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. Last Updated: 07/27/2016

Author Luzhkov Takes Policies to Task

Time is up for "parasitic capital" selling Russian raw materials on the cheap. The hour for prudent industrialists toiling for the good of the fatherland and the emergent middle class has struck. While the former will face a prohibitive tax regime, companies engaged in manufacturing and ordinary Russian citizens earning a working wage can look forward to large tax cuts and a major increase in real incomes.


Science fiction? Communist propaganda? No. It is the economic vision presented by Mayor Yury Luzhkov in his new book, "We Are Your Children, Moscow," to be published soon by two Moscow publishing houses.


In the last chapter of the book, printed in the pilot issue of the new Russian "Itogi" magazine, Luzhkov lashes out at the federal government's economic policies with a vehemence reminiscent of his battle with reformer Anatoly Chubais over the course of Russian privatization.


"I think ... we have let the genie out of the bottle, and it will not calm down before it has seized all power in the country, annihilated 30 percent of the population and impoverished 85 percent of the remainder," Luzhkov writes.


The "genie" in question are the sectors of Russian and foreign capital that have targeted Russia's raw material extraction industries with the intention, Luzhkov writes, of making a fast buck rather than contributing to the country's industrial development.


This capital is "wild, thievish and cannot exist without appropriating what is [the property] of others," the mayor said, calling for an end to the social misery and economic havoc wrought by reforms gone wrong. "Who can, after all, explain our poor, why reforms have been carried out for 10 years already and 90 percent of our citizens are in a situation comparatively worse than was the case after the war?" he asks.


However, analysts pointed to the vested interests of Luzhkov himself as mayor of Moscow and an adept player in Russia's corridors of power.


"Politically Luzhkov has difficult relations with [Prime Minister Viktor] Chernomyrdin, who is close to the Russian regions involved in resource extraction," said Alexander Buzgalin, an economics professor at Moscow State University.


Sergei Markov, an analyst at the Moscow office of the Carnegie Endowment, saw the situation in a similar light. "Luzhkov is a representative of branches that are importing rather than exporting," Markov said. "His political struggle with Chernomyrdin is objectively rooted in their allegiance to different branches."


The mayor, for his part, squarely places most of the blame for social tension with the government, which he sees as an accomplice of the "parasitic capital."


"Can it be true that the government doesn't see and know these obvious things? I know for sure that they fully understand it," he writes.


While Luzhkov describes the current plight of the economy at length, he is less specific about what needs to be done to alleviate the crisis. His main proposal is a tax reform that would increase revenue from levies on the use of natural resources from the current level of 12 trillion rubles ($2.5 billion) to 100 trillion rubles ($20.6 billion).


Currently, revenue from the taxation of natural resources makes up less than 2 percent of Russian gross domestic product, according to Luzhkov, while in the United States it finances nearly 15 percent of the budget.


A spokesman for the Natural Resources Committee of the State Duma, however, disputed Luzhkov's claim.


"The comparison is not valid, because the 2 percent quoted by Luzhkov are only the initial mineral taxes, levied on producers, whereas the 15 percent are the total incomes from taxation of industry," said the spokesman, who asked not to be named.


Luzhkov's proposals were not received enthusiastically by foreign economic analysts. "Ludicrous," said one foreign analyst. Another termed Luzhkov's argument that Russian taxes in the extraction industries are far lower than Western ones "seriously flawed."


"The tax burden on enterprises in the extraction industries has already scared most foreign companies away," said another Western tax expert.


Several analysts suggested Luzhkov would not have to look to the extraction industries in the regions to find objects for increased taxation.


"The banks, the trade sector, governmental and municipal bureaucracy are among the largest potential sources if one wants to increase revenue," Buzgalin said. "Three quarters of this is situated in Moscow."