Prime Minister Vladimir Putin, the leader of the United Russia party, delivered a speech at United Russia’s 10th congress
20 november 2008
Vladimir Putin's address at the congress:
This congress' key objective is discussing the concept of Russia's long-term development and mapping out priority tasks to realise it.
We have created the necessary political conditions for this. Within the past year the United Russia party has successfully held several crucial election campaigns ensuring the continuity and stability of power in Russia.
We have received the people's support thanks to our accomplishments. We have managed to achieve positive changes in the country's life. What is important is that United Russia became the party that offers society a constructive agenda.
I would like to list the agenda's main points.
We need cutting-edge, innovative development. Russia must solidify its role of one of the world's largest economies and maintain sustainable GDP growth rates.
We will need to significantly boost the effectiveness of traditional industries: mechanical engineering, fuel and energy, raw materials processing, transport, banking and agriculture. We will also need to effectively promote new points of growth, especially the development of human potential and modernisation of the social sphere.
As I have mentioned, to become competitive, we need to boost labour productivity in key industries three- or fourfold; and increase the share of innovative production in total output - from the current 6% to 25%, or even 30-35%. We should also reduce the economy's power consumption by at least 40%. Under the present circumstances it is especially relevant to achieve these goals.
Only an effective economy can guarantee people livable incomes and a high quality of life, thus paving the way for a ubiquitous and proactive middle class.
We will seek sustainable population growth, increase life expectancy to 72-75 years, provide all citizens with access to quality healthcare and education, and guarantee reasonable pensions. Finally, the majority of households should have the real possibility of solving housing issues themselves.
All these targets are envisioned in the Concept for Russia's Long-term Development through 2020. I would like to express gratitude to United Russia members and representatives of the expert and business community, who took an active part in this work.
To fulfill the first stage of Strategy 2020, a step-by-step plan was drafted. I am referring to the Guidelines for the Government's Activity through 2012.
Obviously, we will need to apply the initiatives outlined in the President's State of the Nation Address. Our party supports Dmitry Medvedev's proposals for streamlining the political system, countering corruption, creating human resource potential and further developing the social sphere.
The work on realisation of Strategy 2020 begins under challenging circumstances.
The abuse of "cheap money" and other related mortgage problems in the United States have prompted a chain reaction, causing a global financial system paralysis and a general mistrust on the markets, which was bound to affect the real economy. It started as a financial downturn and has developed into an economic crisis before our very eyes.
In some ways it is a durability test for all countries, their ability to protect their citizens' well-being, economy, and national currency. Russia is also facing this challenge.
Given its scale, the present world crisis resembles the natural elements. Within the framework of the current world financial system, which was created long ago, it was impossible to avert the crisis, just as it is impossible to avert a natural disaster.
But what we could and should have done - and what all EDCs' governments do - was to anticipate developments of this kind. We should have taken measures in advance to minimise the losses inflicted by the crisis.
Also, it is possible to state with good reason that we have not wasted time. Our economy has almost doubled. Its dynamics have been robust in general.
In Russia, there is far less risk than in other countries, for example, we do not have a great amount of so-called "bad" debt.
Finally, we have accumulated considerable financial reserves. Certainly, it is impossible to resolve every problem with money. But these funds will give us space to manoeuvre, allow us to maintain macroeconomic stability and consequently avert an upsurge in inflation or a drastic change in the rouble exchange rate. To this end, all available tools will be used.
Our reserves will ensure the Russian budgetary system's stability for years ahead, regardless of oil prices and prices for other export goods.
This means that budget-dependent employees' salaries, pensions and social benefits will be paid on time. The system of social guarantees will function normally. We will not resolve our challenges or "patch our holes" at the expense of the average person. We are not going to do it.
Moreover, I am convinced that based on accumulated economic and political potential, we can and must reach new horizons and take advantage of this global instability to become stronger and more competitive. We must use the crisis as a tool to boost our efficiency.
As I have said, we have already done much. Nevertheless, I should frankly say that not all problems have been resolved.
