Background material for the September 21, 2011 Government meeting

PRESS RELEASE*

The following issues are scheduled for discussion at the Government Presidium meeting on September 21, 2011:

1. The forecast for socio-economic development in the Russian Federation for 2012 and the planning period of 2013 and 2014

The forecast for country’s socio-economic development for 2012 and the planning period of 2013 and 2014 has been submitted by the Ministry of Economic Development.

The ministry has revised its estimates of some macroeconomic indicators for 2011-2014 as against corresponding indices of the scenario variant. In particular, the ministry has revised upwards some of its estimates for 2011. These include the price of oil that was increased to US$108 per barrel from the previous US$105, retail trade to 105.3% from 103.8%, agricultural production to 113.7% from 111.8%, and real wages to 103.6% from 103.3%. The growth of consumer price index will not exceed 7% in 2011, compared with the earlier projection of 7.5%.

However, the GDP growth rate projected for 2011 was revised downwards to 4.1% from 4.2%, and that of industrial production to 4.8% from 5.4%.

The index of the rouble’s effective exchange rate in 2011-2014 is estimated to be 8.3% instead of 15.1% that was forecast earlier.

This revised forecast provides an opportunity for two budget base options (1 and 2).

The cautiously optimistic option (2) chosen by the ministry as a basis for drafting federal budget parameters for 2012 and the 2013-2014 planning period envisages a shift in the Russian economy towards higher competitiveness and a better investment climate combined with a moderate increase in government spending on the development of infrastructure and human resources in 2013 and 2014.

This option is based on favourable estimates of external conditions, including the stability of the price of Urals crude, that is expected to range between US$97 and US$101 a barrel from 2012 to 2014, and the growth of the global economy to 103.5%-104%.

The GDP growth rate is expected to increase from 3.7% in 2012 to 4.6% in 2014; industrial production from 3.4% to 4.2%; real wages from 5.1% to 6.3%; and real disposable income of the population from 5% to 5.3%.  

Investment in fixed capital will increase by 7.8% in 2012 (compared with 6% in 2011), and 7.1% or 7.2% in 2013 and 2014. Consumer prices are estimated to rise by 5%-6% in 2012; 4.5%-5.5% in 2013; and 4%-5% in 2014.

The price of electricity (both regulated and market prices) for all large and business customers, not individuals, is expected to grow by 7%-8% in 2012, and by 9%-11% a year in 2013 and 2014.

In the period of 2012-2014, the regulated price of electricity paid by private individuals will be adjusted for inflation every July: the price will be indexed by 6% on July 1, 2012; 10%-12% on July 1, 2013; and 10%-12% on July 1, 2014. As a result, the average annual price of electricity will rise by 3% in 2012, 8%-9% in 2013, and 10%-12% in 2014.

From 2012 to 2014, regulated rates charged by utility companies will be indexed in July: by 11% on July 1, 2012, and by 9%-10% a year on July 1, 2013 and on July 1, 2014. On average, the annual price increase will be 6% in 2012, 10% in 2013, and 9%-10% in 2014.  

The regulated price for heating will be indexed twice in 2012 to rise 6% on July 1, and another 6% on September 1; it will further increase by 8% on July 1, 2013, and by 12% on July 1, 2014. The average annual regulated price for heating will grow 4.8% a year in 2012, 11% in 2013, and 9.5%-10% in 2014.

From 2012 to 2014, the regulated price of natural gas will be indexed by 15% every year on July 1, leading in 2012 to the average annual price rise of 7.1% at the most for all consumers, except private individuals, and 10.4% for them. In 2013 and 2014, the average annual price increase for all types of consumers will not exceed 15%.

In the same period, regulated rail transportation rates for cargo and passengers will be indexed every January: by 6% and 10%, respectively on January 1, 2012; by 5.5% and 10% on January 1, 2013; and by 5% and 10% on January 1, 2014. As a result, average annual rail transport rates for cargo will increase by 6% in 2012, 5.5% in 2013, and 5% in 2014, and those for passengers by 10% every year.

Conservative option (1) is based on the still low competitiveness of domestic products, and a lack of capital inflow combined with the slow rebound in investment activity and reduced government spending on economic development. From 2012 to 2014, the country’s GDP is forecast to grow at a rate of 2.8%-3.8%, which is slower than the world economy.

 

2. Draft federal law On the Federal Budget for 2012 and the Planning Period of 2013 and 2014

This draft federal law has been submitted by the Ministry of Finance.

I. The key parameters of the federal budget for 2012 and the Planning Period of 2013 and 2014.

The draft federal budget for 2012 and the 2013-2014 planning period is based on the forecast of socio-economic development of the Russian Federation, including the following projections:

	2012	2013	2014
Price of Urals crude, US$/barrel	100	97	101
GDP growth rate, %	3.7	4.0	4.6
GDP, trillions of roubles	58.68	64.80	72.49

 

Key federal budget parameters are given below (in billions of roubles):

	2010 (actual)	2011 (estimate)	Draft Federal Budget
			2012	2013	2014
Total revenue	8,305.4	11,019.1	11,789.1	12,715.0	14,101.1
% of GDP	18.5	20.7	20.1	19.6	19.5
Total expenditure	10,117.5	11,019.1	12,658.3	13,719.9	14,579.5
% of GDP	22.5	20.7	21.6	21.2	20.1
including tentatively approved expenditure				343.0	835.1
% of total expenditure				2.5	5.7
Deficit	-1,812.1	0.0	-869.2	-1,004.9	-478.5
% of GDP	-4.0	0.0	-1.5	-1.6	-0.7

 

II. Federal budget revenue for 2012 and the planning period of 2013 and 2014

In 2012, federal budget revenue is expected to edge down to 20.1% of GDP from 20.7% in 2011, with a further slide to 19.5% in 2014. This downward trend can be ascribed to the projected fall in oil and gas revenue to 8.5% of GDP by 2014 from 10.2% in 2011. At the same time non-oil and gas budget revenue will increase by 0.5% from 2011, reaching 11% of GDP by 2014.

