Transcript of the beginning of the meeting:

Vladimir Putin: Ms Skrynnik, what did you want to report to me? Regarding locusts?

Yelena Skrynnik: Yes, Mr Putin. We’ve localized the problem. Experts examined more than two million hectares, and have determined the indicator of economic damage, which shows the damage sustained by agricultural producers. Locust-infested areas covered about 800,000 hectares, but we’ve already cleaned 650,000 hectares. The main thing is that agricultural producers have not sustained any substantial damage.

Vladimir Putin: Was Kalmykia hit the hardest?

Yelena Skrynnik: I’ve been to Kalmykia. The governor of the region took me on a flight over the fields. My deputy is still working there. The problem has been localised. All regions have confirmed that agricultural producers have not sustained any damage. They also confirmed this at a meeting of the emergency response team.

Vladimir Putin: Good.

Yelena Skrynnik: But our success with this problem stems from the fact that we have been dealing with it since September. Planning for the coming year is the most important thing.

Vladimir Putin: Additional funds are not needed then, as I understand it?

Yelena Skrynnik: They would of course be appreciated, Mr Putin.

Vladimir Putin: But you’ve just said that everything has been localised!

Yelena Skrynnik: Yes, Mr Putin, but I had to seek help from the Defence Ministry and the Emergencies Ministry. If we could afford to buy small aircraft for Rosselkhoztsentr (the Russian Agricultural Centre) we could eradicate the locust infestation well into the future.

Vladimir Putin: Fine, then. Submit your proposals, please.

Yelena Skrynnik: I’ve prepared them.

Vladimir Putin: Good.

Yelena Skrynnik: Thank you.

Vladimir Putin: Today, we will be summing up the results of work on the 2012-2014 draft federal, and we will determine the principles of tax, customs and the tariff policy for the next three years.

This year we have substantially changed our procedures. We held extensive discussions on budget projections with representatives from the public, profile organisations and trade unions. These debates were also held within the Popular Front. I’d like foremost to thank the Finance Ministry, and you personally, Mr Kudrin, for taking part in these discussions, and thereby elevating them to a new level.

I think we’ve managed to make the budget formation process more open, and to involve a substantial number of experts with diverse perspectives to the discussion of this document. I think this has been beneficial for the budget. We must hold dialogues with all parliamentary parties in the Duma in the same substantive manner, both at the preliminary stage of the draft’s zero reading and after its official submission to Parliament in October.  

We have discussed how to work with our colleagues in the Duma more than once. We know the position of certain parliamentary parties that do not share our view. They have their own ideas of how to deal with the national economy. Nevertheless, I’d like to ask you to be regardful and familiarise your colleagues in the Duma with all of the pertinent questions, concerns and proposals for their resolution.

Now I’d like to say a few words about the draft budget. To begin with, this is the first truly post-crisis budget. We are getting additional opportunities for resolving long-term strategic objectives. In this sense, the submitted budget is a development budget designed to stimulate quality growth and modernise the economy. At the same time, this is a socially-oriented budget with a direct emphasis on improving living standards and implementing large-scale programmes in demography, healthcare, education and pensions. Needless to say, these issues remain at the top of our list of social priorities.

That said, we won’t deviate from the principles of strict budget discipline, nor from our main task of ensuring the effectiveness of government investment. Budget expenditures and revenues must be well-balanced and thoroughly planned, which, in turn, should promote macroeconomic stability.

Budget revenues are expected to reach 10.6 trillion roubles in 2012, and expenditures are projected at 12.2 trillion roubles. Thus, the budget deficit for 2012 is expected to be 1.6 trillion roubles, or 2.7% of the GDP.

Initially, we forecast a budget deficit of 3.6% this year, but in fact it will be about 1%. We hope that next year’s budget gap will be smaller than planned. Furthermore, the policy of cutting the budget deficit to zero should certainly be continued.

To achieve this goal, we should increase budget revenues by fostering economic growth, first of all through diversification, which will expand the tax base and lower the budget’s dependence on price fluctuations on the commodities market. We must above all reduce our dependence on hydrocarbons. At the same time, we should improve the tax system and harmonise its fiscal and stimulative role. We will discuss proposals towards this end today. Some of these proposals, formulated some time ago, call for increasing the gas severance tax and excise duties next year.

As for our tax policy in general, we will not be increasing the fiscal burden. The government’s goal is to ensure a fairer distribution of the tax burden. This is why tax changes will concern, above all, the industries that work in a favourable foreign policy environment.

At the same time, we should continue tax preferences for innovative and energy efficient companies, projects that create new jobs and enterprises that are implementing large investment projects, including in the oil and gas industry, for example for companies that are developing difficult to access deposits, primarily in East Siberia and on the shelf.

I’d like to say that the State Duma will today hold the second reading of the draft law on transfer pricing, which will greatly help us increase economic transparency. The law was drafted on the government’s initiative with due regard of the best international practices. It is aimed at monitoring the operation of large national companies. As a result, business operations will become more transparent, as I have said, and tax distribution among Russian regions more balanced and fair.

We have been talking about the need to formalise these rules for a long time, while also pointing out negative practices. I sincerely hope that the situation will improve after we adopt this law.

Moreover, a number of functions in healthcare, education and employment will be transferred to the regions along with the necessary financial resources. We discussed these issues in detail yesterday. This budget decentralisation will enhance the regions’ capabilities and also increase their responsibility for socially important spheres.

