#39 The only certainty
“Good. It is done then. “
Witte leaned back with satisfaction, looking at the Ukase. It was the first substansive decree he had pushed through the senate in the absence of his emperor’s backing and he took a moment to bask in his achievement.
“A fine achievment!” Applauded Eduard Pleske. More and more of the responsibility for the ministry of finance had passed into his hands over the past year, as the responsibilities of the ministry had themselves grown in leaps and bounds. Witte absently reconsidered recommending he be made minister, before Pleske grew resentful of standing forever in his shadow. But… not yet.
“Yes”, Agreed Witte, perhaps a bit smugly “At long last Russia has joined the ranks of the civilized nations. We are on the Gold standard now and there is no going back (1).”
“This should, perhaps, help reduce the interest rate on state bonds floated in Paris (2).”
Witte smiled. “More importantly, it will perhaps enable us to diversify our sales. Probably not London. But New York, and Berlin for what it is worth… it is important we not grow too dependent on our friends (3)”.
Witte shook his head.
“But no more basking on victories achieved. Do you have the reports from the interior ministry (4) on the state of agricultural reform?”
“That I do… though they took their own sweet time in preparing them”.
Witte sighed. He and the Interior minister got along well enough to be counted as allies- indeed, it was on his recommendation that Sipyagin replaced Durnovo. But officials in the ministries were jealous of their turf and however he and Sipyagin might see eye to eye on the subject of agricutual reform, many of his underlings resented any encroachment on territory they viewed as their own. Many, for that matter, were utterly opposed to the breakup of the Mir and the promotion of small homesteaders.
Perhaps what was required was a new ministry, headed, of course, by one of his allies, that would deal specifically with Agricutual affairs. But that would possibly make an enemy of Sipyagin, even if he could get George to undersign such a reorganization and and would no doubt confuse operations for several years until it’s organization was straigtened up.
Nothing to do but to carry on with the existing machinery of the state, then.
Wittee nodded as he looked through the reports. “Good, good, production is clearly higher in the privatized plots than in the remaining Mir land (5)”
“We won’t be seeing any taxes or redemption payments from those plots for a good while yet.”
Witte waved his hands.
“If I had my druthers we would abolish the redemption payments altogether. There is absolutely no way most peasants can afford paying them and the burden of payment keeps them from improving their land or getting labor saving equipment- or even feeding themselves or their children suffiently. The French state budget is 1,100 million rubles for a population of 38 million; the Austrian budget is 1,000 million rubles for a population of 40 million. If our taxpayers were as prosperous as the French, our budget would be 4,100 million rubles instead of its current 1,300 million, and if we matched the Austrians, our budget would be 3,300 million rubles. Why can we not achieve this? The main reason is the poor condition of our peasantry and the only way to alleviate this poverty is to give them a chance to lift themselves above mere subsistence- or lower.”
“And where will you plug the gap in the budget from cancelling the payments? The Vodka monopoly? The peasants will certainly be drinking much more if you abolish their taxes! (6)”
Witte shrugged. “The redemption payments are less than 4% of our revenue- excise taxes seem much more effective in securing revenue, and in doing so from those who are capable of purchasing the taxed products, rather than those who are already living on starvation’s edge (7). But no, I agree we will require a new source of revenue to plug this hole.”
Witte’s stares back at Pleske wordlessly. The latter slowly shakes his head.
“There is no way you can make that pass in the Senate! No noble will vote to increase taxes on his own estates! And if the emperor tries to pass such a measure, even assuming you can sway him to this measure, against the will of the senate and the nobility…”
“But you agree the measure is necessary? Unless we impose a clear, flat, land tax, based on potential productivity, we are encouraging land speculation and underutilization, and enabling continued tax evasion by those most able to bear it’s burden (8).”
“They are also the ones most able to destroy you! You cannot be contemplating exposing yourself like this! Don’t you remember how your attempt to introduce an income tax turned out? (9)”
Witte Jaw took on a stubborn cast.
“This is an entirely different matter. Land, unlike income, cannot be hidden away and needs to be registered in order to safeguard one’s rights to it. A flat tax, based on the quality of the land, will encourage those who currently cannot be bothered to administer and farm it, to either do so themselves or to sell the land to those who can.”
Pleske slowly nods.
“You are right of course. But this can not come from you.”
Witte grins.
“Are you offering to throw yourself on the sword for the Rodina, Eduard?”
Pleske jerked back as if bitten by a snake.
“And be disowned by my family? Not to mention my wife?”
Witte shrugs.
“Well, someone must bell the cat.”
