Page 24 - RusRPTOct20

the rates since them. The problem was not how expensive taxes were, but simply a question of being able to collect them. But following a big reform of the service in recent years, and the added pressure of coronacrisis-related extra spending, the Kremlin has decided the time has come to increase the tax rate for businesses and people.
The Russian government approved the Ministry of Finance’s proposal for Russia’s 2021-23 budget on September 16, which has been amended to adjust for the effects of coronavirus. The document foresees a 4.4% GDP deficit in 2021, 2.4% in 2022, and 1% thereafter.
The recovery plan suggests RUB5 trillion (about $66.5mn) in spending, of which RUB1.7–1.8 trillion ($22.6–$24bn) will be paid from the federal budget in 2020.
At the same time, the Ministry of Finance (MinFin) is going to follow through on a threat in July to cut all unprotected budget items by 10% across the board. This includes cutting the weapons programme by 5%, and getting rid of cost-of-living increases for civil servants all together. All of this would save RUB2.7 trillion ($35.8bn) in 2021 compared to the record “coronavirus” spending in 2020. They planned to continue the “consolidation” in 2022. This sequestration plan drew sharp criticism from experts, who argue that in times of crisis you need a fiscal stimulus, but MinFin has always been very conservative and Russia has in effect been living under austerity for years already as the Kremlin emphasises security over prosperity and keeps spending to a minimum.
“An interesting feature of Russia’s fiscal policy this year is that it gives top priority to the task of protecting accumulated government reserves, the National Welfare Fund,” says BSC Global Markets chief economist Vladimir Tikhomirov. “The government and the Kremlin have clearly decided against a massive draw on NWF, even though the prime objective of the Fund was to support the budget at times when its revenue came under pressure due to falls in crude oil prices. Instead, a search for other sources of funding for arising budget deficits has led authorities to agree to a significant rise in the volume of domestic public debt. A planned spike in state borrowings appears set to become the major source of funding for this year’s and future fiscal deficits.”
The foreign currency and gold reserves (Fx/gold of GIR, Gross International Reserves) of the Central Bank of Russia (CBR) tipped over the historic record-high mark of $600bn as of August 7, making back almost all the ground lost in the 2008 global financial crisis. This huge lake of cash is the foundation of Russian President Vladimir Putin’s “fiscal fortress” that makes Russia impervious to any new US sanctions and the Kremlin is determined to keep this reserve intact, as it has become a strategic asset.
A lot of work has already been done on reforming the tax system to make it more efficient. Prime Minister Mikhail Mishustin was head of the tax service before he was promoted at the start of this year, where he carried out a revolution. He ended many exemptions and scams as well as installing a new IT system that transformed the tax collection business: Russia’s tax take increased by 20% on Mishustin’s watch, while the tax burden only rose by 2pp.
24 ​RUSSIA Country Report​ October 2020 ​ ​www.intellinews.com