Promised Tax Code Headed For Duma

First Deputy Prime Minister Anatoly Chubais said Friday the government is finally ready to submit a new tax code to the State Duma, a key condition for securing billions of dollars in loans from the International Monetary Fund.


Speaking one day after telling parliament the country faces a "monstrous" budget crisis, Chubais told reporters the government had given final approval to the long-awaited tax code Thursday and will make an official decision next week on a round of state spending cuts needed to salvage this year's budget.


He also sought to quell fears that cutbacks would hit the population heavily, saying the state would have more money to spend in the second half of the year than it has so far and the revenue shortfall "is not a crisis for the economy as a whole." On taxes, he said the new code would ease the burden on producers, but warned: "Those who pay taxes will be in better shape than those who do not."


Reaction to the government's spending plans from the State Duma was muted Friday, but analysts say the government faces tough fights in parliament to get the new tax code and spending cuts enacted.


Chubais' comments capped a week in which the new reformist government installed allies in key positions and won promises of $1.2 billion in debt payments from Gazprom, the natural gas monopoly. Next week, the government's moves will come under the scrutiny of the IMF, which is sending a delegation seeking to finalize Russia's 1997 economic program.


The IMF mission arriving Monday will be the "deciding one"Anton Tolstikov, deputy director of the Finance Ministry's department for international financial institutions, said negotiators are still discussing the dollar figure to be granted to Russia in 1997. The sum could be greater than the $3 billion envisioned under last year's three-year, $10 billion agreement, he said.


"The amount is unclear. It depends on how strong the program will be," Tolstikov said, calling discussions on the subject "a very complicated question."


Although IMF officials hope to wrap up negotiations next week, the fund's board is not expected to consider this year's program before next month. An increase in IMF funding would follow stepped-up support from the World Bank announced this week to the tune of $3 billion a year, linked to reforms but designated for wage and pension payments. The West is anxious to provide financial support to the new Cabinet to head off social discontent while implementing unpopular reforms.


Last year's IMF loan was increased by $1 billion late in negotiations, when Western governments were eager to channel aid to President Boris Yeltsin during his re-election campaign.


ORT television reported Friday that the government had officially submitted the new tax code to the Duma, which would satisfy a condition set by IMF Managing Director Michel Camdessus on his visit to Moscow this month.


The code seeks to streamline Russia's cumbersome tax system by eliminating exemptions and scores of levies. Chubais said it would ease the burden on domestic producers by as much as 70 trillion rubles ( $12 billion), and officials hope it will boost revenues by enticing more payers into the system.


But experts caution the still-complex document will be no panacea for the budget or the ills of Russian enterprises.


"Given past fiscal battles, the Finance Ministry must be preparing themselves for a pretty tough fight" in the Duma, said economist Roland Nash of Renaissance Capital investment bank. Some deputies predict the code will be considered in detail in tandem with the 1998 budget beginning in August.


With revenues running at just over half of projections under the current tax system, one Western economist said the government "really has no other options at this point" except to cut back spending in midyear, a process known as sequestration.


Under the budget law, certain items are designated as "protected," including pensions, state-sector wages, debt payments, health and education spending and certain investments. But even some of those may be fair game, and areas such as defense face sharp cuts.


Economics Minister Yakov Urinson, interviewed on the "Hero of the Day" program on NTV television Friday night, said one target would be subsidies to unprofitable industries, although he exempted the coal sector. He said the government is "actively" adopting some of its economic proposals from Yegor Gaidar, the unpopular architect of the first round of market reforms in 1992.


Reuters quoted Jochen Wermuth, a Finance Ministry economist, as saying the overall effect of sequestration would be to create the government's first "realistic" budget in five years. Since spending and revenue projections had been excessively rosy, he said the planned cutbacks would only take most expenditures down to 1996 levels and leave protected items unscathed.


Chubais said the cutbacks would be decided upon by the government at a meeting April 25. Revised spending plans are expected to be submitted to the Duma next month.


Nash said the sequestration process could jeopardize swift passage of the tax code by draining the attention and resources of both government agencies and the Duma's key budget committee.


Chubais, who also holds the Finance Ministry portfolio, spelled out his intention Friday to keep tight control over government spending decisions.


