The Russian Federal Budget forecasts for the next three years were released last week and contained funding allocations to allow the 34% “insurance contribution” rate to be lowered. As noted earlier on this site, this has been a very controversial issue with Finance Minister Kudrin fiercely resisting a lower rate because it would – in the absence of some other source of money for the government pension fund – result in higher transfers from the federal budget (and thus a higher deficit).
From 2012 the “insurance contribution” will reportedly be lowered to 30 % on payments of annual wages up to 512,000 rubles, and there will be a new levy of 10% on additional amounts (with concessions for small business).
Kudrin was not impressed with this result, and has also been unimpressed with some other ideas coming out of the Kremlin – such as presidential assistant Arkady Dvorkovich’s support for sales taxes at regional level. As I have already noted on this site, I tend to agree with Kudrin on the sales tax issue because there is already a consumption tax on such sales (in the form of VAT).
However, I am presently agnostic on the “insurance contribution” issue because I am somewhat confused about the data being thrown about on international comparisons and do not know if 34% is really very high in international terms.
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Published on July 11 2011
This Group has been very busy and considered a large number of detailed reports, surveys etc, one of which has striking estimates of the costs of “poor institutions”. “Badly functioning institutions” are said to be responsible for 25-30% of the cost of residential and commercial real-estate (in Moscow up to 60%); about 15% additional mark-up in retail trade, and about 10% in communication services. There are also reports of a round-table on “Business Associations and their role in the process of modernization in Russia”, and a report titled “Development and Application of Anti-Monopoly Legislation in Russia: Results and Problems” where the main identified issues are: too much emphasis on a “regulation” approach (for example cost plus) when considering the extent of monopoly price behavior rather than a more “protection of competition” approach; and a lack of independence of anti-monopoly authorities and courts.
Jeff says that ….
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Published on July 11 2011
Nearly 20 years ago, after my second visit to Russia as Chief Economist of HSBC (Australia) I wrote about the reform plans then contemplated:
“there is too little emphasis on the need for rapid and vital reforms in the accounting, banking and legal spheres, including anti-monopoly legislation. It is almost as if this very important component of an effective market economic system will rise by itself”. (See left hand-side of page for full 1992 article.)
For two decades Russian economic policy makers have too often sought big game-changing moves – and then made a mess of the details to the great disadvantage of ordinary citizens. The various “privatizations” of the 1990s are the most obvious manifestation of this. We have yet to see how what the results will be for the new round of privatizations, Sochi 2014, the APEC Summit, or Skolkovo.
Nevertheless, there are many reasons to be optimistic about Russia.
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Published on July 03 2011
“Business Russia”, a high profile lobby group representing companies outside the natural resources sector, has presented (World Bank) data to Group 6 indicating that the Russian 34% “insurance contribution” is much higher than in other countries. It also presented calculations on how to improve the position of the budget while reducing the rate.
Jeff says that ….
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Published on July 02 2011
The current so-called 34% “insurance contribution” is paid by employers on wages of up to 463,000 rubles. It consists of 26% to the Pension Fund of the Russian Federation; 2.9% to the Social Insurance Fund (compulsory social insurance for temporary incapacity to work and for maternity); 2.1% to the Federal Compulsory Medical Insurance Fund; and 3% to territorial compulsory medical insurance funds. The Pension Funds is in large deficit.
Jeff says that ….
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Published on July 02 2011
President Medvedev’s speech to the St. Petersburg Economic Forum just over a week ago clearly ruffled a few bureaucratic feathers. Contrary to what some people seem to think, he is not just making pretty speeches.
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Published on June 27 2011
One paper prepared for Group 12 says that there is a “critical level of economic differentiation between the regions”, and suggests that there are no easy ways of overcoming this. The “All-Russian Council of Local Self-Government” has prepared its own paper, but again there are no easy answers to this sector’s financial dependency on higher levels of government.
Jeff says that ….
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Published on June 23 2011
At the recent St. Petersburg Economic Forum, President Medvedev suggested that the proposed “International Financial Center” might be housed outside Moscow – or, at least outside the present boundaries of Moscow because there is also a proposal to expand the city limits.
According to one report, “Medvedev ordered Russian authorities to consider taking the prospective International Financial Center out of Moscow. The initiative comes from the head of the Russian Sberbank, German Gref, who said that the measure would solve a number of infrastructural issues in the Russian capital.”
Would such a move be sensible?
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Published on June 20 2011
Group 18 started with some general reports on regulation of “natural monopolies” and then moved on to some specific reports on railways, electricity distribution, and gas.
Jeff says that ….
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Published on June 19 2011
This Group has been discussing a general approach to formulating a new model of economic growth, taking into account the realities of the basic Russian economic structure and “current imbalances and long-term tendencies in the world economy”. A summary of an early joint report by a number of members of this Group can read here.
Jeff says that ….
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Published on June 11 2011