OREANDA-NEWS. February 15, 2010. Russian Finance Minister Alexey Kudrin suggested that in 2011 social payments would be increased to 32% of gross wages, rather than to the 34% figure currently assumed in the budget. Additionally, he indicated that IT and other “innovative” businesses could retain their current tax benefit rate of 14%, reported the press-centre of OTKRITIE Financial Corporation.

View: The decision to raise social payments beginning 2011 was taken primarily to finance the pension increases that are effective this year.  While Kudrin’s initiative has not yet been approved, and he certainly has opponents within the government, we believe such development would be a positive.

In total, both measures could cost the budget around 0.6% of GDP in 2011. We think that lower taxes are a more efficient way to support economy as opposed to redistribution via the budget. Lower taxes would provide support across the economy rather than primarily aiding selective businesses or specific sectors. A smaller tax burden would more strongly affect labor-intensive sectors, and therefore be less of a strain on job creation.