I am referring to inadequate diversification of the national economy, its low efficiency and the financial system's insufficient development. All these factors make us extremely dependent on global developments.
Despite these problems - and even due to the necessity of settling them as soon as possible - we are not going to give up our strategic plans or shelve them. On the contrary, the current state of affairs makes us address priority issues even more actively.
As a matter of fact, today we have come together to discuss how we plan to achieve our strategic objectives at a time of world financial crisis.
Our absolute primary goal is to improve living standards.
It is necessary to regenerate our social institutions. Today's investment in education, health care, and other social endeavors will give us a competitive edge tomorrow. It will allow us to occupy a stronger position in the post-crisis world where man's role is bound to grow.
We are planning to preserve and develop national projects, including health care and education.
Starting December 1, 2008, federal medical and education establishments, as well as other federally supported institutions, for instance, in culture, will convert to new payment systems. They are designed to improve the quality of services, and to provide incentives for the best doctors and teachers. As we have mentioned, the overall labour remuneration fund in the federal budget will increase by 30 percent.
Implementation of programmes to promote a healthy life style will start next year.
We will continue reforming the system of compulsory medical insurance, funding state guarantees for free medical aid, and developing programmes for preventive medical check-ups, and treatment of oncological and cardio-vascular diseases.
In education, we plan to concentrate on a network of national research universities, and on introducing a fixed per capita principle of financing at all levels. We will also pay special attention to developing new federal education standards, and a system of independent appraisal of the quality of education.
We should support municipalities which use modern models for pre-school education. We should focus on upgrading the skills of school teachers and on other projects which will become part of the presidential initiative Our New School.
We have also announced a new approach to the pension system. This is an important subject.
By the end of 2009, the average social pension should not be below the pensioners' subsistence level. In 2010, the average labour pension will grow by more than 50% compared with this year. This will be achieved through, among other things, a more reasonable attitude to the rights of those who worked and earned pensions in the Soviet period. After working for 30 years, those who begin building their pensions after 2010 may count on receiving no less than 40% of their salaries, from which deductions will be made. This is close to international standards.
To conclude the subject, I would like to emphasize that next year employers will receive tax breaks on a percent of their costs for the medical treatment and education of their employees, their pensions, and for improved housing conditions. This will be a long-term incentive for investing in human resources.
It goes without saying that the development of social institutions and agencies requires huge funds. Are we able to provide the necessary resources for our social objectives? The answer is a definite "yes." Yes, we are able to do this. But this prompts another question: can we ignore the problems which are now being encountered by the entire world because of the global financial crisis? The answer is certainly not, we cannot ignore these problems.
Nevertheless, I am convinced that if we work professionally, if we strike the right balance, we will be able to effectively resolve social issues, overcome the crisis, and consolidate the economy.
In this context, we should reach a number of serious conclusions, and determine our priorities.
Let me start with the financial credit system.
In the past, many Russian companies would receive credit abroad. This is standard international practice, but because of the international financial crisis, Western banks themselves are in trouble.
Today, we have to provide credit to our companies and enterprises practically in full, from our own resources.
We have every opportunity for doing so. Russia's national reserves are substantial. Our economy is generating income on a large scale. Now we can transform it into development capital.
To achieve this, we should make our financial credit system more effective and reliable.
We have already allocated an unprecedented five trillion roubles as a stabilisation package to provide liquidity and stability for the banking sector.
We need to ensure that the allocated funds reach the real economy rather than be wasted on financial speculation.
Colleagues, you all know that the law was adopted to raise guarantees on personal bank deposits to 700,000 roubles. In other words, the overwhelming majority of depositors (98.5%) are now fully protected by the state.
Today, we need to switch from support of individual banks to tangible consolidation of our entire banking system. This task remains a priority.
Needless to say, we have tackled these problems in the past. Of course, we wanted to have a stable and highly capitalised banking system. The government and the Central Bank did much to this end, facing not only objective economic difficulties but also criminal terror.
As you know, the Central Bank's First Deputy Chairman Andrei Kozlov lost his life resolving this particular task.
