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Putin’s pre-election social pledges will cost 1.5% of GDP for Russia

March 11, 2012, 12:35 UTC+3

Without waiting for the formation of a new government, Russian President Elect Vladimir Putin began to form a budget for 2013

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Without waiting for the formation of a new government, Russian President Elect Vladimir Putin began to form a budget for 2013. He said at a meeting of the government presidium about the working schedule signed to draft a budget for 2013 and noted that his pre-election social pledges will cost 1.5 of GDP to the country. The prime minister insists on the growth of Russian social commitments without the growth of taxes and state expenditures. However, the experts doubt that all pledges will meet the deadlines.

The government will increase social expenditures, President Elect Vladimir Putin confirmed his pre-election pledges. “There was nothing formulated in the way it was impossible to fulfil,” the Vedomosti quoted Putin as saying.

The fulfilment of Putin’s social pledges will cost 1.2-1.3% of GDP every year to the budget or about 700 billion roubles, according to concrete estimates of the experts from the Higher School of Economics. The largest article of expenditures is one percent of GDP equally for higher salaries in the health care and education systems, another 0.2% - for bonuses with the birth of the third child, 0.06% - higher social scholarships. “All this (the measures Putin listed) almost coincide with the proposals of the experts in the social articles of the Russian Strategy-2020, they were discussed repeatedly in the government since April 2011, particularly at meetings chaired by the prime minister,” the rector of the Higher School of Economics Yaroslav Kuzminov said. About 50% of additional funding or about 0.6% of GDP can be found from the funds saved to restructure the budget sectors in the transition to the standard per capita funding, the abolishment of inefficient structures and etc, Kuzminov said with confidence.

The Finance Ministry reported that additional expenditures will reach about 2% of GDP or about one trillion roubles, a source close to the Finance Ministry is cited by the Vedomosti. The reserved funds saved in education, health care and social policy (without the pension system) make about 0.7% of GDP annually on average until 2020, the ministry calculated. More than two thirds of new commitments fall on regional budgets, because the salaries to teachers and doctors are paid from the regional budgets.

Putin’s pre-election pledges do not sound infeasible, an expert of the development centre at the Higher School of Economics Andrei Chernyavsky said. But the question is that thanks to what measures these pledges can be fulfilled as “this can result in a higher tax burden.” For instance, the income tax (the income tax revenues are transferred to the regional budgets) or the VAT tax with some of its revenues to be transferred to the regions. The growth in taxes will result in a slower economic growth rate, the expert noted.

However, a Russian presidential aide Arkady Dvorkovich cited by the Kommersant said the Gorki presidential meeting decided not to raise the taxes, promising to the businesses not to change them for next 5-7 years (that is during the entire third presidential term of Putin). New measures are expected, but they will be purely technical. No decision was taken yet over the problem of insurance fees that is actually topical for the business. The newspaper recalled that the current insurance fee of 34% was reduced to 30% only in 2012-2013 and for this period of time the government pledged to ponder how to reform the pension system and eliminate its growing deficit. The Finance Ministry and the Ministry of Economic Development offer to make the temporary insurance fee permanent, but the approaches to the settlement of the pension problem were not worked out yet.


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