The reduction in oil and gas revenue as a percent of GDP projected for 2012-2014 is due to the lower price of Urals crude and the reduced export of taxable crude oil and oil products, as well as to the slower growth in the US dollar-to-rouble exchange rate and in taxable oil production relative to GDP growth rate.

Federal budget revenue, other than from oil and gas, as a proportion of GDP will increase in 2012-2014, compared with 2011, that can largely be explained by the forecast of a higher VAT and excise duty proceeds in this period.

Revenue projections are based on the following proposed amendments to the tax and budget laws, as well as on government legislative acts on external economic activities effective January 1, 2012:

• indexing specific excise duties on tobacco products (setting the rate at 390 roubles per 1,000 cigarettes on July 1, 2012; 550 roubles on January 1, 2013; and 800 roubles on January 1, 2014);
• indexing specific excise duties on alcoholic beverages, beer and natural wine imported by the Russian Federation;
• indexing severance tax on natural gas paid by the owners of facilities that are part of the Unified Gas Supply System (the tax will be fixed at 509 roubles per 1,000 cubic metres on January 1, 2012; 582 roubles on January 1, 2013; and 622 roubles on January 1, 2014);
• lowering the maximum coefficient used to calculate export taxes on oil to 60% from 65%;
• fixing export taxes on products made from oil at 66% of export duties on oil;
• abolishing export tax benefits granted to the Talakan oil and gas condensate field in Eastern Siberia;
• resolving that 60% of excise duties on alcoholic beverages containing more than 9% ethanol must go into the federal budget; and
• resolving that state dues for the state registration of motor vehicles, and other legally significant actions required for changing and issuing vehicle documents and registration numbers must go into the federal budget.

 

Changes in the tax laws will increase the federal budget revenue by a total of 198.1 billion roubles, or 0.3% of GDP, in 2012; by 263.6 billion roubles, or 0.4% of GDP, in 2013; and by 419.5 billion roubles, or 0.6% of GDP, in 2014.

The proceeds of customs duties (34%-37%), value-added tax (31%-34%), severance tax (17%), and corporate income tax (3%) will supply about 90% of projected revenue.

III. Federal budget expenditure for 2012 and the planning period of 2013 and 2014

The process of federal budget expenditure planning for 2012-2014 involves the following main procedures:

• determining the base amounts of budget allocations for 2012 and 2013 in keeping with the federal law On the Federal Budget for 2011 and the Planning Period of 2012 and 2013; and
• refining the base amounts to be allocated from the federal budget in 2012-2014 with due account of the federal government’s commitment to:
• finance the police from the federal budget, beginning in 2012;
• readjust labour compensation funds to pay wages for the employees of federal government offices, judges, prosecutors, and federal civil servants by 6% on October 1, 2012; wages of military and associated personnel and any other payments linked to their wages by 6% on April 1, 2012; and the scholarship fund for the students of federal universities by 6% on September 1, 2012;
• index public legally-binding obligations (pay-outs from budgets at various levels to physical individuals that are due them under respective laws or other regulatory acts), and equivalent obligations to inflation;
• compensate for a shortfall in the revenues of the government extra-budgetary funds as a result of a reduction in the rate of contributions payable to these funds to 30% in 2012 and 2013 from the current 34% (contributions will be charged at 10% of earnings above the upper earnings limit of 512,000 roubles set for 2012 and above 573,000 roubles set for 2013), and to 20% for small businesses and non-profit organisations whose core activities are to provide public social services, as well as for charities and organisations using a simplified taxation system;
• index expenditure for financial support to federal agencies, and also for federal government office maintenance, including expenses for communications, transport and municipal services, as well as for supplying military and associated personnel with food and clothing, by 6% on January 1, 2012; 5.5% on January 1, 2013; and 5.0% on January 1, 2014; 
• reform the pay system for military and law-enforcement personnel;
• increase pensions for military and associated personnel as part of the pay reform;
• organise a Federal Road Fund;
• complete the work on a number of projects (such as preparations for the 2014 Olympic and Paralympic Games in Sochi, the 2013 World Student Games in Kazan, and the 2012 APEC summit in Vladivostok; individual federal targeted programmes; and capital construction projects that are not included in federal targeted programmes);
• implement new federal targeted programmes; and
• specify budget allocations to provide funding under some new commitments, information on which is set forth in other sections hereof.

 

From 2012 to 2014, spending on defence, security and law enforcement will be increased to carry out the military and law-enforcement personnel pay reform to be launched in 2012, and also to start financing police from the federal budget, beginning January 1, 2012.  

A significant increase in social security spending is planned for 2012 and 2013, largely due to the government’s effort to help state extra-budgetary funds balance their budgets after a 4% reduction in the insurance rate in 2012 and 2013: the federal government plans to allocate 270.5 billion roubles in 2012 and 317.4 billion roubles in 2013 to compensate for the shortfall in the state extra-budgetary funds’ revenue.

A decrease in federal budget spending on the national economy in 2012 and 2013 is mainly due to a reduction in subsidies provided for some areas of the economy, and the completion of a number of federal targeted programmes, and capital construction projects.

Decreased spending on housing and utilities can be explained by the implementation of a number of initiatives, including providing military personnel with service apartments and permanent housing in 2013, some federal targeted programmes, and the payment of an one-off subsidy by the state-run corporation, the Housing and Utilities Reform Fund.  