“And that, Sergei, is why god invented committees”
Witte sighed. He disliked that solution- it would, for one thing, take years for a committee to conclude it’s deliberations. But Pleskve was right. In spite of his special relationship with the Tsar, he simply could not risk exposing himself to the wrath of the nobility without a thick buffer to shield him from the consequences.
“Very well. We will call for a general agricultural conference with professional agronomists, statisticians and so forth, and representatives from the Senate and perhaps some of the Zemestevo’s, We’ll need to select the representatives carefully, of course, in order to make sure that the appropriate conclusions are reached. But next year, or the year after that…”
Of course, ruminated Witte, he could not hide behind a conference or, for that matter, confide with Pleske insofar as his second goal was concerned. But he thought he knew how to get the Emperor to back him in ending the ongoing redemption payments by the government to the nobles… (10)
(1) OTL Witte achieved this a year later. As any economist will tell you, this “Achievement” is a two edged sword, but at this point the standard is mostly beneficial for Russia’s development because…
(2) To build up its railways, modernize its military and industrialize Russia needs capital to pay for machinery, outside expertise, and local labor. Stalin created it by forced exportation of commodities and forced labor. Witte has done a bit of the former OTL, though not on anywhere near the scale Stalin later did, and is doing considerably more of the latter TTL, though primarily via the Robotnik system rather than the Katorga, at least at this point. But financing via loans, which is what bonds are, becomes much more attractive the more stable your economy is judged to be. OTL, interest in Russian bonds decreased from 4.9% to 3.86% between 1891-1902. TTL, in spite of disruptions caused by Russia’s Anatolian and Far Eastern operations, the latter figure will be reached by 1899.
(3) The French government to some extent guaranteed Russian bonds (similar to what the U.S did for Israel in the early 1990s during the mass immigration from Russia), thereby increasing their security and reducing interest rates.
(4) No ministry of agriculture. Overlapping fields of responsibility by finance and interior.
(5) Well, of course- the way it had been set up those opting for privatization have received the best, and slightly larger, shares land. And they tend to be the most enterprising and with the most resources. AND they have a reduced tax burden and redemption pay.
(6) The burden of civilized society had rested, for most of history, on peasants who were taxed heavily enough so that they had to produce as much as they could rather than as much as they could consume. The fear that relieving this burden would merely result in underproduction and overconsumption of Vodka haunted 19th century reforming efforts… and was, unfortunately, proved correct in the immediate post WWI and WWII years in much of Europe when industrial breakdown, low prices, lack of consumer products ,and thrifty war consuming habits, combined to lead to underproduction. In Russia this was readily apparent during February-October 1917. The peasent ssimply put less land to seed even without war communism.
(7) Witte’s main argument for pushing indirect taxation on Alcohol, Sugar, etc, was that these products were not necessities of life, that those purchasing them were paying “voluntary” taxation and that if one could afford to buy “luxuries”, one could also afford to pay one’s taxes. To be sure, while statistics bear out that these taxes were mainly paid by the urban sector, which was presumably better off than the peasantry, it is clear that they hit the middle class and lower classes more than the upper classes and the nobility. Of course, the main justification for such taxes was that they were easily collected, difficult to avoid, and were “invisible” and thereby raised little resistance.
(8) The total government revenue from direct land taxes in the 1880s and 1890s? 6 million Rubles. That’s compared to 55 million for redemption payments and 45 million from redemption payments, 47 million from the sugar monopoly (72 million by 1901), 27 million for oil and matches... and a whopping 400 million, nearly a third of government revenue, from the alcohol revenue (However, the government had to spend nearly half this amount in administering the monopoly). These are the joys of consumerism. Even in 1911 84 percent of government revenue was through indirect taxation (Compared to 84 percent for Britain and 70 percent for Britian).
(9) An income tax may be the most just and “progressive” of taxes. But it is also the hardest to enforce and calculate, and the easiest to evade- or to lobby against. Witte managed to collect 6 million rubles in 1893, spent twice as much in administrative costs, and dropped it. It was only reintroduced in 1907.
(10)The 1861 Emancipation proclamation placed a heavy financial burden on the former serfs, requiring them to pay their former owners for both their freedom and the smallish plots of land (deliberately smaller than the plots required to enable self sufficiency- that way the estate owners kept a nearby dependent labor pool) they received. The land they received was paid for at well over the market rate. Of course, the former serfs almost all lacked the cash reserves to make the payments so the state assumed the burden, becoming the debtor of the nobles (whose class had crafted the terms of emancipation…) and the creditor of the former serfs. In 1896 it was still collecting, and to a smaller extent disbursing redemption payments. Only in 1911 were redemption debts cancelled OTL. Payments to nobles? never cancelled and mostly paid in full much earlier than that.