France has created seven-billion fund for the investments in companies in need of protection from the Уforeign predatorsФ. China has changed the system for export taxation to make its production more competitive at the world markets, pursuing the policy of weak yuan at the same time. The USA has given the pack of the state support measures for the car producers of the country, thus setting unequal terms for the foreign competitors that also have factories in the USA. Besides, the USA intend to introduce import duty rates for Italian mineral water and for French cheese in response to the limitation of the American meat import in the EU. India has introduced some administrative limitations concerning steel and timber import and considers the introduction of antidumping duty rates for steel and chemistry commodities. Vietnam has raised the import duty rates for steel by one and half times.
The situation resembles that of the period of the Great Depression when during the global economic recession the developed countries actively protected their domestic producers with the legal measures.
In 1930 the USA adopted the Smoot-Hawley Tariff Act, which gave rise to the trading war. In accordance with the law import duty rates were raised for more than 20 thousand of import goods. Trying to protect the producers of the country the authorities lowered the purchasing capacity of the population that was low itself. The result was the response of other countries that increased import duty rates for American goods, which led to the sharp drop in the trade turnover between the USA and European countries and pushed the US economy further in the Great Depression.
The present-day crisis came when the world trade was characterized by quite a liberal legislation:
according to the estimations of the International Monetary Fund the average import duty rates for the industrial goods in the developed countries dropped to 5% in contrast to 40% in 1947. This situation however may change in the situation when the recession is deepening and becoming global.
Russia, in its turn, has introduced 28 different measures regulating the tariffs for the import goods and subsidizing the domestic export since November 2008. Here belongs the increase in import duty rates for the import cars, footwear and some non-food goods, as well as some measures of the government support of the enterprises of the national significance. The reproofs of the WTO membercountries are improper in this case since Russia has not become a member of this organization yet. The accession to the WTO has been on the agenda of the Russian authorities for many years, but the deadlines have been postponed again and again. Nowadays the negotiations of the Russian Federation with some members of the WTO that have any complaints hardly proceed.
At the meeting of the committee for the protection measures in the foreign trade and the customs and tariffs policy it was decided to change the customs duty rates. Thus, the import duty rates for magnesium wastes, slap-iron, filings, chip and will granules has been lowered from 15% to 5%. It will be unprofitable however to export this kind of secondary raw materials, since export duty rate with the period of validity up to the end of the current year will be introduced. A combined duty rate will be applied for the export. Its ad valorem component is established at the level of 20%, while its specific component will be additionally calculated when the project for the government decree is prepared.
The suggestion concerning the increase in import duty rates for the television sets with liquid crystal or plasma screen for the period of 9 months has also met the approval. Thus, the government decided to support the domestic producers. There are nearly no television sets of domestic models in Russia, and in January the biggest assemblage plant Baltmix in Kaliningrad oblast that assembled Panasonic, Philips, Sony и Sanyo models was closed. Following the example of the motor-car industry there is a possibility for further investment agreements with the foreign producers with the following localization. The decision of the government committee represents an attempt to introduce more favorable regime for investors.
The duty rates for some kinds of clothes from natural furs will not change. The committee recommended prolonging their effect. It should be remembered that in accordance with the decree of the Government of the Russian Federation No 422 dd. June 2, 2008 import duty rates for the main part of such goods makes 10 per cent of its customs value (but not below Euro 30 per unit), for the children clothes - 5 or 7 per cent depending on the fur the item is made of (but not below Euro 10 per unit).
The duty rates for rolled aluminum alloys of the thickness of more than 0.2 mm, painted, varnished or covered with plastics, will not change as well.
According to the decree of the Government No 65 dd. January 27, 2009, starting with February 1, 2009 the export duty rates for nitrogen, mixed and phosphorus fertilizers are abolished. Export duty rates (5% for potash fertilizers and 8.5% for nitrogen and mixed fertilizers) were introduced last April in order to put a stop for the growth of prices for this production on the domestic market.
