Putin Demands Drastic Measures

by Tatiana Smolenska, Tax-News.com, Moscow

06 July 2009

Russian Prime Minister Vladimir Putin has addressed members of the State Duma on the effect of the economic crisis on Russian government finances. Reliance on oil revenues has caused tax revenues to fall by one third in 2009, while expenditure rose.

Putin stated that in recent years, public revenues averaged 23-24% of GDP and 2008 oil and gas revenues were more than 10% of GDP. In 2009 the revenues are expected to fall to 16% of GDP with little change projected for 2010-2012. Budget spending increased from RUB7.6 trillion in 2008 to RUB9.7 trillion in 2009 creating a budget deficit of 7.4% of GDP - 8% if 'quasi-fiscal spending' is included. Putin went on to say that Russia could not afford deficits of 13% as in some Western countries and should aim at reducing the figure to 2-3% of GDP over time, but could not say how long this would take. He said to prevent a budget imbalance and preserve the reserves, there must be spending cuts, but in a judicious and careful manner. A budget document will be presented to the Duma on October 1.

Putin later gave state-controlled banks a tight three-month deadline to hand out at least USD13bn in loans to major companies. With the economy shrinking more than expected as a result of the credit market freeze, Putin said that the government had changed the terms of its support to take into account criticism from the banks and expected them to deliver their side of the bargain. He ordered the banks to issue at least RUB150bn in loans by Aug 1, another RUB150bn by Sept 1, and yet another RUB100-200 bn by Oct 1.

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