A year-on-year decrease in federal government spending on education in 2013 and 2014 is due to the completion of the programmes to update regional general education systems and to the transfer to the constituent entities of the Russian Federation the responsibility for financing vocational schools with funds to be released after police budgets are financed from the federal budget in keeping with the law on the delimitation of powers between various levels of authorities - a move effective January 1, 2012.

The key factor behind the lower federal government spending on healthcare in 2013 and 2014 is the ongoing healthcare reform, under which funds from mandataory medical insurance will be used to pay doctors, including precinct pediatricians, general practitioners, and nurses working with these doctors in municipal clinics, the medical staff of community health centres, and also doctors, medical assistants and nurses who provide public medical check-ups, regular medical check-ups for children at orphanages/children’s homes, and underprivileged children.

As for federal budget spending in other functional areas, it will be lower largely due to the completion of some federal targeted programmes and those projects that were not included in the federal targeted investment programme, while few new programmes are planned.

IV. Sources of financing federal budget deficit

The federal budget deficit will be predominantly financed through government borrowings and with funds from privatising federal government property.

Plans for the period 2012-2014 include injecting funds into the Reserve Fund to restore it to its pre-crisis level and replenishing the fund with surplus oil and gas proceeds. Funds from the National Welfare Fund are planned to be used  to the extent equal to the volume necessary for co-financing individual pension savings in the same period.

 

3. Draft guidelines on the uniform government monetary policy for 2012 and the planning period of 2013 and 2014

This material has been submitted by the Bank of Russia.

According to the drafted guidelines, in the first half of 2011, inflation – still high – was running at an annual rate of 9.4%-9.6%, which was largely spurred by an increase in food prices. In August 2011, it dropped to 8.2%. The Bank of Russia expects consumer prices to rise by less than 7% toward the end of this year, compared with 8.8% in 2010.

In January-June 2011, world commodity markets, that were favourable for Russian exporters, had a positive impact on the balance of payments: the current account surplus grew 11% from the same period a year earlier, reaching US$57.6 billion, while the trade balance surplus climbed to US$101.7 billion, exceeding the pre-crisis level in the same period of 2008.

Exports of goods were up 30%, reaching US$249.5 billion in the first half of 2011, and imports totalled US$147.8 billion, up 42% from the same period in 2010 and up 9% from January-June of 2008.  

The average annual price of Russian crude on world markets in 2011 is expected to be US$108 per barrel which would increase the country’s current account surplus, over 2010, to US$83.9 billion.

The Bank of Russia’s exchange rate policy aims to limit the rouble’s exchange rate exposure to fluctuations in 2011. In the first eight months of this year, the rouble appreciated against the currencies of Russia’s key trading partners, both in nominal and real terms. In August 2011, the rouble’s nominal effective exchange rate against foreign currencies rose 5% from December 2010, and its real effective exchange rate rose 5.4% in the same period.

Some positive shifts in the real economy in 2011 have contributed to a further decrease in the cost of credit facilities issued to non-financial organisations and physical persons. In July 2011, the weighted average interest rate on rouble-denominated loans issued to non-financial organisations for a term of up to 12 months was 7.9% per annum, down 2.5 percentage points from July 2010, and for a term of more than 12 months it was 10.5% per annum, down 1 percentage point; for physical persons the figures were 22.7% per annum (26.8% in July 2010) and 17.3% per annum (18%), respectively.

According to the draft guidelines, the Bank of Russia’s conversion to inflation targeting will take three years to complete. This means that in the near future the bank’s monetary policy will focus on curbing inflation, and in the long term, on achieving price stability. The bank’s strategic objective is to bring the annual inflation rate down to 4%-5%  (in per annum terms) in 2014.

In order to identify its monetary policy objectives and instruments, the Bank of Russia has considered three likely scenarios for the macroeconomic situation in the period of 2012-2014.  

One scenario provides for a drop in the average annual world price of Russian oil to US$75 per barrel and a 3.3% growth in GDP in 2012. According to a second scenario, which is based on the government forecast underlying the draft federal budget, in 2012, the price of Russian oil could reach US$100 per barrel, while GDP will grow 3.7%. A third scenario of the country’s economic development envisages oil prices of up to US$125 per barrel and a 4.7% growth of GDP.

In 2013 and 2014, the GDP growth rate is expected to range between 3.5% and 4.8%, depending on which scenario is more accurate.

The Bank of Russia has announced its commitment to minimise its direct interference in setting the exchange rate, and create conditions to convert to a floating rouble exchange rate as the top priority of its exchange rate policy in the period of 2012-2014. To achieve this, the bank will continue to increase the rouble’s exchange rate flexibility, thereby helping investors adapt to considerable fluctuations in the rouble’s exchange rate once it is fully exposed to external impacts.

In the medium term, the Bank of Russia plans to use monetary policy instruments to gradually minimise its direct interference in setting the exchange rate, a move aimed at boosting the effectiveness of the interest rate channel in monetary policy transmission. As a result, interest rate management will play the key role in monetary accommodation.

In addition, depending on which macroeconomic development scenario is enacted and its impact on the dynamics of monetary indicators, the Bank of Russia plans to either provide the banking sector with funds or absorb its surplus liquidity, as well as to use mandatory reserve requirements as both a monetary accommodation instrument and an instrument for constraining inflation.

The drafted guidelines are based on the projected reversal, beginning in 2012, of private capital outflow abroad, that is envisaged in both the second and third scenarios, while in subsequent years capital inflow will be growing steadily by US$10-15 billion a year. However, in 2013 and 2014, under the first and second scenarios, the current account balance is likely to become negative.