The producers have insisted on the export duties being abolished from the very start. However before last autumn the government had been ready to consider the possibility for their increase and even for the introduction of the quotas for the export of mineral fertilizers. The financial and economic crisis made the situation in the branch desperate. According to the data of the Federal State Statistics Service, the production of mineral fertilizers in November 2008 dropped by 51.6% versus the previous month, taking into account the fact the in general the decrease in the industrial production in Russian made 10.8%. Prices for mineral fertilizers at the world markets have dropped by three quarters in the fourth quarter.
The decree does not state the necessity for the nullification of the export duty rates for potash fertilizers. Neither have the duty rates for apatite concentrate which makes 6.5% of its customs cost been nullified. Thus, the Government abolished the duty rates for the main kinds of fertilizers, keeping them for the raw materials used for their production (potassium chloride and apatite condensate).
Budgetary and Tax Policy О. Kirillov Revenues of the federal budget as of 2009 results will be far less than the estimated ones, and the budget deficit can amount to 8 per cent of GDP. The Ministry of Finance is preparing a number of amendments to the Tax Code for the more effective Federal Tax Service performance in crisis situation.
In February of the current year the statistical data, published by the RF Federal Treasury, is available for 2008. This will help us to assess trends in annual revenue and expenditure parts of the federal budget in more detail, than the tentative data of the Ministry of Finance.
Table Parameters of the RF Federal Budget in 2006 - 2008 (% in GDP) 2006 2007 Revenues 23,5 23,9 21,Expenditures 16,2 18,4 17,Deficit (Ц)/ Surplus (+) 7,4 5,5 4,Source: RF Ministry of Finance, IET estimates Federal budget revenues for 2008 amounted to 21,8 per cent of GDP, or 103.3 per cent of the updated budget estimates for 2008, the federal budget expenditures made 17,8 per cent of GDP or 97.per cent of the updated budget estimates for 2008.
Table Major revenue lines of the RF federal budget within 2006 - 2008 ( % in GDP) 2006 2007 TOTAL BUDGET REVENUES 23,58 23,91 21,1. Corporate income tax 1,92 1,97 1,2. Unified social tax 1,19 1,24 1,3. Tax on gods and services, sold in the 3,82 4,61 2,Russian Federation territory 3.1.Value-added tax 3,47 4,27 2,3.2. Excises on excise goods 0,35 0,33 0,4. Taxes on goods imported into the 2,27 2,76 2,territory of the Russian Federation 4.1. Value-added tax 2,20 2,68 2,4.2. Excises on excise goods 0,06 0,08 0,5. Tax on mineral extraction 4,11 3,45 3,6. Import duties 1,28 1,50 1,7. Export duties 7,12 5,64 6,Source: RF Treasury, IET estimates Table 2 presents data on the most significant revenue lines of the federal budget. During three preceding years, in contrast to 2008, the federal budget revenues did not decline below 23 per cent of GDP. Such a significant decline in the federal budget revenues in the past year is provoked by the global financial crisis, which had an expressed impact on the economy of the Russian Federation in late 2008. It is clear from the Table 2, that in 2008 all the revenue the federal budget demonstrated the backlog from the previous year performance. The exceptions were only budget revenues, related to oil and gas sector: mineral extraction tax, which has grown by 0.3 percentage points of GDP and export customs duties (increased by 1.1 percentage points of GDP).
According to Alexey Kudrin, the RF Minister of Finance, the federal budget and the subjects of the Russian Federation revenues in 2009 will be lower than anticipated in the budget estimates. Even if the average price of oil exceeds USD 41 per barrel20 and reaches USD 55, the Russian federal budget revenues in 2009 will be lower than initially estimated.
Revenues of the subjects of the Russian Federation in 2009 will decrease by RUR 800 billion as compared with the estimates. It is expected that one third of the subjects will be unable to cover even the social needs, another third of them will fail to cover the investment costs and the remaining third will be able to finance the investment expenditures in the amount of no more than half of the level. In general, instead of previously planned RUR 1.5 trillion of investment costs, the Regions will be able to address for this purpose not more than RUR 500 billion. In view of the above, the government will have to support them from the federal budget. The volume of this support is estimated at RUR 300 billion.
