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. Last Updated: 07/27/2016

Key Parts Of Crisis Plan Pass In Duma




After a stormy, fluctuating day of debate, the State Duma caved in to government pressure and passed key elements of a fiscal austerity package.


The government achieved a crucial breakthrough late Thursday night, when deputies in the lower house of parliament approved a government proposal to levy a sales tax of up to 5 percent.


The deputies also gave preliminary approval to an effective increase in income tax and backed a cut in welfare benefits for better-off families.


These victories may be enough to convince the International Monetary Fund at a board meeting Monday to release the first $5.6 billion of a vital $17.1 billion new loan deal reached earlier this week.


The IMF had said that the Duma's approval of the government's fiscal austerity plan would be needed for the loan to proceed. Without the loan, economists believe that the Russian currency will collapse.


The final results of the Duma's debates are still unclear, with laws that would usually have taken months to consider being rushed through in a day of hectic debate.


While deputies passed the sales-tax and income-tax changes, they rejected other key revenue-raising measures, including a fourfold increase in land tax. But it appeared that the government was approaching its goal of raising over 50 billion rubles ($8.1 billion) in revenue and cutting spending by another 40 billion rubles.


Deputies at one point proposed holding an all-night session to deal with the laws in their final sitting before a long summer break, but NTV television reported late Thursday that the Duma would sit again Friday morning.


The most heated debate concerned the 5 percent sales tax, which was rejected Wednesday and then rejected again in an initial vote Thursday.


This, and the rejection of the land-tax hike, provoked a desperate response from Finance Minister Mikhail Zadornov. "In this way, the package for which we expected your support is being ruined."


"I am telling you officially that the government has sent a package of bills worth 102 billion rubles, including 40 billion rubles from the sales tax and 32 billion rubles from the land tax," Zadornov said. "These bills have been agreed upon with the (Duma) budget committee."


"The key points that should lead the country out of crisis have not been supported by you,'' Zadornov said.


After this outburst, deputies caved in and passed the sales tax simultaneously in three readings.


The Communists, who dominate the Duma, have said they would not pass any tax changes that raised the overall tax burden. They are also wary of the IMF loan package, saying it could saddle Russia with debt it cannot afford to repay.


But Russia already must pay off billions of dollars in short-term debts that will be due in coming months, and it probably can't meet the payments without the new loans, analysts say.


Yeltsin has indicated that he will implement some austerity measures by decree if the parliament does not enact them.


Prime Minister Sergei Kiriyenko announced at a government meeting Thursday morning several new revenue-raising measures to be implemented in case the Duma rejects the austerity package.


He said the government would raise excise taxes on high-octane gas for cars, slap a tax on all cars with large engines and raise taxes on mobile-phone and paging companies.


The sales tax passed Thursday is designed to compensate Russia's regions for the loss of revenue from income tax, which will be passed to the federal government.


The changes to the income tax, still only passed at first reading, include a new simpler tax scale, with rates ranging from 12 to 30 percent, and also provisions ending the tax-free status for income from bank deposits above a certain threshold. The law also sets a minimum tax rate of 15 percent for income from second jobs.


The Duma also passed in the third and final reading a law that will cut off children's allowances to families whose monthly income is more than twice the minimum required for survival. Legislation specifying that minimum has not yet been passed. Russia's minimum wage is around 83 rubles ($13.35).