 

4. The Pension Fund: budget for 2012 and the planning period of 2013 and 2014

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

In 2012, revenue is projected to total 5.69 trillion roubles (9.7% of GDP), including 5.22 trillion roubles that will not be put towards the accumulative part of the pension scheme; the figures for 2013 are 6.28 trillion and 5.72 trillion, respectively, and for 2014 they are 6.94 trillion and 6.29 trillion. 

In 2012, expenditure is planned to total 5.40 trillion roubles (9.2% of GDP), including 5.22 trillion roubles that will not be put towards the accumulative part of the pension scheme; the figures for 2013 are 5.95 trillion and 5.72 trillion, respectively, and for 2014 they are 6.57 trillion and 6.29 trillion.  

The section of the draft budget that deals with financing the accumulative part of retirement pensions provides for a surplus of 289.6 billion roubles in 2012, 332 billion roubles in 2013, and 371 billion roubles in 2014.

The section of the draft budget that does not deal with financing the accumulative part of retirement pensions is planned to be balanced through inter-budget transfers to be allocated from the federal budget to cover the fund’s budget deficit and compensate for a revenue shortfall as a result of a reduction in the rate of compulsory pension contributions in 2012 and 2013.

In 2012 and 2013, compulsory pension contributions will be charged at 22%, and in 2014 at 26%, of a physical person’s earnings at or below the upper earnings limit, that give rise to a contribution liability.

In addition, in 2012 and 2013, insurance contributions payable to the fund on earnings exceeding the upper limit set for contribution liability purposes will be charged at 10%.

After being indexed to average wages, the upper earnings limit set for contribution liability purposes will be set at 512,000 roubles in 2012, 573,000 roubles in 2013, and 641,000 roubles in 2014.

In keeping with the governing laws, some employers (farms, corporations and self-employed entrepreneurs who are given special and preferential tax treatment, as well as organisations employing disabled persons, and some other) will continue to pay contributions at a lower rate.

Organisations and the self-employed entrepreneurs enjoying a simplified tax schedule and carrying on their business in manufacturing and the social services sector, as well as non-profit organisations whose core activities are the provision of public social services, and also charities will pay compulsory pension contributions at a lower rate of 20% in 2012 and 2013, and of 26% in 2014.

Compulsory pension contributions paid by employers who pay wages to physical persons are projected for 2012 to total 2.61 trillion roubles, including 2.21 trillion roubles for the insurance part of the pension programme and 404.7 billion roubles for its accumulative part.

Those who do not pay wages to physical persons (self-employed entrepreneurs, and private practice lawyers and notaries) pay insurance contributions at a rate that depends on the insurance year value (calculated each year, by using a prescribed formula). Contributions paid by these insurants are projected to total 41.6 billion roubles in 2012, including 35.8 billion roubles to be put towards the insurance part of the pension programme and 5.8 billion roubles towards its accumulative part.

The draft budget factors in the recovered arrears of insurance contributions in the total amount of 1.2 billion roubles that had accumulated by January 1, 2010.

Supplemental contributions to retirement pension’s accumulative part, as well as the employers’ contributions in favour of the insured are projected for 2012 to be 10 billion roubles and 56.7 million roubles, respectively.

Contributions to finance supplements to pensions by organisations employing civil aviation aircrews are projected to total 3.9 billion roubles in 2012, and those by the enterprises of the coal industry 1.7 billion roubles.

Inter-budget transfers received from the federal budget are projected to reach 2.89 trillion roubles in 2012, and those from the budgets of the constituent entities of the Russian Federation 5.1 billion roubles; figures for 2013 are 3.15 trillion and 5.6 billion, respectively, and for 2014 they are 3.12 trillion and 6.1 billion.

In 2012, these transfers are planned to be used, among other things, to:

• valorise the estimated pension capital – 566.5 billion roubles;
• reimburse retirement-pension-related expenses incurred as a result of including periods not covered by insurance in the pensionable service record – 3.6 billion roubles;
• pay federal social-security supplements to pensions – 38.5 billion roubles;
• compensate for a revenue shortfall as a result of a reduction in contributions set for certain categories of insured persons – 304.4 billion roubles;
• cover the fund’s budget deficit – 1.07 trillion roubles;
• pay state pensions under the national pension scheme, monthly supplements to state pensions, supplementary monthly allowances, benefits, and compensation – 339.2 billion roubles;
• make monthly payments to certain categories of citizens – 378.5 billion roubles;
• pay supplementary monthly allowance to WWII veterans, including disabled veterans, and persons disabled as a result of injuries suffered in war – 8.9 billion roubles;
• reimburse non-working pensioners receiving retirement and disability pensions for the cost of travelling to a holiday location and back – 1.4 billion roubles;
• provide social support for Heroes of the Soviet Union, Heroes of the Russian Federation, full holders of the Order of Glory, Heroes of Socialist Labour, and full holders of the Order of Labour Glory – 78.2 million roubles;
• provide maternity (family) capital – 162.7 billion roubles (the payout will be 387,600 roubles in 2012); and
• co-finance individual voluntary pension savings – 7.5 billion roubles. 

Revenue generated by the accumulative part of the fund’s budget is estimated at 474.2 billion roubles in 2012, 556.8 billion in 2013, and 643.4 billion in 2014.

Revenue raised through the temporary management of pension savings is estimated at 11.3 billion roubles in 2012, 17 billion roubles in 2013, and 18.4 billion roubles in 2014.

Revenue from the investment of pension savings that have been transferred to managing companies is projected to be 13.2 billion roubles in 2012, 19.8 billlion in 2013, and 27.8 billion in 2014.

Expenditure for paying out the insurance part of retirement pensions in 2012 is planned to be 4,172.9 billion roubles, including 566.5 billion roubles to be spent on valorising the estimated pension capital.

