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. Last Updated: 07/27/2016

Budget Approved Without Tax Policy

The Cabinet on Thursday approved the first three-year budget but has yet to agree on a precise tax policy for 2008 to 2010.

Ministers debated plans to lower either the profit tax or value added tax and raise the mineral extraction tax on gas. Discussions will conclude by April 30, which is the date by which the budget must be submitted to the State Duma, Deputy Prime Minister Alexander Zhukov said.

"As for the tax policy, we will continue to discuss possible changes," Zhukov said on the sidelines of the Cabinet session.

In presenting the budget, Finance Minister Alexei Kudrin said the gross domestic product would grow by 5.9 percent in 2008 and 2009 and by 6.1 percent in 2010.

"This is a good rate for our country, especially given the fact that the situation for our main export commodity, oil, is getting worse," Kudrin said.

Inflation will go down to 5.5 percent in 2010, but the exchange rate will stay about the same, Kudrin said.

The budget announcement generated little controversy among the Cabinet. In a speech to the Cabinet, Culture and Press Minister Alexander Sokolov railed against the low salaries of librarians and museum wardens. Kudrin and Economic Development and Trade Minister German Gref were spotted exchanging comments and laughing as Sokolov spoke.

Health and Social Development Minister Mikhail Zurabov called for higher unemployment allowances, saying that they had not been raised from the maximum cap of 2,880 rubles ($110) for several years.

Budget revenues will dip in 2008 for the first time since President Vladimir Putin took office in 2000, but will increase over 2007 levels again in the two following years.

The government gave no reasons for the drop in revenues to 6.67 trillion rubles ($256 billion), but analysts believe it will be a result of tax cuts. This year's revenues are anticipated to be 6.96 trillion rubles.

But the government plans to spend 6.5 trillion rubles in 2008, up from 5.46 trillion rubles this year. Expenditure increases will serve to boost state salaries, defense, national security, law enforcement and economic diversification.

Gref said his ministry had projected higher revenues for 2008 to 2010, adding that he would reconcile the figures with the Finance Ministry in April.

Revenues should be 145.3 billion rubles higher in 2008, 223 billion more in 2009 and 327 billion more in 2010, Gref said. The Finance Ministry estimates that it will collect 7.42 trillion rubles in 2009 and 8.04 trillion rubles in 2010.

The projected spending for 2008 will have to increase because it does not account for the Constitutional Court's move from Moscow to St. Petersburg and the need to buy new planes for the Kremlin Property Department, Gref said.

Increases in budgetary expenditures are sound and will definitely support economic growth, UBS said in a daily note to investors. The Bank of Moscow agreed, saying that the growing spending would not destabilize the financial markets.