21 september 2011

Prime Minister Vladimir Putin chairs a Government meeting

Vladimir Putin

At a government meeting

“The government’s position remains unchanged: responsible budgetary policy and what is called living within our means. Therefore we expect that by the end of the three-year period, by 2014, we will have cut the federal budget deficit by half, to about 0.7% of GDP”.

Vladimir Putin's opening remarks:

Good afternoon. Today we are summing up the government's work on the draft federal budget and off-budget funds for 2012-2014. During the course of our work we repeatedly discussed the main parameters, goals and tasks that we set ourselves. Even so, I would like to repeat some things considering that it is the most important, certainly the most important economic document for this year and coming years.

First, we must by all means meet all our obligations to our citizens, continue an active social policy, and invest in the sectors that determine quality of life and the living standard of Russian citizens.

Another priority, undoubtedly, is the modernisation of the national economy, and large-scale infrastructure programmes and projects. If we have thus arranged our priorities... I said: first, social tasks because this is the main purpose of any government in any state. But we cannot solve the first task without solving the second task. This leads us to the third priority, and that is strengthening security and modernising the army and navy, and developing the system of guarantees for servicemen and their families. The key objective is to preserve a balanced government budget and thus the stability of all the main macroeconomic parameters. I believe the final document reflects all these propositions.

In 2012, budget revenues will amount to 11.8 trillion roubles and budget spending to 12.7 trillion roubles. So, as you see, the budget deficit target for next year is 1.5% of GDP. I would like to remind you that when the budget for the current year was drafted, we set the deficit target at 3.6% of gross domestic product, but in reality we expect that government treasury revenues and expenditures will be equal, in other words, there will probably be no budget deficit.

I would like to stress that the government's position remains unchanged: a responsible budgetary policy and what is called living within our means. Therefore we expect that by the end of the three-year period, by 2014, we will have cut the federal budget deficit by half, to about 0.7% of GDP. We all understand very well, colleagues, that a balanced budget this year owes much to the global economic situation, which favours us. But our development forecasts are based on reality and on the need to change the structure of our manufacturing sector and our economy, which I'll get to in a moment.

We should not rashly inflate our spending based on foreign political developments, which are highly unstable. Overall, as you can see, there are a lot of uncertain and unpredictable factors in the global economy today, which we cannot influence. We should discontinue inefficient spending and increase our return on budget funds. I want to draw your attention to an aspect that I consider to be very important: if we do not want to sequester the budget tomorrow, as some developed market economies are currently doing, which would deprive people of the most necessary things, would require us to take painful measures and to reject those citizens who are entitled to government support – if we do not want to do this, we should not inflate our spending today. We need to be very careful about this.

Federal budget spending in relation to Russia’s GDP remains stable, at 20%-21%. Our emphasis is laid on two key elements for reducing the deficit. The first has to do with quality growth of the economy, changes to its structure (as I have already said), and decreased dependence on commodities. We expect the budget’s non-energy revenues to grow in the next few years, in both absolute and relative terms. Their share will grow from 53% in 2012 to 57% in 2014. This year, their share is 51%. Our forecast of oil prices in the forthcoming period is moderate. The budget for 2012 is based on an oil price of $100 per barrel, which is below this year’s average price. The average price of the Urals mix, which is sold by Russian companies, was $109.2 per barrel in January-August of 2011. As you can see, we have a conservative forecast for the coming year.

We will encourage an increase in the tax potential of Russian regions. We have allocated 10 billion roubles from the 2012 federal budget to award to regions that have the best results in business development and attraction of investment. It would be good, incidentally, if the Ministry of Economic Development and the Finance Ministry could work with regions. Recently, I met with our colleagues who had passed the preliminary popular vote ahead of the parliamentary elections. Some of them pointed out that regional budgets are doing to municipal budgets what our Finance Ministry used to do to the regions: as soon as they achieve some results, their tops are cut off, so efficient development is discouraged. We have set aside 10 billion worth of encouraging bonuses for regions that achieve results in 2012. I think we should recommend to our colleagues in the regions that they do the same towards municipalities.

Moving on, the tax tools that we use should correspond with macroeconomic conditions and social justice requirements. Notably, next year we will increase the tax burden on the gas industry. I agree with the Finance Ministry that we have not raised taxes for the gas sector in a long time. Gazprom is confident overall, its sales are growing and prices are fairly high, so the decision is justified. At the same time, let me recall that we have limited the growth of gas tariffs next year to 15% and we have agreed that this increase will take place starting not on January 1, as was the case earlier, but on July 1. The rate of insurance payments to the Pension Fund, the Social Fund and the Mandatory Health Insurance Fund will be lowered for a majority of payers from the current 34% to 30%. However, for wages over 512,000 roubles annually, there will be an additional rate of 10%, that is, they will pay 30% like everyone else plus an additional 10%. This is an additional tax on high wages.

Moreover, we are providing benefits for small businesses in the industrial and social spheres, and also for non-profit and charitable organisations in the social services sector. For them, the rate will be reduced to 20%.