The estimate of total expenditure for pension insurance purposes includes expenditure for indexing retirement pensions by 9.6% in 2012 (by 7% on February 1, and by 2.4% on April 1), by 8.7% (6% and 2.5%) in 2013, and by 9% (5.5% and 3.3%) in 2014.

Also, one-off payments to people eligible for benefits (the disabled, veterans and other) will be indexed in the period of 2012-2014 every year on April 1 by 6%, 5.5% and 5%, respectively.

At the end of 2012, pension savings will total 1,733.1 billion roubles, including 1,493.3 billion roubles transferred to managing companies to hold the funds in trust (including 10.6 billion roubles in supplemental insurance contributions to the accumulative part of retirement pensions and also the employers’ contributions), of which amount 252.2 billion roubles will be transferred in 2012, and 177.5 billion roubles in pension savings will be transferred for temporary management in line with the established procedure.

The draft budget provides for using pension savings in 2012 to pay out the accumulative part of retirement pensions in the amount of 1.2 billion roubles, and also 2.7 billion roubles in payouts to the successors to deceased insured persons.

In 2012, 40.7 billion roubles will be used to pay for pension and other social benefits delivery services, of which amount 11 billion will be allocated from the federal budget.

5. The Social Insurance Fund: budget for 2012 and the planning period of 2013 and 2014 

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

Revenue is projected to reach 579.6 billion roubles in 2012, 618.8 billion in 2013, and 667.5 billion in 2014 (458.8 billion in 2011); respective grow rates are 126.3%, 106.8% and 107.9%.

Expenditure is estimated at 577.2 billion roubles for 2012, 613.4 billion for 2013, and 658.6 billion for 2014 (456.9 billion in 2011); respective growth rates are 126.3%, 106.3%, and 107.4%.

Revenue is planned to exceed expenditure by 2.3 billion roubles in 2012, 5.5 billion roubles in 2013, and 8.9 billion roubles in 2014. However, it is planned to cover the shortage of funds for compulsory temporary disability and maternity insurance, (the signs of which are starting to show), with federal budget funds to be transferred to the Social Insurance Fund in the amount of 84.5 billion roubles in 2012, 75.2 billion in 2012, and 78.6 billion in 2014.

Temporary disability and maternity insurance contributions to be entered to the fund’s revenue account are estimated at 309.9 billion roubles for 2012, 345.5 billion for 2013, and 397.2 billion for 2014 (304.5 billion in 2011). These contributions will account for 53.5%, 55.5%, and 58.9% of the fund’s total revenue, respectively (66.4% in 2011).

This decrease in the proportion of contributions to this type of compulsory social insurance can be explained by the growing number of payers eligible for a cut contribution rate, as well as by the higher proportion of federal budget allocations to be used, among other things, to compensate for a revenue shortfall as a result of a reduction in contribution rates.

This compensation is planned to total 22.5 billion roubles in 2012, 23.6 billion in 2013, and 5.6 billion in 2014.

Temporary disability and maternity insurance contributions are charged on an every physical person’s annual earnings that are at or below the upper earnings limit of 512,000 roubles for 2012, 573,000 roubles for 2013, and 641,000 roubles for 2014, that are fixed for contribution liability purposes.  

Industrial accident and occupational disease insurance contributions are planned to total 71.8 billion roubles in 2012, 80.1 billion in 2013, and 88.6 billion in 2014 (65.2 billion roubles in 2011). They will account for 12.4%, 12.9%, and 13.3% of the fund’s total revenue, respectively.

Also, the fund plans to receive federal budget allocations to be able to perform government functions assigned to it in the total amount of 70.7 billion roubles in 2012, 74.5 billion in 2013, and 77.8 billion in 2014 (64.5 billion roubles in 2011).

These funds are planned to be used to pay childbirth grants and monthly allowances for a child under 18 months of age to persons who are not eligible for compulsory social insurance; to provide the disabled with technical means of rehabilitation and services; to pay benefits to the participants of the Chernobyl clean-up effort; to pay working individuals taking care of a disabled child for four additional days-off; and to cover other administered expenses.

In addition, the Social Insurance Fund will receive funds from the Federal Fund of Mandatory Medical Insurance to pay for medical care offered to women during the prenatal and postnatal periods and the delivery of a child, as well as for regular medical check-ups of babies under 12 months of age. The fund plans to receive 19 billion roubles a year in the period of 2012-2014 (18 billion roubles in 2011).

Expenditure for compulsory temporary disability and maternity insurance is estimated at 417.7 billion roubles in 2012, 444.9 billion in 2013, and 481.7 billion in 2014 (72.4%, 72.5%, and 73.1% of all the expenditure, respectively), and for industrial accident and occupational disease insurance at 69.8 billion roubles in 2012, 75 billion in 2013, and 80.1 billion in 2014 (12.1%, 12.2%, and 12.2% of all the expenditure, respectively).

From 2012 to 2014, at the expense of funds for temporary disability and maternity insurance, allowances/benefits to the insured will be paid in the following amount (in billion roubles):

• temporary disability allowances – 182.2 in 2012, 203.8 in 2013, and 224.3 in 2014 (136.1 in 2011);
• maternity benefits – 86.4, 86.0, and 94.4, respectively (63.2 in 2011);
• childbirth grants – 17.0, 17.9, and 18.8, respectively (15.3 on 2011);
• allowances for a child under 18 months of age – 111.8, 116.4, and 123.3, respectively (81.1 in 2011);
• allowances to women registered at the early stage of pregnancy ­– 0.36, 0.39, and 0.41, respectively (0.33 in 2011); and
• death benefits – 0.61, 0.64, and 0.68, respectively (0.58 in 2011).

 

6. The Federal Fund of Mandatory Medical Insurance: budget for 2012 and the planning period of 2013 and 2014

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

This document specifies the main parameters of the fund’s budget for 2012 and the 2013 and 2014 planning period subject to approval.  

