Vladimir Potapov

T

he natural rent was a major subject of public debates between the leading rivals in the 2003 elections to the State Duma as well as in the presidential elections in March, 2004. The end of the stormy political campaign notwithstanding, the interest in this issue has not faded away. As the public sees it, collecting the natural rent should eliminate the unjust distribution of the rich raw materials that took place in Yeltsin’s years. It is obvious that the breathtaking growth of oil companies’ profits only fuels this sentiment. And, of course, the main irritant that has raised the temperature of the public resentment to the boiling point has been the arrogant behavior of the Russian nouveaux riches, who spend their excess profits from the national pie on buying soccer clubs in Europe, luxurious mansions and other expensive pleasures and who are in no hurry to reinvest these enormous sums of money in the economy of their own country. In the final analysis, even oligarchs themselves have now accepted the necessity of levying the natural rent.
As a political notion, the proposal to collect the natural rent and redistribute it in favor of the country’s populace belongs to economist Sergei Glazyev, one of the left-centrist wing leaders. As a result of his persistent and vigorous propaganda, this idea has finally taken root in the public consciousness. Glazyev regards the natural rent as kind of the Archimedean lever, by the help of which it becomes possible to secure an accelerated economic growth and improved well-being of the population. He also says that it will allow to raise wages in the budgetary sphere, increase funding of scientific research, reduce taxes and even completely exempt companies’ profits from taxation, if these profits are used for investing. According to his concept, the main tax burden is to be shifted to excess profits from mineral resources. Glazyev and his supporters propose to tax extra income of mineral resources’ users. The tax of this kind differs from the tax on extraction of mineral resources, which is included in the commodity value (for example, in gasoline prices) and, in fact, is paid by consumers, since it concerns only the excess profit that is received from exploiting mineral resources and is used ineffectively.
At present, rent receipts through the mechanism of taxes and duties are distributed between production companies and the State budget. But this distribution process is uneven. Glazyev believes that the oligarchic structures manage to lay their hands on the main portion of the rent. That is why oligarchs have multibillion assets while Russia’s population as a whole is experiencing poverty on a mass scale. Their capital that originates in Russia flows abroad after that. That is why Glazyev proposes to introduce the concept of the natural rent revenue into tax laws and set a high tax on it.
Many supporters of the natural rent payment failed to find a common ground among themselves on two points: how much to seize (figures from $3B to $80B are being mentioned) and how to distribute the seized funds. First, in order to define "excess profit" – particularly, the one that "is used ineffectively" – it is necessary to assess the total amount of the profit and it is not that simple to do in the current Russian conditions. Second, if oil companies are to be deprived of those funds that go for payments of dividends or "unjustifiably high" salaries to their top managers, then, these funds will settle down in purses of the rest of the population and they will not fall under the investments category in any case. Thanks to additional income the needy citizens will, of course, increase their demand for food or goods of the light industry that may contribute to development of these economic sectors. But, in essence, the final result is going to be the same, although it will be more fair: petrodollars will be eaten away but the problem of the social efficiency will remain unsolved.
The more preferable option of using seized funds is to invest them in reliable sources that will provide the population with payments from their proceeds. This scheme is efficiently used in some oil-producing countries. Its advantage is the creation of a profitable source, which will stay on even after oil deposits are exhausted.
Glazyev’s idea has found not only the like-minded people but also quite a few obvious as well as covert opponents. Grigory Yavlinsky, for example, has loudly called his proposal ‘a populist idea, which some political figures are exploiting as a slogan’. Doubts in ‘economic expediency’ have been expressed by the president’s advisor Andrei Illarionov: "There is nothing more absurd than to seize funds of objectively good-working industries so as to redistribute them among those, which are working ineffectively. In case this program is successfully implemented, the total efficiency of the Russian economy will decrease".
Member of the Federation Council, the upper house of the Russian parliament, Victor Orlov, while being supportive of Illarionov’s position in some respect, has had to admit, however, that more funds could be seized from many users of mineral resources, chiefly from oil companies. He considers it right to raise the very question of increasing dues on excess profit from extracting raw materials but, at the same time, Orlov proposes to differentiate rent payments: "This will not only raise budget receipts but expand the country’s raw material base as well, since with a zero tax rate it will be profitable to develop many deposits that are abandoned today because of the unprofitabileness".
German Gref, the minister of economics, is also placed among opponents of the natural rent. Because of his status Gref, of course, cannot ignore the widely spread sentiments and formally admits that "the State should try to increase the natural rent on the extractive industry" because "these funds are necessary for making structural changes in the economy and directing resources from the extractive sector to the manufacturing one". At the same time, in the minister’s opinion, rent payments can be raised by no more than $2B to $3B and that makes the whole procedure a fiction. In this connection it is appropriate to refer to Sergei Mironov, the chairman of the Federation Council, who rather properly reminded that by estimates of prominent economist and academician Lvov Russia annually receives $60B less in the natural rent than the country’s due.
When working on the natural rent. government bureaucrats were constantly looking back at the Kremlin. They were also trying to solve other ‘oil problems’ with the help of a differentiated specific oil tax: the increased tax for some companies and the reduced one for others. The reason was that, as Vladimir Putin noted, a simple increase in the flat tax rate "can be unfair to enterprises, which are working on not sufficiently profitable wells". As a whole, the aim of those bureaucrats was to stimulate oil companies of low profitability with the help of the received rent. The Ministry of Finance was against the differentiation arguing that it could result in reduced state receipts. The Ministry of Economics put forward an alternative: to introduce an annual tax on each ton of oil reserves. The Ministry of Finance liked the idea: such a tax could be easily collected. But there is an inner bottom present in this case. "This tax will force companies to get rid of extra licenses voluntarily", points out Alexander Ivaneev, the head of the tax policy department at the Ministry of Finance. For a long time already the government has been trying to withdraw licenses for deposits, which are used by companies solely as their assets contributing to the capitalization growth. So far it has been extremely difficult to withdraw these licenses.
Debates on seizing excess profits of the extractive industry are fueled to a certain extent by the president’s two national projects: doubling the GDP and fighting poverty. In order to accomplish both tasks, solid financial sources are needed. That is why after having been tested during the elections the concept of the natural rent was endorsed, although it was not that simple to realize it in practice. And it was not without reason that, addressing the joint board of the Ministry of Finance and the Ministry of Economics, Vladimir Putin admitted that "the system of payments for natural resources that exists in Russia does not provide an economic basis for the size of the natural rent". The president called for "thinking through and putting forward measures to make improvements in this most important sphere and to make them in such a way that would not harm opportunities to develop the country’s power engineering".