I have recently been to Buryatia for a meeting with enterprise directors who also pointed out the need for continued decentalisation in this sphere. But the example they used to make their point was, to my mind, flawed. They spoke about timber processing, saying that rules differ from region to region. But this is the responsibility of the federal service. If we turn over responsibilities in such sphere to the regions, differences will be even more substantial. As for this particular case, why does the federal service have different rules for different regions? I’d like you to take note of this. Please, look into what is going on in the Far East. Chita, Buryatia and the Krasnoyarsk Territory in Siberia are located close to each other, and the timber industry there is regulated by one and the same federal service. Why then do the rules differ?

We’ve strayed from the main issue on our agenda today. Getting back to it, it should be noted that insurance payments to extra-budgetary funds will be cut from 34% to 30%, and to 20% for small businesses, starting in 2012, to stimulate business activity. The budget shortfall will be considerable, 460 billion roubles. To make up for this shortfall at least partially, we suggest introducing additional insurance payments to social funds from the salaries that exceed 512,000 roubles. These payments could be up to 10% of the salary. We’ll have to discuss the amount.

Let me remind you that when we decided to raise insurance premiums to 34%, we planned to use additional revenues for modernising our healthcare system. We are now planning to cut insurance premiums, but this does not mean we will stop modernising healthcare. No, we will provide full financing for all approved programmes.

Furthermore, we plan to increase federal budget allocations to healthcare. We will allocate 500 billion roubles for this purpose in 2012, which is nearly 7% more than this year. Also, the average retirement pension will be raised from 8,500 to 9,300 roubles and social pensions, from 5,100 to 5,700 roubles in 2012. Overall, the average pension will be increased by nearly 11% next year, with 2 trillion roubles transferred from the budget to the pension fund.

We will also continue to increase maternity capital. We will index it, just as we planned to do when we first introduced this allowance. Maternity capital currently stands at 365,700 roubles; it will be increased to 430,000 in 2014. This is right around the corner. We also plan to annually increase allowances to families with children, by 6% in 2012, 5.5% in 2013 and 5% in 2014.

This year we will launch a large programme to modernise education. Our priorities under this programme include capital repairs of schools, providing modern equipment, and, of course, increasing teachers’ salaries. We will allocate 20 billion roubles additionally this year and another 100 billion roubles in 2012-2013, which adds up to 120 billion roubles, 60 billion for each academic year.

In 2012, we will double subsidies to regions for the support of preschool education to 2 billion roubles. Furthermore, we plan to issue a 8-billion-rouble loan to Russian regions for the further development and modernisation of childcare establishments. I’d like to point out that this responsibility primarily rests with municipal and regional authorities. Money is allocated from the federal budget to stimulate their efforts at the regional and municipal levels.

We will also prioritise housing programmes. In all, there are plans to allocate nearly 340 billion roubles to solve housing problems over the next three years. For instance, about 19 billion roubles will be allocated in 2012 to provide permanent housing to over 10,000 families of retired military personnel who were registered before January 1, 2005. This is a long-time, neglected problem. I have repeatedly noted this, and the state must fulfil its obligations before the people. We are beginning to accomplish this objective at the federal level. I would like to remind you that this category of citizens was formerly registered with municipalities which, to be honest, were unable to provide them with housing, and so these people had to wait in line for a long time.

Over 50,000 veterans are now waiting for better housing. This year, we have increased allocations for these purposes to 23.7 billion roubles.

We have to accomplish a number of highly important objectives in the sphere of defence and law enforcement. Interior Ministry divisions will be financed completely from the federal budget starting with 2012. I would like to stress that we will start introducing a new system of pay grades for military personnel and other security agencies. The pay grades of military personnel will soar by over 100%, and military pensions will be raised by 50% and more. A total of 561 billion roubles are stipulated for these purposes in 2012.

Pay grades will be raised in two stages. First, this raise will encompass Defence Ministry military personnel, Interior Troops and Interior Ministry operatives. The pay grades of other security agencies personnel will be raised subsequently. Retired military personnel will see a one-time increase in pensions in 2012, regardless of their departmental affiliation.

I would like to add that we also need to prioritise the funding of state defence contracts, and the timely and uninterrupted transfer of allocations to enterprises. The defence minister and I have discussed this issue, and work is proceeding apace. Hopefully, this work will be duly conducted together with defence industry enterprises. Of course, the Defence Ministry should buy the required equipment in line with justified prices. Moreover, the enterprises should get the required funding on time. Contracts should also be signed on time.

And now I would like to say a few words about high-priority economic and infrastructure investment. In this connection, we need to remove systemic restrictions hampering economic growth and create a technological and scientific reserve for the future.

In all, 581 billion roubles will be set aside next year to build and overhaul transport corridors and to expand IT and telecommunications technologies next year. It is intended to spend almost 2 trillion roubles for these purposes in 2012-2014.

In all, 410 billion roubles will be spent in 2012 on promoting civilian science and industry development. Of course, we’ll support aviation and shipbuilding as our priority.

We will also support high-tech sectors, including computer and space technologies, medical equipment and pharmaceutics, nuclear technologies and energy efficiency, all under federal targeted programmes. About 700 billion roubles’ worth of budgetary allocations will be spent on promoting these strategic spheres in the next three years.

I would like to single out support for the national agro-industrial sector. We prioritise the commissioning of new processing facilities, the creation of a modern food market infrastructure, and support for all forms of agro-industrial business, including farms, small and medium-sized businesses. As you know, we will expand allocations for the agro-industrial sector to 130 billion roubles in 2012.