Revenue is estimated at 891.7 billion roubles for 2012, 1,034.4 billion for 2013, and 1,188.5 billion for 2014 (336 billion in 2011).

Expenditure is estimated at 891.7 billion roubles for 2012, 1,034.4 billion for 2013, and 1,188.5 billion for 2014.

The budget deficit is not planned for 2012 and the 2013-2014 planning period.

Mandatory medical insurance contributions, taxes subject to special tax treatment, tax in arrears, fines, and penalties payable to the fund in 2012, 2013, and 2014, as well as allocations from the federal budget are estimated as follows (in billion roubles):

• contributions for the mandatory medical insurance of the working population – 516.9, 575.9, and 671.8, respectively;
• contributions by payers enjoying special tax treatment – 20.3, 31.1, and 35.4; and
• contributions for the mandatory medical insurance of non-working population – 302.8, 377, and 462.5.

Insurance contributions are estimated at 537.1 billion roubles in 2012, 607 billion in 2013, and 707.2 billion in 2014.

Proceeds from defaults of payment, as well as fines, and penalties charged on insurance contributions, that are entered into the fund’s budget are estimated at 6.6 million roubles for 2012, 6.3 million for 2013, and 6 million for 2014.

Allocations from the federal budget to the budget of the  Federal Fund of Mandatory Medical Insurance are estimated at 51.8 billion roubles for 2012, 50.4 billion for 2013, and 18.8 billion for 2014 (21.1 billion in 2011) and are planned to be used to:

• conduct health screening of the working population (2.8 million) in 2012 – 4 billion roubles;
• conduct health screening in 2012 of children at orphanages/children’s homes, and underprivileged children who are not looked after (a total of 316,400 children) – 0.9 billion roubles; and
• compensate for a revenue shortfall as a result of a reduction in the rate of contributions set for certain categories of  the insured– 46.9 billion roubles in 2012, 50.4 billion in 2013, and 18.8 billion in 2014.

 

The fund’s expenditure to be covered with the proceeds of mandatory medical insurance are estimated at 886.8 billion roubles in 2012, 1,034.4 billion roubles in 2013, and 1,188.5 billion roubles in 2014, including:

• subventions to the regional mandatory medical insurance funds to finance the implementation of the mandatory medical insurance scheme in the regions – 603,3 billion roubles for 2012;
• budget provisions reserved in the fund’s budget to finance the implementation of the mandatory medical insurance scheme in the regions – 1,003.3 billion roubles for 2013, and 1,154.3 billion for 2014;
• financial support for the regional healthcare modernisation programmes being carried out in the constituent entities of the Russian Federation and by the federal government-funded healthcare organisations – 244.1 billion roubles in 2012;
• funds to be annually transferred to the Fund of Social Insurance of the Russian Federation for the payment of medical care offered to women during the prenatal and postnatal periods and the delivery of a child, as well as for the regular medical check-ups of babies under 12 months of age, and for services to make maternity certificate forms and deliver them to the Social Insurance Fund’s regional agencies – 19 billion roubles (a maternity certificate will cost 11,000 roubles in 2012, 2013, and 2014 );
• financial support for the fund’s targeted initiatives, including administrative expenses for the upkeep of the fund – 1,052.4 million roubles in 2012, 683.7 million in 2013, and 714.3 million in 2014; and
• funds to promote international cooperation, including annual fees, and the repayment of the overdue membership fee of 3.3 million roubles for 1999 to the International Social Security Association (ISSA) – 16.1 million roubles in 2012, 16.8 million in 2013, and 7.5 million in 2014.

 

In keeping with the fund’s decision, its 2012 budget provides for a fixed safety reserve of 23.2 billion roubles to be used, among other things, to bridge temporary cash gaps occurring in the course of the budget implementation.

 

7. Industrial accident and occupational disease contributions payable under the compulsory social insurance programme in 2012 and the planning period of 2013 and 2014 

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

Under this draft federal law, industrial accident and occupational disease contributions to the Social Insurance Fund for 2012 and the 2013-2014 planning period will be paid by the insurants at the rates and in the manner specified in the federal law On Industrial Accident and Occupational Disease Contributions to Be Paid under the Compulsory Social Insurance Programme in 2006.

This means that 32 insurance rates set for this type of contributions, depending on the type of economic activity and the level of occupational risk, will remain effective during the next three years (ranging between 0.2% and 8.5% of the earnings that are due to insured persons involved under legal employment agreements and are included in the overall earnings on which these contributions are charged).  

In addition, organisations employing individuals with group I, II, or III disabilities, regardless of their legal status, will continue to pay the industrial accident and occupational disease contributions charged on the earnings of their insured disabled employees at a reduced rate that accounts for 60% of the rates specified in Article 1 of the draft law.

This benefit aims to encourage employers to provide more jobs for the disabled.

From 2012 to 2014, the average contribution rate set for various types of economic activities will be 0.51% of the earnings that are due to insured employees under legal employment agreements and that are included in the overall earnings on which industrial accident and occupational disease insurance contributions are charged. Contribution rates linked to the level of occupational risk will remain the same as in 2011. Insurance contributions (including tax arrears contributions) are estimated at 71.8 billion roubles for 2012, 80.1 billion for 2013, and 88.7 billion for 2014 - a sufficient amount for the Social Insurance Fund to make all the relevant pay-outs in full and cover other expenses specified in the governing laws.

At present, the principle that needs to be observed in calculating and setting insurance contributions is achieving a balance between the insurants’ and the insurer’s liabilities, that is the total amount of insurance contributions should cover all the pay-outs made to indemnify insured persons for expenses incurred in connection with industrial injuries.

