The latest proposals of the Government contradict significantly the positive changes in work on the Tax Code. A tax revolution on personal incomes almost materialised, but failed owing to the Government's indecisiveness. That is how Alexei Mikhailov, member of the Budget Committee of the Duma, deputy from the Yabloko faction, assesses the revision of the government's previous position in introducing a regressive scale for social payments.

Alexei Mikhailov stresses that the debate around the introduction of a single social tax concealed a proposal that is no less important (about the regressive scale), which may influence considerably the collection of social payments and withdrawal of the "black market" economy. During the examination of the Tax Code in spring 2000 representatives from the Yabloko faction in the Budget Committee (deputies of the Duma Mikhail Zadornov, Alexei Mikhailov and member of the Expert Council of the Duma Sergei Don) introduced a package of amendments to the Tax Code, which envisaged introduction of a regressive scale for social payments.

Alexei Mikhailov explains that this system distributes the tax burden of the citizens in their payments to social funds more or less commensurate to the level of social welfare that they will receive. Yabloko’s proposal encourages legalisation of the wage fund and liquidation of the system of paying salaries “in envelopes” (Ed. undeclared to the tax authorities).

The introduction of this scale is one of the key proposals in the programme documents of the Yabloko association at the first stage of the tax reform (see Yabloko’s election programme and Grigory Yavlinsky’s programme in the presidential election campaign “Breakthrough Strategy“).

The Committee supported Yabloko’s proposal, prepared and adopted amendments to the scheme of payments to social funds (Socstrakh - social insurance, Medstrakh - health care insurance, and the Pension Fund) according to the following scale:

• 20% at annual incomes from 100.000 to 300.000 roubles (Ed. approx. $3.500 and $10.500 respectively);
• 10% for annual incomes 300.000-600.000 roubles and 2% for annual incomes over 600.000 roubles.

The Government also at first agreed with this scheme. However the day before examination of the issue by the Duma (late on June 6) the Government proposed that the Duma change its position with regards the regressive scale and toughen restrictions for enterprises in application of this scale.

Thus, Alexei Mikhailov thinks that the Government has virtually repudiated its declarations about the need to reduce the tax burden.

Grigory Yavlinsky: The main purpose of the visit of the President of the United States to Moscow was to discuss issues related to the anti-missile defence system. I think that these talks should be continued with President Clinton until the elections in the US, and then with the new President of the United States. I think that Russia has an opportunity to formulate a clear and comprehensible position here. This position can be summed up as follows. We are ready to recognise that the United States has the right to develop a tactical anti-missile system that would protect the USA from terrorist attacks. But the United States and NATO must also recognise that Russia, as well as Europe in general, also needs such a system. Secondly, such a system for Europe can be created only with Russia-s participation. Russia must insist, provide reasons and develop the direction which I would call the creation of a Russian-European anti-missile defence system, based on Russian high technologies. Corresponding negotiations have been conducted for over 18 months already. I discussed this with the former President of Russia and with Vladimir Putin, as well as at the Security Council. I also had an opportunity to discuss this with the leading politicians of the United States. I think that this direction is the most reasonable and could resolve a whole range of security issues for Russia, contribute to the development of the Russian military-industrial complex and create real pre-requisites for the development of deep, effective security systems between Russia and Europe, which would be very useful for Russia. There are also some reasons that were provided by Vladimir Putin, which were also mentioned in President Clinton-s speech to the Duma today, which demonstrate that the negotiations may be aimed at creating a Russian-European anti-missile defence system.

Question: Is there any interest in this in Europe?

Grigory Yavlinsky: Europe is obviously interested. All the meetings and contacts confirm that, even though Russia-s proposal was somewhat unexpected for Europe and taking into account that today Russia is having a rough ride in its international policy, this is such an important and essentially right idea that it might be supported by Europe. The problem is that such negotiations are difficult to conduct with the United States, as the United States was initially interested in creating their own system, including their system in Europe. They were even ready to create such a system for Russia. But we are interested in the creation of a real Russian-European anti-missile defence system based on our technologies. In particular, everyone acknowledges and recognises that the Russian designs C-300 and C-400 have better specifications and quality than the American "Patriot". This means that one can achieve more using Russian military technologies, than present American technologies. Therefore, there is such an interest in Europe.