For the record
On April 23 deputies of the State Duma adopted without much debate and in all three readings the government’s draft law to increase the basic rate of the tax on extracting mineral resources (TENR) to produce oil from 347 rubles to 400 rubles a ton. The draft law was voted for by 395 deputies, 13 deputies voted against it and 3 deputies abstained.
The law also sets a new scale of export duties on raw oil. It will now include an additional clause: their rate will equal 45%, when the oil price reaches $20 to $25 a barrel, and 65% with the oil price over $25. As is noted in its financial and economic provision, with the passage of the draft law that provides for changing ways of calculating TENR and increasing rates of export duties on oil extra federal budget receipts may amount annually to: 15.6 billion rubles with the world price for Urals from $22 a barrel, 27.8 billion rubles with the price from $24 a barrel, 59.8 billion rubles with the price from $27 a barrel and 98.9 billion rubles with the price from $30 a barrel.
The draft law was presented on behalf of the government by deputy minister of finance Sergei Shatalov. In the government’s opinion, the proposed changes will not harm the financial status of companies of the oil industry. Sergei Shatalov said that all extra money will be placed in the stabilization fund.
Summing up the results of the voting Boris Gryzlov, the Duma’s speaker, called the passage of the draft law ‘important and urgent’. According to Gryzlov, from the economic point of view it levels out the profitability of the oil sector making it equal to the average profitability of the industry and removes "circumstantial non-operating components of profits". In his words, the draft law has a social aspect as well, since it is to realize the principle, under which proceeds from developing natural resources should go to all citizens of Russia.