Russia has to cut defense expenditures

Russia has to cut defense expenditures

Yesterday, the Minister of Economic Development, Alexei Ulyukayev, stated that recession in the Russian economy had ended, not mentioning when exactly the economy had withdrawn from the recession. “According to the definition, a recession is when a decrease is taking place six months in a row. From this point of view, the recession is over,” Interfax cited Ulyukayev, guessing that the Minister meant that in the third quarter of 2015 there was a seasonally cleaned growth of GDP; and Russia didn’t enter a new recession, as the decrease was registered only in the fourth quarter of 2015. The current basic forecast of the Ministry of Economic Development of Russia requires a year-average oil price of $50 per barrel and a growth of GDP at the level of 0.7%.

At the same time, experts are not optimistic about the prospects for the Russian economy. “If there is a structural crisis, structural reforms are needed. We are still a raw materials country. Despite many years of favorable oil market conditions, we have remained a country that critically depends on the foreign economic situation on the basis of commodities. Our share of small business is critically low, and this is a structural problem. Our budget is distorted in terms of priorities,” Igor Nikolayev, director of the Institute of Strategic Analysis of the FBK company, says.

According to him, that it will not be possible to fix these imbalances quickly. “The crisis is protracted. In 2009, we did not have time to get scared – we fell, bounced, and the crisis ended. But that won't work now. That means that we need measures of another nature; taxes, for example. Despite all the words that taxes will not rise, the tax burden has increased. The tax on extraction of mineral resources – tax on oil increased, because our base rate has increased; tax on gas, because the correction factor has increased. Property tax will be widely levied this year on the cadastral value. Plus, if you take 'Platon' into account, payments for major repairs, trading fees and so on, our tax burden is increasing at a time when it absolutely should not increase. Taxes should not be increased, they should decrease. And then it is necessary to revise budget priorities,” Nikolayev is sure.

He says that, in world practice, those individual entrepreneurs who do not use hired labor do not pay any taxes at all. “But our mentality is that it is difficult to imagine how someone will not pay. It is a justified and, in my view, a necessary measure,” Nikolayev says.

He suggests revision of the budget priorities: “We are indexing pensions by 4%, we are not indexing for working pensioners, but affect defense expenditures to a lesser extent. We should reduce defense expenditures, if we want the economy to revive. When there is a structural crisis it is important to not simply give someone money, but launch such mechanisms so that the economy begins to generate revenue. Contributions to the budget will be greater, respectively, and that is how it will work.”

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