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. Last Updated: 07/27/2016

2004 Budget Goes to the Duma

The pace of economic growth will rise to 5 percent next year and inflation will slow to 10 percent, Prime Minister Mikhail Kasyanov said Thursday after the Cabinet approved the basic parameters of the 2004 budget, which now goes to parliament.

"Next year we hope to succeed in raising the tempo of economic growth to 5 percent from the 4.5 percent forecast for this year, and to reduce inflation to 10 percent. This will be a serious achievement," Kasyanov was quoted by news agencies as saying.

The government is forecasting a budget surplus in 2004 of 95.1 billion rubles, or 0.6 percent of GDP, which is expected to hit 15.16 trillion rubles (495 billion) next year if the price of benchmark Urals crude averages $22 per barrel.

The author of the budget, Finance Minister Alexei Kudrin, said all revenues above the expected surplus will be put into a stabilization fund to battle any crisis that might arise. Refinancing and domestic borrowing will cover foreign debt payments, he added.

Revenues are expected to be 2.69 trillion rubles, or 17.7 percent of GDP, while spending is set at 2.59 trillion rubles ($84.4 billion), up some 10 percent on the year. Kudrin said Russia will run a balanced budget between 2004 and 2006 if Urals stays above $20.

Spending hikes are slated for national security, defense, law enforcement and social programs. Wage hikes are also slated for federal employees like doctors, teachers and judges.

Kasyanov said Russia's economic development is gradually acquiring a "different quality" and that the 2004 budget is designed to maintain the success of the last three years, during which the economy has grown 20 percent and real incomes 30 percent.

To do that taxes will have to be cut to decrease dependence on natural resources. The draft budget for 2004 sees the tax burden dropping to 33.5 percent of GDP from 34.4 percent this year.

The government is asking parliament to abolish the controversial 5 percent sales tax, a key source of revenue for the regions, and to reduce the value-added tax to 18 percent from 20 percent.

However, it has yet to win over lawmakers, many of whom are not convinced of its plan for replacement financing for the regions and instead are pushing for lowering VAT even further or reducing the social security tax next year instead of in 2005, as the Cabinet wants.

Despite fierce opposition from Moscow Mayor Yury Luzhkov's Fatherland faction and several regional leaders, Kudrin said he expects the tax package to pass its first reading within a week.

"To make the 2004 budget work the tax reform package must pass the State Duma in June," he said.

The Duma is scheduled to discuss half of the tax reform package on Friday and half next Wednesday.

The head of the Duma's economic development and enterpreneurship committee, Grigory Tomchin, said Thursday that lawmakers were gearing up for battle. "Preparations for the war have been thorough," he said.

Kudrin, however, said he was "absolutely confident" of victory.