Concept-2020
This week, Russian Prime Minister Vladimir Putin approved Concept-2020 - a macroeconomic document that lists the priorities of our country's socio-economic development between now and 2020. According to the document, we will still have to suffer through at least two more years of high inflation, but to counteract that the state will cut taxes, increase unemployment benefits and support to the agricultural sector and small businesses. In short, the state will initiate many good programs.
The main points of the document are as follows. The average annual inflation in 2008-2010 will equal 10.5 percent. Considering that the latest forecast for this year has inflation at 13 percent, it means that the average inflation for the next two years will still be above 9 percent. According to the concept, in 2011-2015 average inflation will equal 6.5 percent, and the number will fall to mere 3.5 percent in 2016-2020. What can I say? The numbers look familiar. I remember that back in 2004-2005 the same predictions of low inflation were made for 2008-2010. I also remember that the only time the government fulfilled its own inflation forecast was in 2006, when the rate of price growth was 9 percent and even that achievement was dubious; to the average consumer it certainly seemed like inflation was greater.
Another part of the document talks about tax reforms. In particular, the government plans to decrease tax on profits of legal entities from 24 percent to 20 percent starting on January 1, 2009. The size of bonus depreciation will be increased from 10 percent to 30 percent, VAT returns on advance payments will be accelerated and a new tax model for very large taxpayers will be implemented. On the one hand it all sounds great. Cutting the size of companies' profit taxes in a period of crisis is a great idea - from the companies' point of view. It doesn't bode too well for the state budget, especially considering all the plans for extra spending. But, if the government is ready to collect less money in taxes in hopes of jump-starting the economy, good for them.
And what about that extra spending? The military defense complex will receive 50 billion rubles, while the agricultural sector will be subsidized by 3.5 billion rubles. Sounds unfair? I think so too. The global crisis and the strengthening dollar are a perfect time to boost the country's agricultural sector to make the industry self-sufficient (I am primarily talking about decreasing the share of meat and poultry imports), but it seems that we are still more interested in selling tanks and jet fighters. The good news is that small businesses will receive 30 billion rubles in support instead of 9 billion planned earlier, but as usual, it makes you wonder how exactly that money will be spent. The maximum amount of unemployment compensation will be increased from 1,500 rubles to 4,900 rubles a month. Now that's a big "yahoo!", but it's still nearly impossible to live on that money even in some God-forsaken village on the other side of the country. The size of tax rebates for those buying or building their own houses will be increased to 2 million rubles (and this measure will actually be made retroactive and applied from January 1, 2008) - that's a considerate way to reflect on the exuberant growth of housing prices over the past couple of years and kudos to the government for doing that.
My overall feelings about Concept-2020 is that it's meant to make us feel better (not that the vast majority of the country's population will ever even hear about it, much less read the full document or its short summary) by showing us that the government is taking steps towards business, large and small, and towards its citizens. That's always great, but the plan to simultaneously cut budget revenues and increase budget spending is making me somewhat uneasy.
For some reason, I am not a big fan of budget deficits. I believe that it is always better to live on your own money instead of that which has been borrowed. We learned this lesson in the 1990s, and we are re-learning it with plenty of examples in front of us.
Here's to hoping that all the great plans in the Concept-2020 won't lead us into a new budget hole.
By Marina Pustilnik