PRESS: PM: No problem if Russia’s ’15 budget deficit tops 0.5%

MOSCOW, Sep 8 (PRIME) -- Russian Prime Minister Dmitry Medvedev sees no problem in 2015 budget deficit exceeding the target of 0.5% of the country’s gross domestic product (GDP), he told business daily Vedomosti in an interview published Monday.

“We had a 1.3% deficit in 2013. Did we feel it? Generally speaking, no. That is why it is important to understand that we are in the range we’ve set for ourselves,” Medvedev said, replying to a statement that even after the sales tax is introduced and pensions are frozen the 2015 budget still will not meet the deficit target of 0.5% GDP.

The budget must be balanced to maintain stable macroeconomic ratios “to not speed up inflation and inflict any other problems…I think, we are close to finding that solution,” Medvedev said.

SALES TAX

Medvedev said the government will decide on amending its tax policy by the end of September. A final decision on boosting taxes rates or imposing new taxes has not been made yet, and one of evident drawbacks of increasing the tax burden is higher inflation.

President Vladimir Putin initiated the introduction of a 3% sales tax in August. The Finance Ministry opposed the idea, but it prepared and submitted a draft bill allowing the regions to impose a 3% sales tax to help them cover budget deficits.

PENSION SYSTEM

A decision on a further development of the pension system will be made in 2015 and will depend on the situation with reforming private pension funds, Medvedev said. “We have checked many of them now, and we will take it into account while deciding on further development of the pension system. It will be decided in 2015.”

The government decided to allocate citizens’ pension savings in 2015 to paying current pensions.

“There is nothing dramatic there, the money does not disappear, while the situation with the non-governmental pension funds was unclear, the terms allow to check them next year…a decision to abolish the accumulative part of the pensions will be done after the checks are finished.”

Russian companies pay a 30% payroll tax, which includes pension and health insurance expenses, while 6% of an employee’s salary is held in his pension account with VEB or a private bank. The government froze Russians’ pension savings for 2014 and 2015 to spare more money for the budget.

MONETARY POLICY

Medvedev stands against weakening the monetary policy in current conditions, he said in a response to the central bank recently increasing the key rate to 8% from 7.5%. “The central bank, of course, coordinates operations with the government and the president, but its independency is a guarantee of a stable monetary and credit policy. We must not allow the policy weaken today.”

“I want to point out once more – we are not abandoning either budget rule, or inflation targeting. There can be different nuances, but major principles of our macroeconomic policy remain intact,” Medvedev said.

AGRICULTURE

Russia will allocate dozens of billions of rubles to support of agriculture. “We have started a program for the support of undeveloped agricultural sectors – fish farming, greenhouse vegetable farming, gardening…beef farming and dairy cattle husbandry. We will definitely add money there. I cannot mention an exact sum, but we are talking of dozens of billions of rubles,” Medvedev said.

The funds will help Russia decrease the risks of a food import ban and not only provide itself with food, but export it as well.

The Agriculture Ministry sees additional costs of increasing imports replacement at 636 billion rubles in 2015-2020 under a moderately optimistic scenario, with 86 billion rubles needed in 2015.

In August, Russia banned imports of beef, pork, poultry, fish, cheese, dairy products, fruit and vegetables from Australia, Canada, Norway, the U.S. and the E.U. for one year as an answer to Western sanctions.

NATIONAL WEALTH FUND

The government also does not plan to significantly increase the number of projects funded by the National Wealth Fund (NWF). Currently, the reconstruction of the Baikal-Amur Mainline and Trans-Siberian Railway, construction of a railroad to a coal deposit in the Tuva Republic and others are funded by the NFW. “We do not plan to significantly increase their number,” Medvedev said.

However, the already disbursed funds could be reallocated if needed. “We must look at priorities we’ve chosen. Something can pay back a little bit faster…That is why, if we feel the funds have to be reallocated, we will do so.”

(36.9219 rubles – U.S. $1)

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