Regardless of difficulties, we should continue improving the Russian banking system, securing its consolidation and efficiency.
The economy should receive long-term funds for the implementation of long-term, capital-intensive projects.
In this context, it makes sense to expand the practice whereby commercial banks purchase bonds from major domestic companies. The Central Bank will have to refinance credit institutions using these bonds as collateral.
At the same time, we should make broader use of the development institutions, as well as banks with state participation, and increase their capitalisation on the condition that these resources will be spent on crediting priority projects.
Now that the global economy is structurally changing, we have more opportunities to carry out our project creating an international financial centre in Russia, and turning the rouble into a regional reserve currency.
The government is now finalising the financial centre concept. It is drafting measures to develop the business infrastructure and the required legal amendments on the securities market and the Tax Code, providing for more liberal taxes on dividends, and in certain cases, for zero taxes on income from the sale of bonds.
We are actively promoting the rouble as a currency for transactions during talks with our foreign trade partners.
What are the benefits of becoming an international financial centre? Our companies will be able to attract capital for domestic development. In this case, our citizens will be the first potential investors. They will be able to invest their savings reliably and at a profit.
Let me now speak about the second fundamental task.
The global crisis has confirmed again one axiomatic truth. National wealth and economic security depend primarily on the competitive industries. The competitiveness of our national economy was discussed literally this week at a session of the State Council with the participation of the president and regional governors.
I fully agree that we should focus on making our economy more effective, and improve its infrastructure. We should learn to develop alternatives for conditions when prices of raw materials are not growing rapidly.
We should get rid of unjustified costs. In this context, we should work out a serious energy-saving programme. The current drop in prices on energy resources does not make this task redundant.
Needless to say, we should keep our business activity at the current high level, and support it with systemic decisions, both infrastructural, and institutional.
We will have to adjust our taxation policy, and adopt measures to stimulate economic progress.
We have already approved some of them. Starting in 2009, the procedures for charging VAT on advance payments should be streamlined. We were planning to increase depreciation bonus from 10% to 30% from the beginning of 2010.
As you see, I am talking about specific issues, which are very important for the development of the country and the economy. I have just mentioned two measures but in my opinion we have no time to spare. Industries needs support now, and this is why both measures should be carried out simultaneously, starting January 1 of the next year.
We understand that this will lead to a reduction in regional revenues. I have instructed the Ministry of Finance to suggest measures to support regional budgets.
Moreover, considering the special situation with the profits of enterprises in the fourth quarter, I propose they be given the right to pay taxes on the real profits they have received since the start of this year.
This decision will allow them not to be taxed on profits which so far exist only on paper. In this way, business will not be crediting the state for free, while the regional budgets will not have to reimburse companies for overpaid taxes at the beginning of the next year.
Now I would appreciate your attention! I am asking our deputies in the State Duma to adopt the required amendments to the Tax Code allowing this norm to become valid in a week, starting November 28. This is important because taxes are due on this date.
Apart from this, I suggest a number of other steps.
I propose reducing the rate of profits tax by four percent starting January 1, 2009. This should be done at the expense of the federal part of this tax. The amount involved is more than 400 billion roubles and all this money will continue working in the economy next year.
Also, 15% is the current fixed tax in the simplified taxation scheme for small business. To further reduce the tax burden on small business, and create more impetuses for its development, I suggest giving regions the right to reduce this rate by 10%, that is, to five percent. It could be diversified depending on the type of business and other objective factors.
It goes without saying that these proposals are not comprehensive. We will closely watch the situation. Next April, we will revisit the tax system.
Businessmen often complained to me that the tax authorities delay the VAT return. I believe that these authorities should adopt a completely different attitude on this matter, and return the VAT much faster. They could suggest an optimal model for major tax payers. We had such practice before. The current debt on VAT return should be reduced to the minimum before this year expires.
It is important to free business from administrative barriers. The government has submitted the relevant proposals to parliament. I would request the deputies from our party to work on them, and expand them, if need be.
