunately, what is usually not discussed, is that within a very brief period of time, usually within a year or two, the post-coup nations promptly reverted to violence and kicked out the ascendent coupy rulers themselves. Hardly new, this is process has been observed in history throughout time, most notably with the French revolution, where the concept of the Thermidorian Reaction was first penned. Most recently, this was best captured by events in Egypt in the past year, when the Hillary Clinton-blessed regime of Morsi was toppled last summer with even more violent witchhunts organized against its Muslim Brotherhood supporters. No wonder one hardly hears a peep about this particular US success story.

So where should we look for the next such process? Why in Ukraine of course. Only right now the general population is still in its euphoric Hope and Change phase. Understandable - the evil regime has been toppled and the new and pure (even though in reality they are just as corrupt as the old ones) politicians are in charge, so why not look to the future with rose-colored sunglasses?

Alas, Ukraine's honeymoon period with its new rulers may end far sooner that most expect, and it will be certainly accelerated with news such as this. A few hours ago,Interfax reported that Ukraine expects to increase domestic gas prices by 40% once discounted import prices from Russia expire, the country’s Energy Minister Yury Prodan told journalists in the European Parliament on Thursday.

Just as we warned a few weeks ago when we were discussing the creeping capital controls gripping the crisis-riddled country with the foundering currency and its rapidly depleting reserves, the first thing that usually happens, with or without foreign aid, is runaway inflation. And a 40% jump in one of the core staples will certainly dent much of the quite brief and tenuous hope and change the population may have had as a result of recent events. Because once the downstream effects of nat gas funnel through the economy, we wouldn't be surprised if Ukraine ends up with hyperinflation of all goods and services within the year.

What is certain, is that the struggling population, most of whom never wanted the recent political overhaul and were quite happy with life as it was, will suddenly demand a return to the living standards under the old, if "horrible" regime, and demand an even quicker overhaul of the current administration.

Something Putin knows all too well.

Why does he know it? Because current events are a carbon copy of what happened in 2007 that led to the infamous 2008 Ukrainian political crisis.

What happened in 2007? This:

Ukraine agreed to pay close to $180 for every thousand cubic meters of natural gas it gets next year from Russia, Russia's state-run gas monopoly said, marking a nearly 40% increase over current prices.

The deal, which comes after months of negotiations between Moscow and Kiev, is part of what Russia describes as an effort to stop giving energy supplies to former Soviet republics at cut-rate prices.

That effort escalated into a full-blown dispute two years ago, when Russia cut supplies to Ukraine. The dispute affected some European countries, raising concerns about Russia's reliability as Europe's main energy supplier.

OAO Gazprom said Ukraine agreed in a deal signed by Ukrainian Energy Minister Yury Boiko to pay $179.50 for every thousand cubic meters it buys from Russia next year. Gazprom said transit prices would be set at $1.70, the price for gas shipping across Russia.

Ukraine currently pays $130 for every thousand cubic meters of gas from Russia.

In October, Russia urged Ukraine to make good on what it said was a $1.3 billion debt for gas shipments, a demand described by some Ukrainian officials as an effort to influence Ukrainian politics after September's parliamentary elections.

The deal comes a week after Gazprom said it would pay as much as 50% more next year for natural gas from Turkmenistan. Russia controls nearly all gas exports from the Central Asian nation.

Funny how history not only rhymes, but sometimes repeats itself. Verbatim.

and....

Gas Talks Between Ukraine And Gazprom Cancelled, Naftogaz Chairman Detained On Corruption Probe

Submitted by Tyler Durden on 03/21/2014 12:28 -0400

Yesterday we warned that the honeymoon is over as Ukraine expects gas prices to rise 40% as Russian discounts fade. Today it appears the situation is even worse:

*NAFTOGAZ, GAZPROM TALKS FOR MARCH 20-21 CANCELLED: INTERFAX
*UKRAINE POLICE DETAINS NAFTOGAZ CHAIRMAN BAKULIN: AVAKOV
*UKRAINE NAFTOGAZ RAID PART OF CORRUPTION PROBE, AVAKOV SAYS

The issues up for debate, of course, are supply and pricing of gas from Russia and the payment for over $2bn of existing debt owed. While Interfax reports that this was because the Ukraine gas company executive was unable to leave the country, which now appears due to corruption allegations ("there's corruption going on here?") but merely exacerbates any Russian gas retaliation concerns.

Via Interfax,

Talks originally planned to take place on March 20 and March 21 between Ukraine's national oil and gas company Naftogaz Ukrainy and Russian gas giant OJSC Gazprom (MOEX: GAZP) have fallen through at the last minute, a source from the Ukrainian government told Interfax.

"The Naftogaz Ukrainy delegation was prepared to fly out [for the meeting], but the head of the company [Naftogaz Ukrainy] was not allowed to leave the country at the last minute," the source said.

The main issues to be discussed were supposed to be the purchase and transit of natural gas, as well as the payment schedule for existing debt.

The source said this concerned a personal ban on leaving the country for Naftogaz's CEO Yevgeny Bakulin.

As we noted yesterday,

What is certain, is that the struggling population, most of whom never wanted the recent political overhaul and were quite happy with life as it was, will suddenly demand a return to the living standards under the old, if "horrible" regime, and demand an even quicker overhaul of the current administration.

Something Putin knows all too well.

Why does he know it? Because current events are a carbon copy of what happened in 2007 that led to the infamous 2008 Ukrainian political crisis.