Question: Grigory Alexeevich, how do you assess today-s speech by President Clinton to the Duma? Was it a farewell for Russia from a President, whose term comes to the end, or did President Clinton offer specific proposals and should this meeting be analysed more seriously?

Grigory Yavlinsky: Basically the nature of discrepancies in foreign policy issues between the republicans and the democrats in the United States is determined more by the election campaign than by actual content. Consequently, in terms of basic principled positions, the ideas worded today by the American President will be meaningful to the next administration in the USA. Even if this is a republican administration.

Sergei Ivanenko expects serious battles in the Duma during discussion of the tax initiatives of the Government Deputy Chairman of the Yabloko faction Sergei Ivanenko forecasts that voting on the tax initiatives of the Government to be considered by the Duma on the second reading on June 7 will be political by nature.

Ivanenko told journalists on June 6, 2000, that the Yabloko faction "on the whole supports the course towards an abrupt reduction in taxes and consequently is ready to support the tax initiatives of the government referring to the introduction of a single rate (13%) of the income tax and the introduction of a uniform social tax.

At the same time Ivanenko stressed that, to the best of his knowledge, the government does not hold one single view on these issues. Therefore, he said that the ?key decisions on the tax initiatives of the government, which will influence voting results, will be adopted during the meeting of the Duma on June 7.

According to Ivanenko, serious battles should be expected here. In his opinion, the problem concerns the path that is chosen for Russia here: "either we will create a free market economy at least in terms of incomes taxes or wage taxes, or we continue the course of strengthening the system of bureaucracy and corruption and the ingrained methods used to evade unreasonable taxation. Ivanenko also said that the introduction of a uniform social tax is very important in terms of economic development strategy. However, he noted that it is necessary to create corresponding mechanisms, which would preserve present achievements in the social sphere.

The introduction of this tax should not lead to a deterioration of the the positions directly related to the financing of kindergartens, holiday homes and provision of aid to the workers.

Based on Interfax reports.

See also:

The Yabloko and SPS factions to support in the second reading the adoption of a 13% flat rate of income tax

The Yabloko faction will vote for the 13% income tax rate - Part II of the RF Tax Code (Chapter 24) - that is currently being considered by the State Duma

On June 7, 2000, the State Duma approved deputy Chairman of the Yabloko faction Sergei Ivanenko as Chairman of the parliamentary commission responsible for the legal issues of subsoil usage under the terms of the production-sharing agreements.

A corresponding Resolution of the Duma was adopted by 252 votes to 100 votes, with one abstention.

Sergei Ivanenko proposed that deputy associations submit their candidacies to the Commission by June 9.

The Duma declined the proposal of the co-ordinator of the CPRF faction Sergei Reshulskiy who proposed the candidacy of independent deputy Nikolai Ryzhkov as head of this commission. This proposal was supported by only 157 deputies, with a required quorum of 226 votes.

Based on Interfax reports.

On June 7 the voting of the Yabloko and Union of Right-Wing Forces (SPS) factions will be consolidated for the adoption by the State Duma in the second reading of a 13% flat rate of income tax.

Deputy Head of the Yabloko faction Sergei Ivanenko and Deputy Head of the SPS faction Viktor Pokhmelkin made this statement to journalists after the meeting of the Co-ordination Council.

Ivanenko noted that the Yabloko faction had decide to allow a free vote on the issue of a single social tax. At the same time he stressed that “this was for the first time in many years that the government had adopted a proposal of the Yabloko faction that had been suggested long ago at the time of the introduction of a regressive tax scale to encourage people with high incomes to pay taxes”.

According to Sergei Ivanenko, some members of the faction think that it is necessary to legally establish very serious guarantees in the social sphere. However, Ivanenko assumes that most members of the faction will support a uniform social tax. According to Pokhmelkin, the SPS faction will conduct consolidated voting for the adoption of the single social tax in the second reading. Both Pokhmelkin and Ivanenko think that the tax reform proposed by the government “makes common sense” and should therefore be supported by the Duma.

Based on Interfax reports.

See also:

Sergei Ivanenko expects serious battles in the Duma during discussion of the tax initiatives of the Government

The Yabloko faction will vote for the 13% income tax rate - Part II of the RF Tax Code (Chapter 24) - that is currently being considered by the State Duma