A package of bills should be adopted before the end of this year to simplify the opening of a new business as much as possible. Businessmen should be given an opportunity to work freely and create jobs for others rather than be exasperated by check-ups.
We should continue developing competition to promote business activity, and urge our companies to adopt innovations and become more efficient.
A relevant programme and draft normative acts will be elaborated in the near future. The goal is to provide anti-monopoly agencies with more effective tools for protecting competition, on the one hand, and to reduce excessive control mechanisms, on the other.
All measures taken in support of our economy and its industries are designed to strengthen our position in world markets.
In this connection - our third task.
We should aggressively use the tools for advancing and upholding our economic interests, in the positive sense of the word.
We plan to encourage the domestic exporters of industrial produce, and transform the system of export support into a major institution of development.
We can consider buying the assets of high-tech foreign companies to develop mutually advantageous cooperation and transfer part of the production to Russia on valid economic terms.
As in previous years, we will protect our domestic market, for example, the agrarian sector, with customs tariffs. Needless to say, we will do this without harming the interests of Russian consumers or violating our international commitments. In addition, we have decided to give price preference to domestic suppliers when they are awarded government or municipal contracts. In my opinion, such protectionism is appropriate as a temporary measure.
It goes without saying that we will continue talks on WTO entry. However, I consider it just as important to use the advantages of integration in the post-Soviet space.
Our partners support accelerating a customs union between Russia, Belarus, and Kazakhstan, and also a Common Economic Space. I completely agree with this approach. These projects should be carried out it the near future. I am convinced that the development of industrial cooperation and trade with our neighbours may become a tangible factor of economic stability in the entire Eurasian region.
We are very responsible in relations with all our partners. We are taking a direct part in international anti-crisis efforts, and supporting our allies on a bilateral basis.
We have decided to transfer up to one billion dollars to the International Monetary Fund (IMF) for helping the countries which are the hardest hit by the financial crisis. We are also going to credit China and India for the purchase of Russian equipment, thereby securing jobs and profits of our companies, domestic producers.
Finally, we will give a two-billion-dollar credit to Belarus, our partner in the Union State.
Our assistance does not only help overcome the global crisis, but it develops integration. We are receiving additional chances to diversify our investments and preserve our reserves because we can reclaim these funds in due course and in line with relevant procedures.
Now I would like to talk about one more objective. We should take special measures to support some industries of the real sector, primarily those that could bring down the rest of the economy if things change for the worse. Our efforts and support will become an additional catalyst for their development. These industries are construction, defence industry, agriculture, machine building, and the fuel and energy sector.
I will not enumerate all the decisions, but will mention just a few.
We have already allocated 60 billion roubles to increase the charter capital of Russia's Housing Mortgage Credit Agency, AIZhK, to enable the banks continue their mortgage programmes.
In addition to this, we are ready to purchase more than 40,000 standard flats which are either completed or about to be finished. We will earmark nearly 83 billion roubles for this purpose. By doing so we will help more than just our construction companies, but this particular sector of our economy. First, flats will be given to army service personnel and citizens residing in hazardous dwellings. Second, we will create a guarantee that the buildings which are under construction will be completed. This means that the people who invested in the construction will receive their flats.
We will continue making housing more affordable and helping people as much as we can. In this context, I suggest doubling to two million roubles the tax deduction for citizens who are buying or building flats. Let me explain. In this case, a family will save up to 260,000 roubles in taxes rather than up to 130,000 roubles.
By way of exception, I consider it possible to make this measure retroactive because of its importance. Let us introduce it from January 1 of this year. This means that the income taxes for those who bought or built housing after this date should be recalculated and they should be reimbursed for the difference from the budget.
We are going to make credit more accessible to the agro-industrial sector. Needless to say, the loan servicing should not become an excessive burden. Therefore, on some credit, the interest rates will be fully refinanced by the state. A sum of 3.5 billion roubles has been earmarked for this purpose. In addition, major projects in the agro-industrial sector may be credited by the Bank of Development. We have made this decision. The charter capital of Rosagroleasing (State Agro-Industrial Leasing Company) has been replenished with four billion roubles.
