Ladies and gentlemen, friends,

I would first like to congratulate everyone on the 20th anniversary of the Federal Tax Service of Russia. There are already some results that we can take stock of today.

Twenty years ago, I led the financial directorate of the St. Petersburg City Hall and helped create the Petersburg department of the tax service. I remember how we did it, how the tax service distinguished itself, and so I'm pleased to recall it all today and offer my congratulations.

I would like to welcome the representatives of international organisations and the tax authorities of other countries, who came and shared this special day with us. Today we are ready to talk seriously about tax trends and figure out whether tax increases at the present time constitute a general trend or a temporary measure in the fight against the crisis.

Tax reform in Russia essentially began in 1997-1998, when the new tax code was developed, its first part. Then tax rates were lowered. Now few people remember that the profit tax rate exceeded 30% at one point, that insurance premiums were more than 36%. There was still an employment fund and a separate tax to fund employment, and VAT was more than 20%. Some people have forgotten this. This was the period when the number of specific taxes was reduced from more than 100 to 13 today, plus four special tax regimes for special zones. This is an outstanding achievement. And in terms of tax cuts, we charted a historic path that will never be repeated.

I am therefore pleased that I had the opportunity at that time to introduce these bills. I did this with my colleagues from the government, the Duma. German Gref, in particular, was persistent in his support for tax cuts. We have come a long way. Today, tax administration is at the forefront and there is a better quality of interaction between tax authorities and business. And to this day we continue to make major efforts. I hope that the head of the Tax Service, Mikhail Mishustin, who has given over six years to the service, is up to this task.

When there are high oil revenues, it is easy to ignore the subtleties of tax administration. But I think that the period of oil prices in the range of $140-$150 per barrel is over. Theoretically, it could happen again, but we understand that it will only be temporary. There is not hope that such prices can be sustained. And considering that many economists now believe that we have entered what the head of the European Central Bank President Jean-Claude Trichet calls a "sober decade," we have to carefully approach all aspects of the budget, tax policy, and focus primarily on administration.

The world is in crisis – in Russia, federal budget revenues in 2009 fell by almost 20%, and in European countries this decline was in the vicinity of 15%-20%. While in Russia this was due more to oil and our GDP, and taxes are also reduced due to lower demand and energy costs, in other countries export potential also declined. In some countries, it was the financial system, which reduced the inflow of tax revenue; the UK and France were particularly hard it. Different countries have their own explanations for why their revenues slumped so much under the weight of earlier pledges. We are seeing a high budget deficit. The task of fiscal consolidation is at hand, and many countries will face reductions in GDP of 3.4% to 8% or even 10%. There are countries where these figures even higher – Greece, Ireland and others. This is a real challenge for all countries, and they must all approach this consolidation skillfully.

In the previous recession, during fiscal consolidation, the ratio of spending cuts to tax increases was 50:50. In emerging markets, as the IMF's analysis shows, this ratio was 70% spending cuts to 30% tax increases. In this crisis, we will again have a 50:50 split or perhaps even more than 50% in tax increases. We are facing a difficult period. In terms of trends in the world's tax systems, we are not faced with a temporary anomaly, but a trend. We can already see what is happening today. Many countries have made such decisions – Hungary raised VAT by 5% to 25%, Latvia raised VAT by 3%, the Czech Republic increased VAT by 1%, Finland raised the reduced rate of VAT, which was below the overall rate, and Greece and Spain raised rates.

Some of the taxes in these countries rise due to income taxes and excise taxes. But the elimination of tax breaks should be a priority, as noted by the IMF in its review. First of all, it is necessary to ensure the neutrality of the tax system, and move away from the tax breaks that have accumulated over the last few years and create equal conditions for all economic agents. Accordingly, one of the conclusions of this nascent consolidation and change to the tax system is a more efficient tax increase due to the increase in indirect taxes, especially VAT. It inhibits economic growth less. Profit tax slows economic growth more. And profits can be hidden, spirited away to tax havens, and there is competition among tax systems for profits. These are the latest findings of the IMF Economic Review.

Russia is is following the same path as other countries. Our accumulated reserve fund is properly performing its task. It softened the blow of the crisis and allowed us to maintain social commitments, and even slightly increase them. At the same time, the budget deficit this year will be around 4.6% – slightly less than we initially anticipated, but still we need to reduce it in the coming years. Even with such favourable oil prices – about 75-77 dollars per barrel this year – we need to eliminate the deficit by 2015. We face the challenge of fiscal consolidation, approximately equal to 4.6% of GDP. Starting next year, there will be a tax increase equal to 2% of GDP.

I will briefly address future developments and trends. We stand at a crossroads – either we pay more attention to reducing costs and increasing efficiency, which entails serious structural changes, including in the obligations of the state, or a large part of the load will fall on tax increases. I am for the first way. We have prepared a programme to improve efficiency. This path is the most complicated, as we see from the experience of other countries. If the state is weak, it will be afraid to make changes of a structural nature, including in the social sphere. Then we will see more reliance on the second way.

Thank you!