Market Ills May Lead To Tax Cuts

The plunge in Russian asset prices may force the government to decide in favor of tax cuts, despite fierce opposition from fiscal hard-liners, after other measures to prop up stocks have failed, analysts said Tuesday.

President Dmitry Medvedev said this week that it was time to "put an end" to the protracted tax debate that has split the government into rival camps.

The government sought to calm investors by pledging to stick to economic reform, support banking liquidity and possibly even tap its sovereign wealth fund to prop up the market, but analysts said a tax cut could be a quicker fix.

The pro-growth camp argues that a cut in value-added tax, coupled with further tax cuts in the energy sector, will boost the economy and increase oil output.

The hawks, led by Finance Minister Alexei Kudrin, say such a move will fuel inflation and make the budget even more dependent on the oil and gas sectors.

The government will review two rival draft papers Sept. 29 -- one from the Finance Ministry and another from the growth-focused Economic Development Ministry.

But a decision could come even sooner, with Medvedev due to hold a meeting on taxes Thursday.

"We would welcome a fast decision by the government, as this would remove the uncertainty and could boost investor sentiment," Troika Dialog analysts said in a research note.