Corporate tax increase to support social healthcare, pensioners
Prime Minister Vladimir Putin shot down Russian businesses' hopes for a milder increase in corporate taxes in 2011, yesterday. He declined the Finance Ministry's initiative to increase health insurance premiums from 26% to 32%, not the 34% planned. The Healthcare Ministry had lobbied for the additional 2% (460 billion roubles) not to be charged to employers in 2011 and 2012 and to spend the cash on a compulsory health insurance system reform. Since the reform draft has not been finalised, Putin proposed using the surplus for capital repairs of hospitals and outpatient clinics, to improve the quality of medical services and to support pensioners.
The prime minister must have kept the news of this unexpected adjustment of healthcare reform up his sleeve until the delivery of his annual report to the State Duma on government performance. He eventually did settle the argument between the Ministries of Healthcare and of Finance about the increase in the employer tax burden in 2011.
A law passed in 2009 stipulated an increase in the total deductions for retirement, medical and social insurance from 26% to 34%. The Finance Ministry in February tried to cancel the request for an increase in compulsory health insurance premiums to 5.1% from 3.1%, which would have brought the total to 32% instead of 34%. This policy would have saved companies 230 billion roubles a year, as their tax burden would have grown by 690 billion rather than 920 billion roubles. The Ministry positioned this proposal as support for innovation, explaining that the compulsory medical insurance reform, that the Healthcare Ministry had planned to use the additional 2% for, was not ready. Therefore, it was not clear why business should pay another $15 billion over two years. But the prime minister said the tax rates would not be revised and that another application would be found for the surplus cash.
"I do not see any point in changing the decision already made," he said. "On the other hand, it would be unwise to just inject the cash into an ineffective system and see it diluted into its current expenditures."
The 2% tax charged to employers over two years will add up to 460 billion roubles, given that in 2013, a version of a single-payer health system will be introduced in Russia as planned. To keep the money from being "diluted," the prime minister proposed setting up a separate fund within the compulsory medical insurance system. The money will be allocated only to the regions that submit their healthcare modernisation programmes to the federal government. Out of that amount, 300 billion roubles will be used to improve the buildings used by the country's health institutions: despite the effort made as part of the Healthcare national priority project, 30% of them are in bad need of capital repairs, some are dangerous to use, according to Putin. Another 136 billion roubles will be spent on various needs aimed at improving the quality of health services provided – to raise medical personnel salaries, prescription drug benefits, and spending on patient food, materials and diagnostic equipment.
The money could also be used to finance a fund to support non-working pensioners. The government will transfer 1,000 roubles a year in their personal accounts in the compulsory health insurance system. If a person does not go to a doctor between the two transfers, the money will be moved to their pension account.
The remaining 24 billion roubles will be spent on expanding the use of IT in healthcare.
Putin in fact announced a new national healthcare project, although the current national priority project is not over, and 144 billion roubles was allocated for it in 2010. The new project's financing is quite comparable with the first one which cost over 400 billion roubles in 2006 through 2010. However, analysts do not believe the two projects' objectives will overlap. "The problem is the Healthcare national priority project was not enough. It was largely aimed at increasing salaries and buying equipment, but not on repairs and restructuring," said Larisa Popovich from the Higher School of Economics.
Healthcare Minister Tatiana Golikova commented yesterday on the prime minister's statements citing 220-230 billion roubles for the new fund. Finance Minister Alexei Kudrin, who lost the battle, said he was disappointed with the decision and expects further debate. In his words, the "disputed" 2% is part of the insurance premium, "which cannot be used for purposes other than insurance."
For the Healthcare Ministry, the prime minister's decision means time and funds to finalise the reform project. Setting up the "special funds" will allow it to delay the enforcement of the new compulsory health insurance law, which would basically establish an autonomous and independently balanced compulsory health insurance fund. If the healthcare reform were implemented right now, it would be impossible to invest Russians' insurance premiums in government owned medical facilities in 2011. As it is, government lawyers will have time to find legal grounds for taking the 2% from people's earnings and investing it in state property, with tax payers getting no stake in the renewed facilities.
The government will also have time to test and adjust the new health system's operation. The Finance Ministry said yesterday that the parliament would renew the suspended consideration of amendments aimed at reforming the budget-financed sectors and dividing the existing companies in healthcare, education and other sectors financed by the government, into state and autonomous entities. The second reading will take place on April 21, and the third and final reading on April 23. However, at this point, the plan to legally enable medical centres to serve paying customers in addition to patients using the compulsory insurance policies, has met with resistance.
Finally, investing the 2% premium in medical facilities will prevent the government from sharply increasing state guarantees of medical services in 2011. This will probably give private investors, who have the same rights and responsibilities as the state in accordance with the new compulsory health insurance bill, one or two more years to establish and expand private medical centres.
Business leaders who had hoped to get a 2% "crisis discount" are not even trying to hide their disappointment. Boris Titov, head of the Delovaya Rossia business lobby, said 34% was unaffordable. "Companies will not be able to survive, and they will be forced into using grey tax schemes, except maybe miners who can afford to pay high salaries," he said. The fact that the money will be used to modernise healthcare facilities is unlikely to make things easier for employers, Igor Nikolayev from FBK private auditing firm, added.
Dmitry Butrin, Vadim Visloguzov, Darya Nikolayeva
