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. Last Updated: 07/27/2016

Duma Rejects Budget Bill on Second Reading

The State Duma on Friday rejected the spending and revenue figures that underpin the draft 1995 budget, delivering the government a painful defeat despite intensive lobbying and several important last-minute compromises.

The legislature voted 194 votes to 142 on the second reading of the budget bill, well short of the 226 votes needed for it to go through. The vote came despite the government agreeing to the legislature's demands that spending on the war in Chechnya be reflected in the budget, increasing the budget deficit by 2.2 trillion rubles ($557 million).

"We expected this to happen," was the only comment Deputy Prime Minister Anatoly Chubais would make leaving the Duma.

The bill, which already resembles a patchwork quilt after numerous compromises between government and parliament, now faces more amendments before it comes up in the Duma again for another attempt to pass it Wednesday.

What seemed to be a victory for the government Friday morning backfired later in the day to defeat the budget. In a surprise development, the Duma had thrown out a bill raising the minimum wage from the current 20,500 rubles to 54,100 rubles.

According to Finance Minister Vladimir Panskov, the bill would have cost the federal budget 56.7 trillion rubles and hit regional budgets for another 139 trillion rubles.

The bill, overwhelmingly passed in the second reading Wednesday, was sponsored by Sergei Kalashnikov, head of the Duma's Labor and Social Support Committee and a member of the ultranationalist Liberal Democratic Party. Kalashnikov, encouraged by the proposal's success Monday, quickly presented the bill for final approval Friday.

But Finance Ministry officials pulled the rug from under his feet, appearing to strike a last-minute deal with the Liberal Democrats' leader, Vladimir Zhirinovsky.

According to an eyewitness account from centrist deputy Vasily Lipitsky, Deputy Finance Minister Andrei Vavilov approached Zhirinovsky minutes before the ballot on the minimum wage hike and whispered something in his ear. Zhirinovsky nodded. He was later heard by a reporter in the lobby telling an associate, "We've agreed with the finance minister."

As a result, Zhirinovsky's entire faction abstained during the ballot, limiting its support to 165 votes, 61 short of the required absolute majority.

The bill, since its content was limited to the new minimum wage figure, was effectively dead. But many of the centrist deputies who voted for it as a potentially popular measure subsequently voted against the budget as a protest.

The draft budget presented to the legislature was substantially changed compared to the previous one. After negotiating Thursday with the Duma's Budget Committee, the government increased the budget deficit by 2.2 trillion rubles to account for the cost of restoring the economy of war-torn Chechnya.

The government thereby backed down from its earlier assertions that no additional expense would be required as a result of the Chechen operation. Prime Minister Viktor Chernomyrdin wrote in a letter to the Duma this week that the cost of the military action itself was not yet known, but that any additional expense could be absorbed by the existing budget proposal.

The government also agreed to up spending by another 1.8 trillion rubles to cover the government's 1994 debt to defense factories and 1.4 trillion rubles for investment programs that were underfunded last year.

The Finance Ministry also decided to allocate an extra 3 trillion rubles to increasing wages for low-income state employees, except for government officials, servicemen and police.

These additional spendings were to be financed by raising export tariffs on gas, slightly raising excise taxes on oil and charging value-added tax on imported foods.

The Duma voted to cancel all tax breaks for individual exporters and importers, granted by presidential and government decrees, but tax subcommittee chairman Sergei Shulgin said the decision would not be enforceable without a full list of the decrees attached to it. The list is likely to be compiled and added to the resolution during further budget debates.

The additional funds made available by these measures would amount to 8.6 trillion rubles, according to Budget Committee chief Mikhail Zadornov.

The amendments were endorsed by a majority of deputies in separate votes, and they are likely to be preserved in the government's next proposal. It was more fundamental issues that worried the budget's opponents.

Economic Policy Committee head Sergei Glazyev said he disagreed with the budget's average monthly inflation forecast of 3 percent. According to Glazyev, inflation in 1995 is going to reach an average of 7 percent a month.

Zadornov, who urged the Duma to pass the budget, told Glazyev he also doubted the inflation forecast."I would have fully agreed with you three months ago when there was still time to recalculate it," he said. "If we start doing it now, we will not pass the budget until July like last year, and then it won't make any sense."

The Duma, however, was in no hurry Friday. Russia's economy is already being financed through a temporary three-month plan.