Alexey Kudrin, the Minister of Finance has informed of the possible refinement of procedures for tax audits. In the crisis situation and the lack of federal budget revenues, the federal tax service performance will attract more attention than usual. The new tax legislation, which came into force on January 1, 2008, has reduced the capacity of tax authorities to conduct audits. In view of the above, there might be needed clarifications on the rules on tax audits. It is planned to establish a working group to prepare proposals on changing tax legislation. As Mikhail Mokretsov, the Head of the Federal Tax Service noted, the tax authorities observe "an increasing criminalization of the economy." The transition from "the shady economy" is happening very fast, and the tax base is getting reduced respectively. Proposals on the tax administration development should be developed by April 2009.
Table Basic RF budget revenues in 2006 - 2008 (% versus GDP) 2006 2007 TOTAL BUDGET EXPENDITURES 16,08 18,39 17,Federal issues 1,99 2,50 1,Including expenditures associated with the servicing of federal and municipal 0,64 0,44 0,debt National defense 2,56 2,56 2,National defense and law enforcement 2,07 2,05 1,National Economy 1,30 2,13 2,Housing and public utilities 0,20 0,91 0,Environmental protection 0,02 0,03 0,Education 0,80 0,91 0,Culture, cinematography and mass me0,21 0,22 0,dia Health care and sports 0,55 0,60 0,Social policy 0,76 0,66 0,Interbudgetary transfers 5,63 5,84 6,Source: RF Ministry of Finance, IET estimates.
As regards expenditures, repeated statements were made that, in spite of the complicated economic situation in the country, the government will fulfill all social obligations in regard to the citizens and will not reduce the expenditures of budgetary funds.
Budget expenditures in 2008, as compared with 2007, have decreased by 0,6 percentage points of GDP, what is far higher than the level of 2006 and preceding years (see Table 3). This decrease occurred mainly due to the reduction of such budget lines as housing and communal services (-0.percentage points of GDP) and general national issues (-0.5 percentage points of GDP). At the same time, we should note, that in 2009 the federal budget will get temporarily approximately 0,4 per cent of GDP, or RUR 164 billion of public funds for financing purposes. These are temporary untied funds, which will be removed from government corporations "RosnanoФ and the Fund for the support to Average price for the year, set up in the budget estimates for 2009.
housing utilities reform. In future, these funds will be reimbursed from the federal budget as the expenses of these corporations.
In the budget for 2008 the epenses for such for intergovernmental transfers (+ 0.5 percentage points of GDP) and the national economy (+ 0.3 percentage points of GDP) were increased. The other budget lines changes are insignificant as compared with last year reporting period.
As of February 1, 2009, the aggregate amount of the Reserve Fund in the ruble equivalent has amounted to RUR 4863.68 billion, whereas the Fund of National Welfare made RUR 2 991.billion. The amount of the utilized assets of the Reserve Fund in 2009 will reach RUR 2.7 trillion. To support the banking system, including non-government banks from the National Welfare Fund, there will be allocated RUR 255 billion. It is estimated, that without such support, the deficit of the federal budget could reach 7.5 per cent of GDP.
Investment of pension savings in the system of mandatory pension insurance in Q III L. Mokhailov, L. Sycheva In the first three quarters of 2008 the value of assets in the funded component of the mandatory pension system, less the amount of insurance contributions to the Pension Fund of the Russian Federation (PFR), decreased by 0.3 %. The share of the government asset manager (GAM) in the asset value of the funded component of the mandatory pension system, less the amount of insurance contributions to the PFR, shrank in the same three quarters from 90.3 % to 87.4 %. The rate of return on pension savings invested by the GAM by the results of the first half-year 2008, amounted to 4.85 %, which is lower than the interest rates on OFZ during the same period. The rate of return on the investments made by the GAM in 2008 was Ц0.46 % in nominal terms, or -12.1 % in real terms.
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