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. Last Updated: 07/27/2016

Kremlin Budget Dealt Blow by Duma

The chairman of the State Duma's influential budget committee dealt a blow Wednesday to government hopes of pushing next year's budget and a new tax code through parliament when he declared both to be unsound.

Mikhail Zadornov, whose committee will recommend to the lower house of parliament whether to approve the measures, said the budget was deeply flawed and stood little chance of being passed. He added that while the tax code may be approved by November or December, its implementation could cause chaos.

President Boris Yeltsin has made adoption of the tax code and budget by year's end a top priority. Both measures must be implemented in tandem -- the projected revenues on which the budget was calculated assume that the tax code will already be up and running next year.

Under intense pressure from the Kremlin, legislators passed the tax code in its first reading in June. But Zadornov said because the code is so complicated, it would take at least two years to implement fully.

"If there is misunderstanding between the tax service and taxpayers, this will generate a drastically negative attitude to the code," Zadornov said at a news conference.

"For this reason ... we want it introduced stage by stage," he said. "Some key legal elements could be introduced by Jan. 1, the new taxes and new rates could be introduced from the middle of next year or even the beginning of 1999, and other elements from the beginning of 1999."

Zadornov was no more optimistic about the government's draft budget for 1998, which lowers revenue targets from 1997 levels and slashes spending from this year's 19.4 percent of gross domestic product to 17.7 percent of GDP.

"The first reaction of most of my colleagues is that ... this draft has very little chance of being adopted in its first reading," Zadornov said.

The Yabloko party, of which Zadornov is a leading member, advocates a limited increase in government spending to stimulate economic growth. Zadornov said that under the current draft budget the government would not have enough cash at its disposal even to achieve the 2 percent growth that it pledged for 1998.

He said the cabinet had drastically underestimated the income it will get next year from the planned sell-off of state property. In any case, those revenue figures will have to be completely revised should the tax code fail to pass, he added.

The proposal in the draft budget to reduce transfers to Russia's regions from 15 percent of total spending to 13 percent also will provoke opposition, the budget committee chairman said.