Total expenditure for meeting the liabilities specified in the federal law On Compulsory Social Insurance Against Industrial Accidents and Occupational Diseases will amount to 69.8 billion roubles in 2012, 75 billion in 2013, and 80.1 billion in 2014, including expenses for paying temporary disability allowances in connection with industrial accidents and occupational diseases, one-off and monthly insurance pay-outs; for delivering and remitting insurance pay-outs; for the medical, social and professional rehabilitation of injured persons; and for industrial accident and occupational disease prevention.

8. Draft federal law On Introducing Amendments to Article 11¹ of the Federal Law on Social Protection of People With Disabilities in the Russian Federation

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

The federal law On Social Protection of the Disabled in the Russian Federation specifies a list of special means and devices referred to as technical means of rehabilitation for the disabled, including special means to help guide people with impaired vision, such as guide dogs complete with outfit.

Under the federal law, the government resolves the amount and the manner of payment of annual monetary compensation to the disabled to cover their expenses for keeping guide dogs, including veterinary care.

This monetary compensation is fixed at 10,000 roubles in Government Resolution No. 708 of November 30, 2005.

However, the compensation has not been indexed since 2005, while food prices and prices charged by veterinary clinics, including annual veterinary check-ups of guide dogs, had considerably increased by September 2011, leaving vision-impaired people more vulnerable.

Therefore, it is proposed to increase the amount of this annual monetary compensation to 17,420 roubles (adjusted for the cumulative impact of inflation) on January 1, 2012.

It is further proposed to supplement the federal law with a provision to increase (index) this compensation in line with inflation (consumer prices) when and as resolved by the government in keeping with federal laws on federal budgets for every financial year and the respective planning period.

 

9. Draft federal law On Amending Some Legislative Acts of the Russian Federation Regarding Insurance Contributions to the State Extra-Budgetary Funds

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

In 2012 and 2013, it is proposed to cut the maximum contribution rate paid by the majority of insurance contribution payers to state extra-budgetary funds from 34% to 30% (22% to the Pension Fund, 2.9% to the Social Insurance Fund, and 5.1% to the Federal Fund of Mandatory Medical Insurance) charged on physical persons’ earnings that give rise to a contribution liability if they do not exceed the upper earnings limit, which is indexed every year to the increase in average wages. On January 1, 2012, it will be fixed at 512,000 roubles. It is also proposed that pension contributions by these payers be charged at 10% on earnings above the upper earnings limit.

It is further proposed to reduce to 20% (20% to the Pension Fund, 0% to the Social Insurance Fund, and 0% to the Mandatory Medical Insurance Fund) the rate of contributions paid to state extra-budgetary funds by small businesses operating in manufacturing and the social services sector that enjoy the simplified tax schedule, as well as by non-profit organisations providing social services to the population in keeping with their constituent documents, and also by properly registered charities that are eligible for simplified tax schedule.

Pension contributions are split into two parts: a joint part for accumulating funds required to meet current pension liabilities, and an individual one to be used to build up pension capital for the insured.

In addition, to support the operations of certain insurance contribution payers with new economic incentives it is proposed to include retail trade in pharmaceutical, medical, and orthopedic products, transportation services and communications, and some other businesses on the list of key economic activities, thereby offering those who are engaged in such activities and enjoy the simplified tax schedule the opportunity to pay contributions at a reduced rate.

Under the draft law, pharmaceutical companies that meet the requirements of the federal law On the Sale of Pharmaceuticals, as well as individual entrepreneurs holding licences to engage in the pharmaceutical business and paying the unified tax on imputed income, that is fixed for some types of activities and is levied on wages and remuneration paid to physical persons engaged in the pharmaceutical business, should be treated as small businesses.

10. Draft federal law On the Amount and Method of Calculating Contributions for Mandatory Medical Insurance for Non-Working Population

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

This draft law specifies for the first time the amount and the method of calculating the contribution to the mandatory medical insurance of non-workers to be paid, beginning in 2012, to the Federal Fund of Mandatory Medical Insurance by the executive bodies of the constituent entities of the Russian Federation, acting as insurants for this section of the population.

The insurance contribution for this purpose is fixed in the draft law at 18,864.6 roubles (using 2001 as a base price). The contribution to be paid by a constituent entity is calculated by multiplying the contribution fixed in the draft law, by the differentiation coefficient, calculated for every constituent entity using a special formula as specified in the addendum to the draft law, and by the healthcare cost growth factor set annually in the federal law on the Mandatory medical Insurance Fund’s budget for respective financial year and the planning period.

Under the draft law, the method of calculating contributions to the mandatory medical insurance of non-workers in a constituent entity of the Russian Federation for the period of 2012-2014 is set forth in the federal law (Part 7, Article 51). However in 2012, this contribution may not be lower than the actual contribution paid for the same purpose in 2010, and below a specified percentage of the difference between a contribution calculated, using the formula specified in the federal law, and the actual contribution paid in 2010: this percentage is set at 25% for 2012, 50% for 2013, and 75% for 2014. The amount of contributions to the mandatory medical insurance of non-workers in 2010 is determined on the basis of these types of contributions that are used to finance a territorial mandatory medical insurance programme, excluding funds used to finance medical treatment that is not covered by the base mandatory medical insurance programme.  

At the same time the total amount of contributions to the mandatory medical insurance of non-workers in 2012 may not be below the target contributions specified in the healthcare modernisation programmes of the constituent entities of the Russian Federation for 2011 and 2012 that were drawn up based on the federal law On Mandatory Medical Insurance in the Russian Federation (Article 50).

In keeping with the drafted law, to calculate the amount of mandatory medical insurance contribution, the base contribution set by the draft law shall be multiplied by the following coefficient: 0.7913 in 2012, and 0.9000 in 2013 and 2014. 

