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. Last Updated: 07/27/2016

Luzhkov: Hike Taxes, Cut Spending


Moscow Mayor Yury Luzhkov

Faced with the city's first expected budget deficit since 1998, Moscow Mayor Yury Luzhkov on Tuesday ordered his government to find ways to cut spending and raise taxes wherever it can.

"We have to take quantitative measures to economize the budget," Luzhkov told the weekly City Hall meeting.

Despite an unexpected 4 billion ruble ($126 million) windfall so far in 2003 from taxes due in 2002, the city is finding it harder to make ends meet and is planning to borrow 19.9 billion rubles ($629.1 billion) this year, but that will only allow it to finance its existing 100 billion ruble ($3.1 billion) debt.

"A number of government bodies will have to be underfed" if Moscow does not find additional sources of money and cut spending, said City Hall finance chief Yury Korostelyov.

Moscow's 2003 budget puts expenditures at 314.9 billion rubles ($9.9 billion) and projected revenues at just 293.2 billion rubles ($9.3 billion).

Luzhkov blamed the imbalance on "the absurd distribution of taxes between the local and federal government of 32 percent to 68 percent," respectively.

Moscow's tax take was split 50-50 between the city and the federal governments until federal legislation altered the balance in 2002.

"[Now] we must mobilize our internal resources," Luzhkov said.

One way the city is doing that is by raising property taxes on upper income companies and citizens.

The city feels it has the right to compensate for the growing share of the federal government in the tax pie by raising fees on what remains in its control, such as the rental of city property and the property tax.

Since the beginning of the year, commercial space in Moscow has become five times more expensive by some estimates, forcing many small firms out of business.

"Expensive property, big taxes," Izvestia quoted Moscow City Duma Deputy Mikhail Vishegorodtsev, a backer of the tax hike, as saying Tuesday.

But the plan penalizes individuals and companies for investing in their properties.

When city-employed evaluators show up to set so-called "market prices" for municipally owned real estate, those entrepreneurs who have financed improvements to city or private property end up paying higher rent or property taxes for their efforts.