I am convinced that the agriculture can grow stronger and become more competitive during the global crisis, and occupy more niches in both domestic and international markets. By the way, we should help our agricultural producers sell their record grain harvest, thereby creating a solid financial base for their future development.
In the past, oil revenues were a great help for our budget. Now the industry itself needs additional funds to develop advanced processing and other projects. We will give our fuel-and-industry sector the required support.
Thus, export duties will be reduced and their calculation will become more flexible, which will make it possible to react to global price fluctuations in a timely manner.
Starting January 1 of the next year, the rate of severance tax will be cut, and tax breaks introduced for the development of new deposits - on the Yamal peninsula, in the Nenets Autonomous Region, in the Caspian Sea, and in the Arctic shelf. Oil companies have been allowed a more liberal use of the mechanism of accelerated depreciation, and other measures have been taken to lessen the tax burden.
The world economic crisis should not interfere with the implementation of our defence programmes. We should not forget that defence industries have a long development cycle, and limited sources of funding. Therefore, I suggest increasing refinancing and investment into the capital for the defence industry. I also propose allocating funds in 2008-1009 to prevent defence plants from going bankrupt. The total sum of additional funds earmarked for these purposes is over 50 billion roubles.
At the same time, we should be more active in restructuring the defence-and-industrial sector through established holdings. We should make them more effective. They should be able to meet the requirements of the Russian army, and guarantee the buildup of our export potential.
There is one more task to which I want to draw your attention.
The state, natural monopolies and private companies should continue implementing infrastructure projects, primarily in energy and transportation.
The current drop in prices on metals and construction materials is making it possible to reduce the cost of investment programmes and projects. At the same time, natural monopolies should revise their own budgets, and discontinue unproductive, ineffective expenses. They should tighten their belts, if need be, and try to preserve the physical scale of construction. I hope that private companies will take similar steps.
Together with business, we should select those projects which could produce the biggest economic yield, and should rely on the purchase of domestic products in fulfilling them.
I have already discussed this at different meetings, both with the government and businessmen. We will conduct a series of meetings with industries, orienting our vital companies and so-called natural monopolies to this particular task. Certainly we will not shut down imports, but under the circumstances we should primarily count on our own potential.
Russian companies have the right to issue infrastructure bonds, but this right is practically unused. For this reason, we have decided to allow companies to issue infrastructure bonds under the guarantees of the Russian Federation or the VEB to fund the construction of important, major projects.
In general, implementation of infrastructure projects will help create additional solvent demand in the economy, and hence, effectively support related sectors.
As you can see, we are witnessing a decrease in demand in the world economy. All of you watch TV and have heard the news. For example, according to preliminary reports, car sales decreased in October by 13% in Japan, 15% in Europe, and over 30% in the US.
What does this mean? It means that car manufacturers are cutting production, and therefore demand for steel, including orders for Russian steel, have been declining. As a result, our steel mills, which have been exporting up to 50% of their production before the crisis, are now cutting back production. Unfortunately, there are many similar production "chains."
During these times, we should be prepared for fundamental changes in the labour market.
Corporations, regardless of ownership, federal and regional authorities, and municipalities must not turn their backs on the problems which our citizens will face. All of these entities should bear social responsibility for these problems.
We need an active policy on the labour market. We need to plan measures to preserve and create new jobs and also allocate significant sums for retraining programmes and temporary employment.
One of the more efficient ways to solve this problem is to support the development of small business, which can adapt more quickly to the changing economy and create new jobs with little capital.
We have just discussed tax incentives for business. This year, we plan to increase financial help for small businesses. The Bank of Development will allocate 30 billion roubles, which is 21 billion more than was previously planned. The federal budget will offer another 10.5 billion, that is additionally 6.5 billion roubles. This money will subsidise credit, interest rates, government guarantees, the development of small business infrastructure (industrial parks, business incubators and so on), plus grants and education programmes for new entrepreneurs.
