OREANDA-NEWS. March 20, 2009. The newly appointed Agriculture Minister Yelena Skrynnik is taking part in the Government meeting for the first time. I congratulate you on your appointment and wish you success in your work.

Among the key items on our agenda is the updated forecast of the country's social and economic development and amendments to the federal budget and the budgets of the government off-budget funds for 2009.

These documents reflect the changes of the macro-economic situation caused by the global financial crisis, the falling prices for our traditional exports and, accordingly, the diminished budget revenue, and stipulate additional outlays on anti-crisis measures.

Today we are also to approve the basic Anti-Crisis Action Plan. I would like to remind you that this is not a totally new document. The Government took anti-crisis measures at the end of 2008. In effect it was an Anti-Crisis Action Plan. I asked you to review how these measures are performing or not performing and why, and to map out concrete steps for the near future. I suggest that we submit this document to Parliament because one has to understand the underlying logic of the Anti-Crisis Action Plan in order to appreciate what the budget proposes because the budget is basically aimed at addressing the crisis.

Let me give you the main characteristics of the budget. The revenue is 6.7 trillion roubles, the expenditure is 9.7 trillion. It is easy to see that the deficit is 3 trillion roubles, which is almost 50% of the budget revenue and 7.4% of the GDP. The amount is considerable but not unmanageable. I think our behaviour under the circumstances is responsible. It has been decided that the entire deficit will be covered out of the Reserve Fund.

The figures are eloquent. It is not only about adapting the budget to the new economic conditions. The changes are fundamental, they determine our financial policy in the medium term.

First, we have to proceed from the assumption that the federal budget will report a deficit not only this year but also in the next several years.

This circumstance imposes particular responsibility on the Government and calls for a conservative budget strategy that would preserve and strengthen confidence in the national financial system.

The deficit problem must be addressed by civilized methods accepted in the whole world, out of the reserves accumulated in the previous years or, if the need arises-let me stress that there is no such need for now - by borrowing in the market. Our Finance Ministry is of the opinion that it is possible to borrow in the internal market if the need arises. I repeat, we are not going to borrow in the external markets. It would be unreasonable and very dangerous to print more money. If we print more money than we produce goods any decent economist will tell you that the result will be simply higher prices and eventually the cheating of our citizens. That is irresponsible economic policy and we must not follow that path.

Furthermore, it is necessary to have a plan for cutting the budget deficit even now and to follow it unswervingly in 2010 and in the following years.

Secondly, we should remember that the movement of world prices of energy and other commodities is still highly unpredictable. Unfortunately, we are living in the midst of a world economic recession. The external market is shaping up in such a way that our traditional exports - oil, gas, metals, chemicals and fertilizer - have met with certain problems. That means that sales will be down, which is already evident. Accordingly, in the near term we should not expect windfall oil profits that would solve all our problems at one fell swoop, at one stroke. This will not happen.

The key role in replenishing the budget is to be played by more traditional sources of revenue, i.e. regular taxes paid by enterprises and individuals. Such taxes are less exposed to the influence of commodity markets and therefore ensure stable budget revenues.

Over the past 10 years we have been diligently and painstakingly building a modern tax system in constant dialogue with the business community and the political parties that represent the interests of various social groups and citizens

Let me remind you of the main decisions made as part of the tax reform.

Fundamental changes have been introduced in the tax administration rules in order to protect the rights of honest tax-payers.

The tax burden has been eased, in particular, a flat income tax was set at 13%, one of the lowest rates in Europe.

The profit tax, VAT and the Single Social Tax have been reduced. Special regimes have been introduced for small businesses, stimuli have been strengthened for investment in scientific research and innovation, education, healthcare, and housing construction. The taxation system in agriculture has been simplified.

Taxes continued to be reduced in the second half of 2008 as an anti-crisis measure. Of course, we will revisit the issue of improving the tax system in the future.
I would like to stress that today, in fairly difficult conditions, the domestic tax system has to prove its effectiveness.

In spite of the difficulties with the filling of the treasury it is inadmissible for the tax, customs and any other fiscal bodies to revert to the practice of "terrorizing" business. Their main task must remain the same: monitoring compliance with tax legislation.

At the same time we expect business to behave in a responsible manner.

The standards of conducting business and social responsibility developed in recent years must be preserved by all means.

The crisis should be dealt with by restructuring production, introducing new technologies, launching the production of competitive goods and not by "optimizing" taxes, which is another word for evading taxes. Any attempts to "withdraw into the shadow" under the pretext of the crisis-related problems must be quashed.

Furthermore, it is necessary to pay close attention to making budget spending more effective. As I have said more than once, in spite of the serious deficit, overall spending will not diminish in 2009. Indeed spending will increase by 667 billion roubles.

The necessary funding of key programmes - I am referring to demography, education, healthcare, pensions, innovative development, support of motherhood and childhood programmes - will be preserved. These are our priorities and we will not revise them. In fact this Government meeting should pass a decision on further increase of some social benefits. The basic part of the labour pension will grow by 31.4% as of December 1, 2009. The earlier target was not 31.4% but 25%.

Monthly payments to war veterans and invalids will increase from April 1 not by 8.5% as planned, but by 13%. In addition, mother's capital and child allowances in 2009 will be increased not by 8.5% as planned, but by 13%. We can say categorically that this is also part of the anti-crisis package because this is our reaction to macroeconomic changes, to inflation.