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. Last Updated: 07/27/2016

Putin Calls for Oil Fund to Be Split Up

The stabilization fund, replenished by windfall oil export revenues, must be transformed into a reserve fund and a separate "fund for future generations," President Vladimir Putin said Friday.

In his budget guidelines for between 2008 and 2010, published on the Kremlin web site, Putin said the reform of the stabilization fund would ensure the stability of budget spending, irrespective of fluctuations in raw material prices.

In his written address sent to the Federation Council and the State Duma -- his last before presidential elections next year -- Putin also called for a halving of the inflation rate, long-term budget planning and an increase in the minimum wage. He said he was against any increase in personal income tax.

The stabilization fund collects mineral extraction and export duties above an oil price of $27 per barrel. The fund, which stood at $103.6 billion on March 1, has fast outgrown its original task, becoming an important tool for mopping up excess liquidity.

Putin said the future reserve fund would aim to support the stability of budget spending in the medium term in the event of a sharp decline in oil prices on the world market.

"The size of the reserve fund, as well as the volume of oil and gas revenues used to finance the spending of the federal budget, must be fixed by law as a percentage of gross domestic product," Putin said.

"While doing so, a three-year transition to new principles of managing oil and gas revenues must be envisaged."

"The fund for future generations" should aim to accumulate those oil and gas revenues that remain after fixed payments to the reserve fund and exceed the funds channeled to finance budget spending, the document said.

"There have been no real strong indications that they are going to be really loosening fiscal policy going forward in a substantial way," said Matthew Vogel, head of emerging market research at Barclay's Capital, London.

Annual inflation should be reduced to between 3 percent and 4 percent, Putin said.

Turning to tax administration, Putin said the government had yet to sort out issues related to value-added tax and property taxes, among others.

"The practice of applying a value-added tax remains an obstacle to expanding economic activity," Putin said, adding that companies have been having a hard time getting the tax back.

A property tax, "proceeding from the market value of real estate," should also be introduced, Putin said. He added that the personal income tax should remain at the current rate of 13 percent.

Putin added that he supported efforts to reform the excise duty system to encourage the consumption of high-quality products, such as good-quality gasoline.

He also said the government needed to switch to long-term budget planning for up to between 10 and 15 years and beyond. Putin also said the minimum wage should be increased to 2,300 rubles ($88) per month from Sept. 1.

Finance Minister Alexei Kudrin said later Friday that next year the government would start the transition to a "nonoil" federal budget that would be isolated from oil and gas revenues. He said the transition period would be over in 2011.

Reuters, MT