11. Draft federal law On Amending the Federal Law On Mandatory Medical Insurance in the Russian Federation

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

These proposed amendments to the federal law On Mandatory Medical Insurance in the Russian Federation aim to clarify the procedure for financing and implementing regional healthcare modernisation programmes in the constituent entities of the Russian Federation in 2011 and 2012.

This draft law highlights the need to review expenses under regional programmes aimed at introducing modern information systems in healthcare to facilitate the conversion to the unified mandatory medical insurance policy, including as a part of the universal electronic card of the Russian national; introduce telecommunications systems and online document-handling systems; and keep online case histories for patients in line with the approved concept of creating a single information system in healthcare.

Also, the creation of a single information system in healthcare needs to be recognised as an objective of introducing modern information systems in this field, and the procedure for organising the work on, and financing of, this initiative needs to be determined.

More details should be given about the mutual settlements mechanism in the event of providing exterritorial medical treatment to the insured.

Should a constituent entity of the Russian Federation fail to use funds in full to carry out its regional programme in 2011 and 2012, it should be allowed to put the uncommitted funds towards consolidating government-funded and municipal healthcare facilities and introducing up-to-date information systems in healthcare. 

To tighten control over regional programme implementation, including over the commitment of funds allocated for this purpose, regional mandatory medical insurance funds should be authorised to exercise such control.

There are also amendments seeking to authorise a competent federal agency to approve mandatory medical insurance rules in 2011.

 12. Draft federal law On Standard Monthly Expenditure Per Person Receiving Welfare Support in the Form of Medicines, Medical Products and Special Therapeutic Diet Food for Disabled Children for 2012

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

Under this draft law, in 2012 standard monthly expenses per person receiving, in line with medical treatment standards, welfare support in the form of prescription medicines, medical products and special therapeutic diet food for disabled children shall be set at 604 roubles (570 roubles in 2011).

This amendment seeks to make medicines, medical products and special therapeutic diet food more affordable for disabled children and some other groups of recipients.

 

13. Draft federal law On Introducing Amendments to Certain Legislative Acts of the Russian Federation to Streamline the Procedure for Calculating and Collecting from the Employer Default Interest Charged on Overdue Wages and Other Pay-outs Due the Employee  

This draft federal law has been submitted by the Ministry of Public Health and Social Development.

This daft law includes an amendment aimed at introducing a streamlined procedure for calculating and collecting default interest charged on overdue wages from an employer.

Under the proposed amendment to Article 136 of the Labour Code, every employee shall be notified in writing of the composition of the pay-packets due them for a specified period, and of any deductions and the reasons for such deductions, as well as of the overall pay-packet due them.

This amendment is prompted by a failure of some employers to notify their employees of monetary compensation due the employee when they are paid overdue wages, holiday pay, severance pay, and other sums over and above what is regularly due them.

Another proposal is to make an amendment to the Civil Procedure Code of the Russian Federation which provides for a simplified procedure for disposing of cases involving claims for the recovery of calculated but not paid wages by issuing a court order.

Under the draft law, a list of claims that are allowed by issuing a court order should be supplemented with a claim for the recovery of calculated but unpaid monetary compensation for a delay in paying wages, vacation pay, severance pay, and other monies due an employee. At present, the above monetary compensation can only be recovered through action proceedings, an arduous and protracted process.

14. Draft federal law On Introducing Amendments to Certain Legislative Acts of the Russian Federation Regarding State Regulation of Commercial Navigation in Along the Northern Sea Route

Speaker: Igor Levitin, Minister of Transport

15. Signing the Protocol on Amending the Double Taxation Agreement Between the Russian Federation and the Swiss Confederation of November 15, 1995

Speaker: Alexei Kudrin, Deputy Prime Minister and Minister of Finance

16. Signing the Agreement on Regulating the Supplies of Some Types of Steel Pipe from Ukraine to the Republic of Belarus, the Republic of Kazakhstan, and the Russian Federation

Speaker: Elvira Nabiullina, Minister of Economic Development

This draft executive order has been submitted by the Ministry of Economic Development.

The draft agreement specifies voluntary quantitative obligations assumed by four Ukrainian plants to supply a specified quantity of a wide range of pipes to Belarus, Kazakhstan, and Russia within a set quota in exchange for the suspension of antidumping duties that were introduced after the revision of duties conducted by the Ministry of Industry and Trade in compliance with the Agreement on the Procedure for Applying Special Protective, Antidumping, and Compensatory Measures During the Transition Period dated November 19, 2010.

The quota established for Russia is not significantly affecting the macroeconomic indicators of the Russian pipe industry. The presence of Ukrainian pipes in Russia’s domestic market has a positive impact on the functioning of its price-setting mechanism.

This agreement is subject to ratification by virtue of subparagraph “а”, paragraph 1, Article 15 of the federal law On International Treaties of the Russian Federation.

17. Introducing Amendments to the Regulations on the Federal Service for Supervision of Communications, Information Technology and Mass Media

This draft resolution has been submitted by the Ministry of Communications and Mass Media.

The proposed amendment to the Regulations on the Federal Service for Supervision of Communications, Information Technology and Mass Media seeks to authorise this federal service to approve the procedure for a broadcaster to follow when it submits to a license-issuing agency information about telecommunications operators providing television (radio) broadcasting services, and the procedure that an operator providing broadcasting services must follow when submitting information about a broadcaster; the procedure for keeping the register of registered mass media and the register of licences to provide television and radio broadcasting services; the form of the mass media registration certificate; and the form of the permit to circulate foreign periodicals.

Moscow,
September 20, 2011

* Press releases by the Department of Press Service and Information are based on the materials submitted by the federal executive bodies for discussion by the Government meeting.