Olga Kuvshinova, Yevgenia Pismennaya
Prime Minister proposes domestic- industry bailout plan
The Government admits that the financial crisis has now escalated into an economic crisis, and plans to use tax breaks for bailing out domestic industries.
On Thursday, Mr Putin discussed Government plans for supporting the economy at this time of crisis. He said businesses would receive tax breaks, and that the Government would implement additional social security measures for the population.
"The financial crisis has escalated into an economic crisis right before our eyes," Putin admitted and said domestic industries now had to be supported.
The reduction of the federal profit tax share is the most important innovation allowing companies to retain 400 billion roubles ($14.3 billion). Russian territories could reduce their profit tax share and allocate another 400 million roubles for the business community.
Amortisation bonuses will swell by 200% in 2009, or one year ahead of schedule. Private individuals' housing purchase tax deductions will double; and unemployment benefits will also increase.
The Finance Ministry said the Prime Minister's tax package would cost 556.6 billion roubles ($19.9 billion). Another 50 billion roubles ($1.8 billion) will be spent on preventing the bankruptcy of defence industry companies. There are also plans to spend 83 billion roubles ($2.9 billion) on buying apartments from housing construction companies.
Until now, the Government's anti-crisis plan mostly stipulated investment for the banking sector. Putin estimated such investment at 5 trillion roubles ($178.6 billion).
This October, the Government promised to support domestic industries, Sergei Guriyev, rector of the Russian School of Economics, told the paper.
A Government official said the financial crisis was now giving way to an economic crisis. "We are unable to subsidise every company. Comprehensive measures, namely, tax incentives, are essential," he stressed.
Many countries are now resorting to tax incentives as approved at the recent meeting of G20 financial authorities in Brazil. After the summit Russia also started examining such measures, the official told the paper.
However, companies demanded value added tax reductions that would distribute assets in the fairest possible way because everyone has to make VAT payments, Guriyev said. The above tax innovations are not an alternative to reduced VAT payments, said Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs.
The four tax breaks will be introduced January 1, 2009. Just as the Prime Minister promised, companies started making factual profit tax payments on November 28.
These urgent measures are called on to help companies survive the current difficult period, First Deputy Prime Minister Igor Shuvalov told the paper.
The tax measures will deduct 1.1% of Russia's GDP from the budget. Shuvalov said taxes could be reduced still further in 2009, and that the Government could make the relevant decision by next April.
This is hardly surprising because the unified social tax will be raised in 2010 and will increase the tax burden by 1.7-1.8% of GDP. Consequently, the Government may yet discuss measures to compensate for unified social tax increases. "We will continue to work in this direction," Shuvalov said.
Finance Minister Alexei Kudrin said the 2009 budget would be balanced, no matter what, and that the Reserve Fund would compensate for reduced revenue.
The change in attitude from fighting the word "crisis" to anti-crisis measures is a good sign, said political analyst Dmitry Badovsky. He said Russian society and the ruling elite were discussing the possibility of a crisis last September. A subsequent discussion tried to find out whether the crisis would affect domestic industries.
Badovsky said deadlines for overcoming the crisis were now the most important issue, that the Government had obviously found the answers to most questions and had adopted the relevant political and managerial decisions.
In effect, the long-awaited anti-crisis measures of the presidential state-of-the-nation address were set forth at the November 20 United Russia congress, Badovsky said. It turns out that Putin has assumed political initiative and responsibility within the spirit of tandemocracy because the President is responsible for institutional aspects, while the Prime Minister has more economic prerogatives.
The Prime Minister's proposals were coordinated with the President, said presidential spokesperson Natalia Timakova.
This material was also prepared by Natalia Kostenko, Maria Tsvetkova and Boris Grozovsky.
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Revising expenses
Until December 5, the Government will discuss federal aid volumes for national industry, said First Deputy Prime Minister Igor Shuvalov. The cost of federal investment programmes and those of natural monopolies and strategic companies will be revised.
Although natural monopoly tariffs are expected to increase, the Government will compensate part of strategic sector expenses.