Now, colleagues, a few words about the priorities for federal budget spending. This year, we have allocated 190 billion roubles for regional healthcare modernisation programmes. In 2012, we will provide additional 195 billion roubles to renew the material resources of medical institutions and raise the standards of medical assistance. We will also increase financing of the Healthcare priority national project to 145 billion roubles. The money will be used for additional payments to medical personnel, to purchase modern diagnostic equipment and medications, to improve prevention and treatment of cardiovascular diseases and cancer – in other words, towards priority areas.

Next year, we will continue with our project to support Russian schools and will allocate another 60 billion roubles towards this purpose. Our goal is to bring teachers’ wages to the level of the average wage in all regions of Russia already in 2012. In the next three years, the federal budget will allocate 10 billion roubles to support pre-school education. I want to remind our colleagues in the regions that this is mainly their goal, but the federal budget will support those who display efficiency in this area. Let me repeat: we will allocate 10 billion roubles to the regions that are most efficient in this area.

Overall, federal budget spending on education will grow by 7% next year, and will amount to some 600 billion roubles. Allow me to recall that at the beginning of the new academic year the scholarship fund of Russian federal universities was increased by 9%, and it will grow by an additional 6% on September 1, 2012. Also, on June 1, we doubled the stipends for resident physicians and interns. Next year, we will continue carrying out demographic programmes and will raise the maternity capital from 365,700 roubles this year to 387,640 roubles. This family support tool has shown good results and is very popular, especially for improving a family’s housing situation. So, as you may remember, we have decided to allocate additional budgetary funds for the maternity capital: 70 billion roubles for the next three years. We will raise benefits for newborn babies to 12,400 roubles. Child allowances will also be indexed by 6% on January 1, 2012.

Next year, we will allocate 5.2 trillion roubles towards pensions. Retirement pensions will grow by 7% on February 1, 2012, and by another 2.4% on April 1. Social pensions will be increased by 14.1% on April 1. As a result, the average monthly retirement pension will be about 9,300 roubles next year, and the average monthly social pension will be about 5,700 roubles.

We should make sure that we fully honour our commitments to provide housing for WWII veterans. Next year’s budget provides 18 billion roubles towards this purpose.

Overall, we will provide 179 billion roubles for housing programmes, half of which will go towards resolving housing problems in the military. All servicemen in the Armed Forces and in the Ministry of the Interior that are on the housing waiting list will receive permanent housing within the next two years. Also, we plan to allocate 18.6 billion roubles next year to provide permanent housing for members of the military who were discharged earlier without housing and were put on municipal housing waiting lists before January 1, 2005.

In 2012, we will reform the pay received by servicemen of the Ministry of Defence and the Ministry of the Interior. It will grow by over 100%. In 2013, a new pay system will be introduced for other law-enforcement agencies as well. We will increase the pensions for all retired military already on January 1, 2012: they will grow by an average of 50% regardless of the agency. By the way, it will be necessary to explain all these processes to citizens, to show them the starting points and so on; questions come up and they should be answered.

One of the most important goals of the federal budget over the next three years will be ensuring the country’s post-crisis development, creating conditions to modernise the Russian economy, building a stable infrastructure and improving Russia’s defence capabilities and security. We will allocate a total of 2 trillion roubles to support qualitative economic growth in 2012. But the government will not try to replace businesses in certain sectors: on the contrary, we will encourage and promote business initiatives and provide support for promising projects.

In this respect, I would like to mention our increased appropriations for state guarantees, which will total 700 billion roubles in 2012. A similar approach will be adopted in the agricultural sector. We will allocate 136 billion roubles to support agriculture next year. Almost half of this sum will go to reimbursing the interest on loans to agricultural producers. The budget provides 156 billion roubles for the overhaul of industrial enterprises, improvement of the competitiveness of domestic products and their promotion in the market. Aircraft-building, shipbuilding and, of course, the car industry will remain priorities. We will also more than double spending on the development of the pharmaceutical and medical sectors to 10 billion roubles.

Comprehensive development of the country’s economy is impossible without supporting its foundation, research and technology. We will allocate 323 billion roubles towards this purpose next year. As much as 161 billion will go to the space and telecommunications sector (of which the Glonass satellite system will receive 20.5 billion), almost 40 billion roubles to strategic computer technology and software and 17 billion roubles to promising research in nuclear power generation.

We will continue large-scale renovations of our road network next year. Overall, we will spend more than 1.3 trillion roubles on roads within the next three years, including 678 billion on construction and reconstruction of federal highways. We will be developing the country’s transport industry, and modernising airports, river ports and railways. Aggregate appropriations for these purposes will amount to 276 billion. Of course, we will support regional air carriers (primarily in the Extreme North), and will continue the programme of discounted flights for residents of the Far East and the Kaliningrad Region. And, of course, we will pay special attention to transport security.

Colleagues, the draft budget is a result of a great deal of intensive work, including the work of the Popular Front. I have just met with the Front’s members, and we discussed this, among other things. The draft law will be submitted to the State Duma within a few days. I hope that work with deputies of all groups, and then with members of the Federation Council, will be constructive.

In conclusion, I'd like to request that all ministries and agencies immediately start preparing legislative acts, tender procedures and corresponding documents so that we can begin implementing the planned budget programmes at the beginning of 2012, without any delays.

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