The Government of Russia is of the opinion that its main tasks in 2002 are the support of stable economic growth, reduction of inflation and increase of real income of the population. The economic development will be ensured mainly through the internal abilities of the nation which implies a decrease in dependence on the foreign economic situation, above all, on world oil prices.
However, many analysts still believe that oil export earnings continue to have a substantial effect on the budget policy. Therefore, a radical decline in oil prices on the eve of the approval of a new federal budget in Russia caused sharp debate in State Duma – the lower chamber of the Russian Parliament. At the request of ‘Eurasian Metals‘, Alexandr Zhukov, Chairman of the Budget Committee of State Duma of the Russian Federation comments on the results of this debate: "The approved budget is grounded on a real oil price of US$18 – 23 per barrel. The prices for the other major Russian export products (iron&steel, nonferrous and noble metals, gas) were also predicted based on a realistic scenario of world economic development. It lays a certain strength margin in the implementation of the budget. So, even if the average annual prices for the Urals brand oil are below US $18 per barrel the social expenditures: on salaries of employees on budget payroll, on increase in state pensions, on court reform, will be fully observed.
A critical situation when the expenses will have to be radically reduced will be indicated solely if the oil prices become not only twice lower (below US$10-12 per barrel) but also keep at this level for a year which is believed to be unlikely.
A peculiarity of the Federal Budget for 2002 is a positive gap which is 1.63 % of gross domestic product (GDP). A part of it will be directed to the reduction of the Russian foreign debt while the balance (120 billion rbls) will go to the formation of a fund proposed to be used for payments under the state debt in 2003 and next years. About US$3 billion from the earnings of 2001 will enter this fund as well. This fund will afford a full execution of the debt commitments amounting to around US$19 billion in 2003.
In the end of 2002 the total foreign state debt will lower drastically, and its overall amount will be less than 50 % of GDP. In succeeding years the state debt share in GDP will be reduced to 40 %. The debt amount will no doubt be affected by the positive gap of the federal budget, the strengthening of the ruble exchange rate and the real growth of GDP.
In general, the Russian economy indirectly depends on the situation in the economies of other developed countries. In particular, if in developed countries, which are the consumers of the main Russian export products, the pace of economic growth decrease the demand for Russian goods correspondingly lowers. But this dependence is much less now than compared with the period before 1998.
In 2001 the Russian tax legislation was drastically changed. The most important chapters of the Tax Code were approved. They deal with a tax on enterprise profit whose rate is now 24 % instead of 35 % and a tax on mining of mineral resources, which establishes a reasonable balance between enterprise and state earnings, as a function of the level of world prices for different types of mineral resources, above all, oil and gas. Unfortunately, in 2001 the maximum single social tax rate, which prevents a part of incomes of the population from leaving the shadow turnover, failed to be reduced. The doubts that, with the transition to a new pension system, there may be a deficit of funds arose in the Government. It is thought that 2002 and 2003 are less favorable from the demographic view, so the Government is not yet ready to meet with the reduction of this rate; meanwhile, from the deputies‘ view , it is one of the most important issues of tax reform.
In 2002 our Committee will examine the draft chapter of the Tax Code that is devoted to taxation of small business in need of simplification and reduction of tax load. A reduction of VAT and an introduction of a single rate of this tax at a level of 16-17 % become urgent as well. It must be noted that the matter of distribution of tax incomings between the federal center and the regions is still traditionally acute. In the budget for 2002 this ratio is 63 % to 37 %. Lately the Government has consciously pursued the policy aimed at a change of this ratio in favor of the center. In Russia the difference in the development of regions is too great and should be reduced, but the donor regions who are deprived of the right to dispose of a considerable portion of their incomes lose a motivation for economic development. At the same time the world practice shows that the 70 to 30 % ratio is typical of the unitary state and not of the federal one. Further redistribution of incomes in favor of the center may involve political consequences.