There is no better test of the maxim that absolute power corrupts absolutely than Russia’s Finance Ministry. Take the silver tax of May 1999, for example, and its predecessor in absolute folly, the silver edict of France’s King Louis XIV of May 1709.
At that time, Louis’ treasury was empty and his armies and administration impoverished. The desperation was finding expression each night in Paris, where statues of the king were defiled and lampooned. The Duchesse de Gramont conceived the idea of ingratiating herself in court by making a public offer of donating her silver dinner service to be melted down for the treasury, and used to fund the army’s expenses. The controller-general understood the folly of the idea. But the number of courtiers seeking the king’s favor was so great, the Mint was struck by an avalanche of table silver -too much, in fact, for Louis to have time to read and remember all of the names on the lists of the ambitious donors.
Within weeks, the French nobility started to eat off porcelain, thereby starting the fashion for Moustiers, the uniquely French source of porcelain in Provence. And that, in turn, started the destruction of the southern forests, from which Provence did not recover until very recently. But that’s another story.
It didn’t take Louis long to realize the nobles were cheating. The Duchesse de Gramont herself was discovered to have kept her good silver hidden under lock and key after donating all her old plates. The king then announced the silver idea had been colossally stupid, and he was sorry he had ever agreed to it. To the historian of the time, the Due de Saint-Simon, the silver episode was worth telling as an illustration of how badly the kingdom was managed.
If Europe’s greatest despot took just three months to realize his mistake, it has taken the Russian Finance Ministry more than three years. Even now, it refuses to yield to the consensus in the mining and banking communities that, as with the gold tax the government abandoned on Jan. 1, the measure to tax silver has failed to collect significant revenues. A decision by Cabinet ministers to recommend the abolition of the silver tax was made on July 8. A final decision will be made next month,
In the meantime, officials at the Finance Ministry continue to refuse requests to disclose how much revenue the gold and silver taxes have generated for the treasury since their introduction.
According to figures provided by the Central Bank and confirmed by Russia’s commercial banks, virtually all the gold exported from Russia has avoided payment of the 5 percent tax because it has been transferred to Belarus, which is linked in a duty-free customs union with Russia. Silver trading has also been channeled through Belarus to avoid payment of the 6.5 percent export tax.
The government classifies production of silver, but not gold, as a state secret, and it is thus difficult to obtain precise estimates of the annual production and export volume. According to the World Silver Survey of the Silver Institute in London, Russian production of silver was 628 metric tons in 2000 and 624 tons in 2001. This makes Russia the lOth-largest silver producer in the world, narrowly following Kazakstan, but well behind leaders Mexico (2,824 tons) and Peru (2,674 tons).
Moscow bank and mining sources believe that most Russian silver is exported. According to Russian customs data, 462 tons of silver were exported last year. But just 61 tons were shipped directly abroad without passing through Belarus; this is the volume that was charged the Finance Ministry tax. At the prevailing price of silver, the shipments would have been worth about $9.6 million. Accordingly, the tax payable on that would have been $624,626.28. It’s likely the paperwork to process such a minuscule amount would have cost more than the revenue collected. But the Finance Ministry will admit nothing. Like the Duchesse de Gramont, there is no accounting for greed fired by ambition for power.
The Finance Ministry has been the only duchy the Kremlin has ignored in President Vladimir Putin’s two-year effort to bring the government apparatus under control. Unlike the Sun King, Putin has probably never been told the story of the silver tax, and thus he’s been unable to judge what a mockery the ministry is making of his administration.