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. Last Updated: 07/27/2016

Plan for the Economy




Based on interviews with leading figures at the Center for Strategic Research, the think tank's plan for the economy includes the following main points:


-Lower the tax burden by introducing a flat income tax of 13 percent, abolishing turnover tax and rationalizing payments to social funds to reduce the total payroll burden to 35 percent.


-State spending is to be slashed to 30 percent of gross domestic product over the next few years. To preempt possible outcry at attempts to cut spending on social needs, proposed spending cuts will be designed so as to have little real impact, relying on growth to reduce state spending as a proportion of GDP.


-Eliminate as many state subsidies as possible, especially noncash measures such as offset schemes, low energy tariffs, subsidies to the natural monopolies in the form of energy tariffs and free perks for state officials such as free transport and free holidays. These noncash subsidies are equal to 27 percent of GDP, almost as much as the 36 percent of GDP that goes on budget payments in cash.


-Get budget policy back to reality by eliminating social subsidies listed in the budget but for which the government never pays, such as allocations for free transport for the masses and child benefits. Housing subsidies are to be abolished over the next few years. Even families who earn a reasonable living are still subsidized by the state for housing.


-Savings to be gained by wiping out subsidies will allow for spending to be increased on education, health and defense.


-Separate the state from commercial interests, especially by changing the structure and operating methods at the three main natural monopolies: the Railways Ministry, Gazprom and Unified Energy Systems.


A. The Railways Ministry. Railway infrastructure is to be separated from the commercial side, bringing in greater competition and investment, which would lower tariffs.


B. Gazprom. The company's accounts must be split to allow separate balance sheets for extraction costs, transportation and distribution. This will make Gazprom's accounts transparent. The plan does not call for splitting the company in the same way along physical lines, Vyugin said.


C. UES. To be split up under the proposal already forwarded by its leader Anatoly Chubais, which calls for separating power generation, transport and distribution networks. This will introduce greater competition and lead to lower tariffs.


-Price-fixing agreements between natural monopoly cartels on transport and sales services are to be eliminated.


-Introduce international accounting standards. As of 2001, companies will have to issue accounts to these standards before they can float corporate bonds. Other businesses, with the exception of very small enterprises, will have to introduce international accounting standards by 2002.


-Bring taxes on commercial banks into line with taxation on corporates, lowering profit tax to give banks less incentive to hide returns on their balance sheets.


-The plan is ambivalent about the Central Bank's role, allowing for Central Bank Chairman Viktor Gerashchenko to draw up his organization's plan for restructuring the country's festering financial sector. The plan also aims to provide the bank with more mechanisms for regulating monetary policy. However, it also attacks the Central Bank's financial stakes in commercial banks at home and abroad, saying that these need to be phased out.


-Regulation of off-shore operations should be tightened to cut down on capital flight.


-The court system must be improved to ensure investors' and citizens' rights are protected.


-Simplify registration for businesses.


-Introduce clearly defined areas of authorization for state officials to cut down on arbitrary action by bureaucrats.


-A market for the free sale of land must be formed, which could bring massive flows of investment into mortgage systems.


-Introduce accumulative pension accounts to stave off a possible crisis in the next 10 years; also increase the pension age by 10 years for women, making it 65 years of age for both sexes starting in 2002.


-Increase officials' wages to cut down on corruption. Judges salaries should be doubled by 2001, and doubled again by 2005. Wages of state officials should also be doubled or tripled, but the numbers of state workers should be streamlined and the apparatus made more efficient, possibly meaning the sacking of tens of thousands of civil servants.


-All transactions with budget fund recipients are to go through the federal treasury by the first quarter of next year.


- Catherine Belton