The efficiency of these federal measures will be much higher if they are supported and implemented at the local level. We should invite small and medium-sized businesses to bid on state and municipal contracts, assist with office space and utilities, remove administrative barriers, including access to the local markets.
I'm addressing municipal leaders and governors. You know the weaknesses in your regions and should not brush them aside. On the contrary, particular attention to them is needed today.
In short, we need to create a friendly environment for business allowing people who want to start their own business, but are in doubt, to make a positive decision.
As we discussed at the last State Council meeting, the administration in each of Russia's regions and municipalities should employ responsible policies. Administration heads, as well as regional and city Duma deputies, should be aware of current issues and introduce timely solutions.
It is important to adequately evaluate budget opportunities, to optimise the state governance system and to decrease maintenance expenses. We may have to abandon some expensive, so-called ‘status' projects whose expediency is questionable.
We should pursue priority investment projects with the finances saved, invest in creating new jobs and in job retraining. This task is especially important for the towns whose primary enterprises are undergoing economic hardships.
The results of these activities will serve as a baseline from which to evaluate the efficiency of regional and municipal administrations and will thus determine the assistance level provided by the federal budget.
However, federal assistance should not only find its way to regional budgets but also to individuals who find themselves in financial difficulties.
In this respect, I consider it necessary to increase from January 1, 2009 the maximum monthly unemployment benefit by 1,500 roubles, in addition to the 8.5% indexation of the benefit envisaged in the budget, which will result in a maximum monthly benefit of 4,900 roubles. We will watch the situation and introduce changes if necessary.
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The United Russia party is the largest political entity in our country, and thus greatly influences the formation and operation of state agencies at all levels.
Nevertheless, the party's goals do not always coincide with the missions of government agencies.
The Government has to create and implement system solutions and ensure financial stability with the oversight of economic and social institutions.
The goal of our party is to generate new ideas and projects and control their implementation. We need to understand public opinion and people's needs.
The United Russia party has all the necessary tools to define strategic objectives and to develop political programmes and draft laws that correspond to the needs of our citizens.
Our public reception offices and party branches should react effectively to people's applications. We need to ensure that every person who comes to us with a problem receives professional and effective help. People who address our party for help, must be sure that we will deal with their needs and not simply shelve their requests.
Even in the current environment, we shouldn't hide from urgent issues. As the parliamentary majority party, United Russia is fully responsible for what's going on in the country. I'd like to stress that the party's future depends on how we deal with current problems that the country and its citizens are facing.
Frankly, in the past, during the favorable economic environment and high prices of oil and other traditional Russian exports, some of our colleagues either within state agencies or in business or in political parties, were too relaxed. This doesn't apply to United Russia only. A lax attitude is absolutely out of place today as it leads to errors and a loss of credibility with the public.
After all, it's during hard times that any social structure is tested.
People keep asking us what lies ahead and what the authorities intend to do to protect the country's citizens from the financial crisis. It's a good question. I'll put it straight: like the world's other developed economies, Russia is being influenced by a significant number of market factors which are out of anyone's direct control.
Nonetheless, we will do everything we can to avoid further shake-ups. We will do what we can to protect our citizens' bank accounts and investments in the construction of housing, and to avoid the collapses of 1991 and 1998.
We will maintain a reasonable monetary policy and a predictable national currency rate while gradually countering inflation and ensuring that our social commitments are being fulfilled.
Given the complex circumstances, we need to work with a full understanding of our responsibility to the country and the Russian people.
In the present adverse environment we have to prove our ability to assist those in need and ensure accomplishment of our strategic objectives.
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Colleagues and friends,
A trust in Russia has more than once helped our people to achieve great success.
We have always been strong because of our diversity and the unity of our cultures. Every one of us thinks of Russia as his Motherland. We want to live in a free and rich country, work honestly and efficiently, build bright future for ourselves and our children, and to be proud of our country's achievements.
The United Russia party has always defended the values of Russian patriotism, the values which unite us as a nation. Only a united nation with common values can face any challenge, cope with any problem, and achieve success and wellbeing.
We can do this and we will do it.
Thank you for your attention.