Interview with Dmitry Medvedev on Vesti v Subbotu [Saturday News] on the Rossiya television channel
Hello, Mr. Medvedev.
Let us go over the events from the last two days. You and said that things are fine, inflation is at a record low and growth is resuming. Afterwards, you and reprehended them with regards budget discipline… Above all, you mentioned violations throughout the entire country: Khakassia, Kabardino-Balkaria, Orel… Why did you take the governors to task?
Indeed, we are seeing truly positive achievements at the macroeconomic level and in the development of recent economic trends. But there are regional problems as well, because the debt of regional budgets is still very, very high. That said, if you were listening, I actually praised our colleagues, i.e. the regional leaders, since overall the debt burden that falls on the regions has significantly decreased over the last year.
Nevertheless, if we look at what has been said over the past month, several governors – and big names at that, such as Minnikhanov (President of Tatarstan), and Artamonov (Governor of Kaluga Region) – have all complained to the federal government about how money is being reallocated. Can you explain the essence of what is going on? Would the rich regions prefer to share less of their income with the rest of the country? Is this the issue at stake?
It is an issue. But the solution is fundamentally different. If we’re talking about who should receive assistance and support from the federal government, in our view – as I just told the regional leaders in absolutely clear terms – the rich regions will receive less assistance and support from the federal government, while the poorer regions will naturally receive more of this assistance. This is fiscal equalization. This brings the starting opportunities to an average level of sorts. And this is what all the latest Government decisions and methodologies that are being approved by the Government and the Ministry of Finance aim to accomplish. As for the numerous discrepancies here and there – they will always exist. I meet with all the governors and we discuss what is working, what isn’t working so well, and what could be done… Nevertheless, the overall decision is such. And if we’re considering who is sharing what, I’ll remind you. We just made the decision that 1% of the income that was sent to the budget of the regions as a regional component will be centralized at the federal level. This is roughly 100 billion roubles per year. And this will be spent on common grants for all regions. These grants amount to more than RUB 600 billion, so the rich regions have already shared with the poor ones in this sense.
But at the same time don’t the rich regions now have the opportunity to keep more for themselves?
Of course. But they also have a different revenue base. What was the essence of our conversation today? Yes, they need to improve budget regulation and keep an eye on how budget transfers are being used and how the main powers of the regions are being executed. But it’s just as important for them to develop their own revenue base. After all, how do things so frequently appear? “Give us additional money from the federal government – we have come up with a good programme, and we will spend all the money on that…” And the programme truly is good and they probably will spend the money on it. But they need to work on creating their own sources of revenue and not reaching out to the federal government at every turn, particularly since a substantial part of the powers that we are helping to fund are regional powers. There is another very acute topic that I just discussed with them. And in this regard the complaints from the regions are entirely justified. The issue is that the regions and municipalities spend an enormous amount of money in order to exercise their powers. According to calculations from the Ministry of Finance, it’s a huge amount – roughly RUB 7 trillion per year.
But the problem is that the federal government dictates how to spend 95% of these funds. And, of course, this isn’t because the federal government is mean and wants to impose and dictate everything from top to bottom, so to speak: “This can only be spent here, and that can only be spent there…” There are just absolutely necessary powers that must be exercised throughout the country based on a single standard, such as healthcare and education. But, still, a 95% share of federal regulation is exorbitant. And we agreed that this strict federal leash should be loosened.
About the leash. Do you hear that little motor? That’s a drone flying over us right now and filming us. It wasn’t long ago that federal legislators decided that a pilot’s licence would be required to control this mini-helicopter with video cameras. But nobody thought that it would be a good idea to support this with regulations. And now, strictly speaking, this thing is hanging over us illegally. You recently spoke to the senators and urged them to take a more conservative approach to law-making. Was that for situations like this in particular?
I had the following in mind. It’s not an issue of our law-making not being conservative enough. It’s not conservative law-making that we need, although there should be reasonable conservatism in legislative policy. We need something else. We need a conservative procedure for amending and adopting laws. This is what’s truly very important. So that they aren’t amended and revised every six months. So that decisions aren’t made that run counter to previously adopted ones, even more so without the proper calculations and economic substantiation. Unfortunately, this happens in our lives all the time. When I spoke to legislators, I did indeed say that we have very important, as they say, fundamental laws, such as the Civil Code, Tax Code and Land Code – such documents need to be treated with care. They need to be improved, certainly, but this needs to be done in an extremely measured manner. I will point out once again that in the majority of developed economies, such documents are touched as a last resort, particularly the Civil Code, Land Code and a wide range of laws associated with the regulation of property and economic relations.
