'Flat tax reform best for Ukraine'

Slovak ex-finance minister Ivan Miklos, an advisor to Kiev's government, is urging decision-makers to introduce a flat-rate tax system and a wave of privatisation.

"Wherever you look in Ukraine, you can see the consequences of zero reforms undertaken,” says the architect of Slovakia’s flat tax rate system and cabinet member of two key reform governments between 1998 and 2006.

In an interview with EUobserver, Miklos said he believed the success of Slovak reforms landed him the invitation to become the chief advisor to the Ukrainian finance minister, Natalya Jaresko, with the main task of proposing an overhaul of the tax system.

“We will prepare several scenarios but I think the most radical shift to a flat tax rate system similar to what we introduced in Slovakia would be the most efficient and bring along the best benefit for public finances and business.”

As an advisor to the economy minister Aivaras Abromavicius, he is mainly focusing on a plan to kickstart privatisation in the inefficient state business sector - with some 3,300 companies - along with proposals to reduce the number of civil servants.

“The key advice I offer to my Ukrainian colleagues is to push reforms despite war or potentially weak support by the West for Ukraine's EU aspirations.”

Miklos says the current political leaders in Kiev are best suited to achieve the tough goals in transforming the economy but he notes the inherent risks, pointing to the fact that the protagonists of the Orange Revolution in 2004/5 failed to reform the country.

“With the prime minister and president coming from two different parties and a vague definition of who holds responsibility for what, there is a potential for similar struggles as between [Victor] Yushchenko and [Yulia]Tymoshenko in the past.”

“But the situation in Ukraine is much tougher now and determination not to waste yet another chance far stronger,” Miklos said, adding that he also views relations between the current Ukraine's president Petro Poroshenko and PM Arseniy Yatsenyuk as more stable.

Good marketing

And what reform mistakes did Slovakia make that Ukraine should avoid?

“The lack of good marketing,” says Miklos, who is currently a member of national parliament.

“It is not enough to make good changes - you need to sell them to the people. That was our biggest fault in Slovakia and it also seems like a challenge for the current Ukrainian government.”

Political analysts in Slovakia tend to support the argument that poor communication by the centre-right parties that reformed the Slovak economy ahead of EU membership played a role in the Social democrat SMER party coming to power in 2006.

But Miklos’ own party, SDKU, suffered a major blow in 2012 elections following a leaked secret-service file dubbed “gorilla” with allegations about bribes paid by local oligarchs to officials dealing with privatisations and public procurement in 2005-6 during the second term of prime minister Mikulas Dzurinda, the SDKU ex-chairman.

The authenticity of the file has not been confirmed and Miklos, whose name features in the document, is on the list of politicians to face criminal investigation of his and his relatives’ property.

He denies any involvement in the affair and suggests the Gorilla file is purposely interpreted in a way to prompt unverified accusations and libel.

Asked what he would advise Ukraine on tackling corruption on the basis of his own experience or possible errors while in government, Miklos said the key measure was to reduce space for a corrupt behaviour.

“The most effective tools proved to be liberalisation, deregulation and privatisation as the big state companies and banks were a great source of corruption. The shift in their ownership reduced the extent of corruption, as did the flat-tax system and the move to open the state institutions’ business contracts to public.”

'Shameful' rhetoric

While the current Slovak prime minister, Robert Fico, is the staunchest critic of the privatisations carried out under Ivan Miklos, the ex-finance minister is equally critical of Fico’s rhetoric on Russia's actions in Ukraine.

“It is simply shameful,” he argues, suggesting that the public statements by the Slovak PM during the current crisis are harmful for Slovakia’s international image and its trustworthiness.

“We vote in favour of sanctions against Russia at the EU table and then he [Fico] comes up and criticises the move as damaging and ineffective. This sparks mistrust both in Brussels and in Kiev which cannot be fully repaired by the foreign minister’s official explanations.”

He also says there is ambiguity in Europe's approach to Ukraine.

“The reform path and getting ready is fully up to Ukraine but there should be a clear road map with set conditions and the destination,” said Miklos, stressing that the EU enlargement is good for both sides.

“Just like Austria has benefitted from stronger economies of Slovakia and the Czech Republic, we can gain from progress in Ukraine. Economic reforms are simply not a zero-sum game where you lose what others gain but rather a win-win situation.”