Izvestia comments on a 95-page report compiled for Putin by economists from the Russian Academy of Sciences (RAS).
During his meeting with RAS academicians on July 11, Prime Minister Vladimir Putin suggested they contribute to the amendments of Strategy-2020. In only three weeks Ruslan Grinberg, director of the RAS Institute of Economics, Alexander Rubinstein, his first deputy and Andrey Gorodetsky, chairman of the section on modern economic and innovation development institutes, presented their report. This was fast but the authors didn't deny that they had merely developed the ideas expressed in last year's monograph, Strategic Guidelines for Russia's Economic Development.
The report observes that the domestic economy is so far unable to reverse the tendency toward "primitive production processes and social degradation."
"For the time being Russia has obviously moved away from the coveted socio-economic standards of the Euro-Atlantic nations and is approaching the status of a typical Third World country with a tremendous gap in the range of personal income," the report reads.
The economists' main conclusion is that surplus revenue from high oil prices needs to be spent. The adjusted mid-2011 budget forecasts a surplus of nearly three trillion roubles, but only 0.7 trillion is allocated for economic development and other government needs.
"Apparently, as before, the goal is to overcome the budget deficit as soon as possible, save money for 'a rainy day' and cut inflation," the report reads.
However, they predict that Russia will eventually run a surplus budget again and that it is counterproductive to save for this reason. They propose allocating 40% of this surplus revenue (given oil prices higher than $85 per barrel) to boosting the state coffers and putting 60% towards new industrialisation.
The economists agree that more petrodollars won't take us very far. It is important to use other sources. The Finance Ministry could issue targeted securities where collateral would be represented by "the material and technical plant of the modernisation programmes, raw materials, components of would-be commercial products and these products as such, as well as the revenue received from their sale."
Increasing the tax burden is a classic way of replenishing the treasury. At this point, the RAS offers the prime minister a revolutionary change – return to a progressive income tax.
The economists believe that this measure would not only replenish the budget but also have a favourable impact on the public – people will perceive the tax system as broadly fair if the rich pay more.
Mikhail Orlov, chairman of the State Duma Tax Law Expert Council, says ironically: "Indeed, people will have time to ponder the fair tax system as they queue to file in their income declarations to the Federal Tax Service. A progressive tax scale implies that they'll regularly submit tax declarations to prove they haven't exceeded the higher tax ceiling."
In addition, the report suggests shifting the burden of pension contributions to individuals. Today employers make these payments from their income. The economists propose that employees make insurance contributions themselves.
So, working people would have a tough time while pensioners would have nothing to worry about. The report objects to raising the retirement age, even in the long-term. They point out the "absence of financial gain, age-related unemployment, issues of the nation's health and shorter life span" in their argument. The economists are primarily apprehensive about the political repercussions – up to 80% of the people do not want a higher retirement age.
Another key recommendation is to plan the national budget for five years instead of three. The economists advised tailoring a transformation of economic institutions to the political cycle of 10 years, i.e. two presidential terms. "The change in power can lead to a serious transformation of economic policy, changing the trends that influence many factors," Gorodetsky reasons.
There has been no reaction to the report yet. These economists are not the only ones working on proposals for Strategy-2020. Since the beginning of this year, a team of experts headed by Yaroslav Kuzminov and Vladimir Mau has been working on the same task.
"To be honest, we are in tough competition with Mau and Kuzminov. They have been the absolute authority for the government in the last two decades. They have a kind of monopoly with their advice. But the condition of the Russian economy requires urgent measures. If our voice is heard and the Strategy-2020 team adopts any of our proposals, I'd consider it a personal victory," Grinberg said. In response, Mau made a terse comment to Izvestia: "We do not deal in competition. We are engaged in science."
Yevgeny Yershov