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 paragraph "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
http://globaleconomicanalysis.blogspot.com