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RF government prepares proposals on cutting expenditures - Siluanov

July 14, 2014, 6:07 UTC+3 MOSCOW

The citizens and businesses will have to finance the state’s increased obligations, RF Finance Minister said

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MOSCOW, July 14,/ITAR-TASS/. Russia’s government has prepared proposals on cutting the expenditures and is considering ways to increase revenues. However, the citizens and businesses will have to finance the state’s increased obligations, RF Finance Minister Anton Siluanov said in an interview to the Vedomosti newspaper.

“All countries that face budget difficulties take one and the same steps: cut the expenditures, increase the number of revenue sources, including at the expense of property sale,” the minister said.

“We have developed high expenditure growth rate, first of all by means of increasing wages to the public sector employees and defence spending that increases annually,” Siluanov said. “A considerable amount of funds is spent on ensuring the Pension Fund balance. The pension reform is not over, the volume of subsidies and grants-in-aid of the RF Pension Fund in 2015 will be some three trillion roubles with the total federal budget volume of 15 trillion roubles.”

Siluanov recalled in this connection that initially it had been planned to make the pension system self-sufficient, and in the current state it is deficit-plagued. “In these conditions we have prepared proposals on cutting the expenditures, this is the main task: the constant increase in expenditure obligations cannot continue forever, it is necessary to stop and begin the work to improve efficiency of budgetary allocations,” he said.

“We also consider a second option,” the finance minister stressed, “possibilities for increasing revenues. First, increase in taxes and duties, including by means of better administration. We have the value-added tax (VAT) collection rate of 94%, we set the task to increase it to 98% within the next three years. Second, it has been proposed to equalise the taxation of revenues from dividends and wages.”

“Increasing the tax on dividends, by the way, is not our idea,” the finance minister said. “It has been borrowed from the MPs who talk of justice in taxation: why public sector employees, low-paid citizens pay a 13-percent income tax, and businessmen who get the main revenue from investment instruments - just 9%? Some other tax innovations that make the budget system more balanced have also been proposed.”

“Assuming considerable expenditure obligations such as the armaments programme, increasing pension payments, we will have to take uneasy and unpopular decisions. This time has come. When we considered the 2015 - 2017 draft budget we drew attention to the fact that at the time when all these costly decisions had been made we had entirely different forecasts of the [economy] growth tempos and revenues to the treasury. We don’t have these revenues. But we have assumed the expenditures, which must be financed,” Siluanov said.

In his view, “the sense in expenditure restraint is that we as a country dependent on oil and natural gas should not take the risk of external influences,” because “the oil price does not depend on us, it’s a factor that is formed under the influence of many causes.” Noting that “it is necessary to prevent the investment rating downgrading, otherwise foreign investors will leave Russia,” Siluanov stressed that increasing expenditures “is a road to nowhere with unpredictable economic and financial consequences.” “We have reached the limit of expenditures, because we are practically not replenishing the reserve fund anymore. In 2015 we plan to add to it some 430 billion roubles, but this may not happen,” he said.

Answering the Vedomosti question whether, in the view of the Finance Ministry, the full tax amnesty for offshore capitals is expedient, the finance minister said in conclusion: “We should grant amnesty for those revenues that may appear as a result of the transfer of funds from offshore jurisdictions to Russian jurisdiction. That is, additional taxation of income should not take place during money transfer. In general, we don’t talk of the transfer of all resources to Russian jurisdiction. If a company works in an offshore jurisdiction, so let it stay there, but pay taxes here under our legislation. There is no such idea that all offshore companies should be closed and businesses must transfer money to Russia. It is just necessary to pay taxes honestly.

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