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. Last Updated: 07/27/2016

Budget Wars Enter Election Campaigning

There was something of a budget war in the air in the State Duma last week. The budget hearings ended in a resolution accusing the government of unsatisfactory work.

Before these hearings, the State Duma Budget Committee had adopted the very same resolution, and, even earlier, the head of this committee, Mikhail Zadornov, spoke of a budget crisis.

In response, the Finance Ministry distributed a press release that refuted Zadornov's data. Finance Minister Vladimir Panskov said that if there are problems with carrying out the budget, then they largely stem not from the government but the parliament itself. It was the Duma that adopted a series of legislative acts on additional privileges concerning taxes on profits and value-added taxes. This, he said, reduced budget revenues by some 20 trillion rubles ($4 billion).

Indeed, the government does have problems with the budget. Expenditures in the first quarter were almost 21 trillion rubles higher than revenues. But if one takes into account the fact that, in the first three months of this year, taxpayers in all income brackets underpaid more than 80 trillion rubles, then the 20 trillion ruble budget deficit is simply a miracle.

Who is accountable for the fact that taxes are underpaid in Russia? Is the tax collecting system to blame, or is it too easy to hide income?

Apparently, both factors are responsible. The finance minister said with surprise that in St. Petersburg a sophisticated means of avoiding taxes was recently uncovered. Companies draw up documents showing that their products are exported; however, the goods in fact stay in Russia. The fictitious exports allow them to get around paying value-added taxes, from which exported products are exempt.

But fictitious exports are not the main problem. Enterprises simply evade paying taxes by various means. As Panskov remarked, this year has witnessed a decrease in tax revenues. Panskov considers that the growth in the number of tax evaders is linked with the upcoming presidential elections. Companies are hiding their revenues in order to create reserves in case the situation worsens. Others, on the contrary, are waiting for a change of power, which they hope will write off all their debts.

Many of these arguments are undoubtedly familiar to the members of parliament, or at least to those who work on the budget committee. But they are not at all inclined to take them into account.

It is worth noting the sharp tone that the Yabloko faction lent to these hearings. The negative recommendations of this fraction, which controls the State Duma budget committee, did much to predetermine the Duma decision.

These circumstances lead one to believe that the faction decided to deal some cards to its leader, Grigory Yavlinsky, who is building his pre-election campaign on severe criticism of the government's actions. The sharp criticism of the government in general -- and its budget policies in particular -- is helpful from Yabloko's point of view, all the more so because it creates a field for Yavlinsky to negotiate with Yeltsin.

If these suppositions are true, then Yabloko will try several times to raise tensions over the "budget crisis," regardless of whether it actually exists.

Mikhail Berger is economics editor of Izvestia.