We are, in one way or another, dancing around the theme of predictability, which to a certain extent was a core theme at the current investment forum in Sochi. Predictability. The firefighting measures have paid off. We have already mentioned low inflation and the resumption of growth. But the subject of predictability sometimes emerges in unexpected places. Take taxation, for example. On the one hand, you say time and again that the tax system should be stable. You repeated this recently at the Gaidar Forum and reiterated it in Sochi. On the other hand, ideas occasionally arise in your government with respect to taxes: let’s lower insurance payments and raise VAT… Is this under discussion? Is there actually a prospect for amending tax legislation on the horizon?
Everything that I said concerning conservatism and regulation is absolutely fair. At the same time, though, we must understand that life nevertheless takes its own course. Otherwise, we would still be using the tax laws under the Peter the Great. Economic conditions change regardless. It’s just that our decisions should be calculated. This is precisely why in 2014, based on a proposal from the President, the Government took a wide a range of decisions (along with the legislative authorities, of course) to declare a kind of tax moratorium. Essentially, we are not altering tax legislation in the coming years. But after this period expires in 2018, we should prepare proposals about what our tax system will look like in the future. This is quite normal. Right now we have a real opportunity to prepare for the innovations in tax legislation that we need. What we need to change and what we don’t need to do. And such proposals are currently being prepared. So all the public discussions on this subject, frankly, will not create any direct result. It’s only a discussion. I want to reassure all of you – business representatives and members of the public – that no decisions have been made. Yes, my colleagues say: this tax needs to be changed, this decision needs to be adopted… I actually tell everyone that they need to discuss all this more carefully. But obviously it still finds its way out into the public. But there are no decisions. We are only preparing them. That’s the first thing.
Second: I am absolutely confident that the general framework of the tax system that has formed over the last 15–20 years will remain in place. This is what tax stability is all about, although a large number of ideas have been voiced, in particular about introducing a progressive income tax. So the general framework of the tax system will stay the same, I am sure, simply because this system has proven to be quite effective for our country. But this doesn’t mean that it doesn’t need to be adjusted. This applies to both individual sectors and individual spheres. We will need to preserve certain incentives and perhaps abolish certain other ones. And this is exactly what the discussion is about. However, I stress that no decisions have been made on the subject at this time.
In your address at the plenary session, you mentioned several ideas that are being developed as part of the Government’s comprehensive plan for the period until 2025. Is that a serious outlook?
We need to look far into the distance. We should understand which laws and which ideas will be guiding the country in its development in the coming years.
I have already spoken about the sanctions many times. I’d like to say once again that we should prepare for living under sanctions indefinitely. Look at what our partners across the ocean and in Europe are doing. They are perpetuating these sanctions, codifying them and making a batch of laws besides all the executive orders that Obama passed. They are trying to adopt laws that will make these sanctions permanent similar to the Jackson–Vanik amendments or even stronger. Thus, there is no need for us to count on some sort of grace from them, plus we don’t have to since, as the experience of the last two years has shown, we are capable of growing under the sanctions, and growing quite well actually. This is because everything that we have accomplished in both industry and agriculture was done not thanks to, but in spite of the fact that we were largely forced to restructure our work. So privatization will take its course. It’s not related to the sanctions, it’s related to market conditions: whatever is beneficial to sell will have to be sold. Privatization is a tool. It’s not a special idea that we are pursuing. What’s this tool for? To replenish the budget, as was the case with the sale of shares in Rosneft or Alrosa, for example. Or to find a more effective owner when we feel that a private investor would bring about a better result.
Although, it’s not always a fact that a private investor is better than a government investor. But this is an eternal debate.
It’s not a fact, that’s for sure. Sometimes it’s better, sometimes it’s worse. Everything depends on how the management team is built and what principles are used.
Thank you, Mr. Medvedev.