"The ministries and other agencies will have a specified amount within which they will have to operate," he said. "The performance of ministers will be evaluated by their ability to reduce spending and stay within the amounts allocated by the Finance Ministry."


To aid in his control, Chubais announced, as expected, a reorganization of the Finance Ministry, confirming the departure of Andrei Vavilov as deputy minister and establishing three loyal deputies in charge of revenue, budget and social reform issues.


But the Western economist said personnel problems run far deeper than the top level of ministers -- "all the way to the lowliest clerk." Only slashing the government bureaucracy will improve efficiency and help cure corruption, he said. "These people have been at the trough long enough and they're not going to starve, so, goodbye." fo Anton Tolstikov, deputy director of the Finance Ministry's department for international financial institutions, said negotiators are still discussing the dollar figure to be granted to Russia in 1997. The sum could be greater than the $3 billion envisioned under last year's three-year, $10 billion agreement, he said.


"The amount is unclear. It depends on how strong the program will be," Tolstikov said, calling discussions on the subject "a very complicated question."


Although IMF officials hope to wrap up negotiations next week, the fund's board is not expected to consider this year's program before next month. An increase in IMF funding would follow stepped-up support from the World Bank announced this week to the tune of $3 billion a year, linked to reforms but designated for wage and pension payments. The West is anxious to provide financial support to the new Cabinet to head off social discontent while implementing unpopular reforms.


Last year's IMF loan was increased by $1 billion late in negotiations, when Western governments were eager to channel aid to President Boris Yeltsin during his re-election campaign.


ORT television reported Friday that the government had officially submitted the new tax code to the Duma, which would satisfy a condition set by IMF Managing Director Michel Camdessus on his visit to Moscow this month.


The code seeks to streamline Russia's cumbersome tax system by eliminating exemptions and scores of levies. Chubais said it would ease the burden on domestic producers by as much as 70 trillion rubles ( $12 billion), and officials hope it will boost revenues by enticing more payers into the system.


But experts caution the still-complex document will be no panacea for the budget or the ills of Russian enterprises.


"Given past fiscal battles, the Finance Ministry must be preparing themselves for a pretty tough fight" in the Duma, said economist Roland Nash of Renaissance Capital investment bank. Some deputies predict the code will be considered in detail in tandem with the 1998 budget beginning in August.


With revenues running at just over half of projections under the current tax system, one Western economist said the government "really has no other options at this point" except to cut back spending in midyear, a process known as sequestration.


Under the budget law, certain items are designated as "protected," including pensions, state-sector wages, debt payments, health and education spending and certain investments. But even some of those may be fair game, and areas such as defense face sharp cuts.


Economics Minister Yakov Urinson, interviewed on the "Hero of the Day" program on NTV television Friday night, said one target would be subsidies to unprofitable industries, although he exempted the coal sector. He said the government is "actively" adopting some of its economic proposals from Yegor Gaidar, the unpopular architect of the first round of market reforms in 1992.


Reuters quoted Jochen Wermuth, a Finance Ministry economist, as saying the overall effect of sequestration would be to create the government's first "realistic" budget in five years. Since spending and revenue projections had been excessively rosy, he said the planned cutbacks would only take most expenditures down to 1996 levels and leave protected items unscathed.


Chubais said the cutbacks would be decided upon by the government at a meeting April 25. Revised spending plans are expected to be submitted to the Duma next month.


Nash said the sequestration process could jeopardize swift passage of the tax code by draining the attention and resources of both government agencies and the Duma's key budget committee.


Chubais, who also holds the Finance Ministry portfolio, spelled out his intention Friday to keep tight control over government spending decisions.


"The ministries and other agencies will have a specified amount within which they will have to operate," he said. "The performance of ministers will be evaluated by their ability to reduce spending and stay within the amounts allocated by the Finance Ministry."


To aid in his control, Chubais announced, as expected, a reorganization of the Finance Ministry, confirming the departure of Andrei Vavilov as deputy minister and establishing three loyal deputies in charge of revenue, budget and social reform issues.


But the Western economist said personnel problems run far deeper than the top level of ministers -- "all the way to the lowliest clerk." Only slashing the government bureaucracy will improve efficiency and help cure corruption, he said. "These people have been at the trough long enough and they're not going to starve, so, goodbye."