Friday, September 12, 2008

Under a Bridge with Mr. Ansip

There’s a tasteless tax joke circulating among expat businessmen: How do you recognize Estonian businessmen abroad? They’re the ones who’ve brought their own sandwiches.

I’ve been traveling lately and doing my best to live within the bounds set by the Estonian government: 500 kroons per day and an average hotel cost of 2,000 kroons per night. If you travel to major cities that’s not an easy task. To live on that amount often requires a night or two in youth hostels or sleeping under a bridge and looking for your food in dumpsters. I’ve often wondered how Estonian politicians do it. I’ve never seen a parliamentarian under my bridge.

Despite Estonia’s flat tax and zero levy on corporate earnings (minu müts maha), the rest of the program isn’t so hot. I sometimes feel as if government is trying to confine Estonian business to the minor leagues. World-class companies understand two things: they need to keep their employees both healthy and smart. Sick employees raise your expenses, and stupid ones reduce your revenue. All first-rate companies provide programs to keep their employees exercising, eating right, and constantly learning something new. But try that in Estonia and the company is stuck with a 75 percent fringe benefits tax.

Mr. Ansip, as I understand, defends the program by saying the rules are clear and they work, and therefore no change is called for. I’ll grant him the clear part, but I take issue with how well the system works.

I have a young Estonian friend (he’s 25) who is terribly frustrated because he sees few prospects of getting rich. As a teen, he witnessed the boom years of the Estonian economy where a lot of people made piles of dough. My friend complains about the small size of the market, the fact that people think small—a litany of things most of which I find tedious. But I find something hopeful in the fact that he is an impatient, greedy, over-confident young man of the sort you encounter in every capitalist country. He isn’t looking for a government handout and what little he remembers of the Soviet past comes through listening his parents. You can say you don’t like his priorities, but you have to admit he’s normal, as far as ambitious, greedy, business-school types go.

The kid often asks me for advice (why I’m not sure; I’m not rich and unlikely to ever be) and I always tell him the same thing: The rich westerners I know didn’t get that way by pursuing money; they were interested in something more, and they usually were passionate about something. I tell the kid he should decide what most lights his fire and throw himself at the feet of the best teacher he can find. “But then I’ll have to leave Estonia,” he says. He probably will. But if he really wants it, he shouldn’t complain. That’s how life is.

Sadly, though, I don’t see the Estonian government doing a hell of a lot to keep smart kids hanging around. At the most basic level, the government makes doing business in major markets inconvenient and expensive. And they don’t seem willing to lift a finger when private enterprise wants to do its part to keep the population both healthy and educated.

I’m sure there are ways around these rules, but I’m good at only a certain number of things and slikerdamine isn’t one of them. If Mr. Ansip truly worships the simplicity of the tax system, then he can surely empathize with someone who can’t be bothered to look for loopholes just so he can find a way to eat three square meals a day and stay in a decent hotel in Moscow.

Things will eventually change. They simply have to. Estonia’s frequent role model, Finland, has a system which seems perfectly normal. According to the Finnish tax office, expenses for an employee’s job-related graduate education are a deductible business expense for Finnish companies. And with regard to travel, the per diem allowance for a Finn in Moscow is, for example, 1,127 kroons. (A Finn in Estonia, by the way, is allowed 767 kroons per diem.) Hotel compensation for a Finn abroad is, not surprisingly, limited to the “amount shown on a receipt.”

The good news is that in every country most silly legislation is eventually amended or repealed. But until then, until the day inevitable reason and good sense set in, I’m waiting for you, Mr. Ansip. I’ve saved you a warm, dry spot underneath my favorite bridge.