Free Strongman by Angus Roxburgh Page B

and for the rest of our meetings and relations over the next six years, he never mentioned Chechnya in my presence or discussed it
with me. And after this, we resumed talking about economic reforms.’
    By 10.30 it was time for Illarionov to leave, and after their spat over Chechnya he assumed it would be their last meeting. But Putin asked him to come back again the following day. Their
economics tutorials became a regular occurrence, and on 12 April Putin officially appointed Illarionov as his chief economics adviser and later as his ‘sherpa’, or representative, to
the G8 group of leading industrial nations.
    By May the Centre’s reform plan was almost ready, and it turned out to be, in Gref’s words, ‘ultra-liberal’. ‘If we set the private sector free, we could see good
growth,’ said Kudrin. As the work neared fruition they produced a thick volume – far too dense to be presented to the acting president. As they had no experience in producing slide
presentations they brought in a top consultancy, McKinsey, to help them. ‘We spent a week at their Moscow office,’ says Gref, ‘putting together a short version for public
presentation and a more professional version to show to ministries and departments explaining what they would have to do.’
    On 5 May, two days before Putin’s inauguration, the team went to his Sochi residence to give him a ‘full immersion’ in the project. The young reformers were buzzing with
excitement. ‘I was euphoric then,’ said Kudrin, ‘because it was all going according to plan.’ From morning till night they held sessions, interspersed with meals and walks
in the warm sunshine. The economists talked through every point with Putin, who requested more work to be done here and there but approved the general thrust. It became known as the ‘Gref
Plan’. Implementing it was to prove even harder than writing it.
    Privatising the people’s land
    Over the coming years the Gref Plan transformed many aspects of economic life. Personal income tax was reduced from as much as 30 per cent to a flat rate of just 13 per cent.
Corporate tax went down from 35 to 24 per cent. A new land code made it possible to buy and sell commercial and residential land – for the first time since the communist revolution of 1917.
There was a new legal code, measures to curb money laundering, and an attempt to break up some of the great state monopolies: electricity production was split off from the supply network, for
example.
    The income tax reform was needed because millions of Russians, whose wages were already miserly, simply avoided paying, as the rates were crippling. The same was true of company taxation: some
80 per cent of businesses were avoiding paying taxes. Gref’s proposal of a single, low income tax rate for everyone, and a much-reduced company tax, was audacious. The idea was to lower the
rates but increase collection. But if people continued not to pay, the state could find itself with an even bigger hole in its budget. The point was not lost on Putin. Gref recalls a particular
meeting that he and Kudrin had with him.
    ‘The president asked us: “Are you sure that our total tax revenue isn’t going to decrease if we lower taxes?”
    ‘We said: “Yes.”
    ‘He asked: “What if you are wrong?”
    ‘I said: “Then I will resign.”
    ‘“I’m sorry,” said Putin, “but I am not going to approve your plan on that basis! You haven’t thought this through. What makes you think your resignation is
somehow going to make up for all the money we are going to lose from the budget? Politically, the one doesn’t compensate for the other.” ’ 4
    Gref and Kudrin went away, did their sums once more and re-presented their plan to Putin. This time he agreed.
    The International Monetary Fund was less happy. ‘At that time we were still working closely with the IMF mission here, and they refused to approve our plans,’ says Gref. ‘We
had difficult meetings in the