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The Moscow Times, September 22, 2003

Duma Votes to Spend $89Bln in 2004

By Alla Startseva

The State Duma on Friday locked in the government's basic spending parameters for 2004, passing a draft budget in the first of four required readings by a comfortable margin.

Lawmakers passed the $88.6 billion spending bill, which envisions a surplus for the fifth consecutive year, by a vote of 246 to 180, 20 more than the simple majority needed in the 450-seat chamber.

"We need stability in society, and this document can ensure it," Prime Minister Mikhail Kasyanov was quoted as telling deputies in a surprise appearance ahead of the vote.

The bill was supported by all four pro-Kremlin factions, the Agrarians and the LDPR, while the Communists, the Union of Right Forces, or SPS, and Yabloko voted against it for different reasons.

"This is the budget of a police state," Communist leader Gennady Zyuganov said. "Defense and law enforcement spending will grow while spending on science, agriculture, transport and the social sphere will be cut."

SPS leader Boris Nemtsov said his party voted against the budget because part of the defense budget is "black" or classified, while Yabloko called it a "budget of stagnation."

More than a quarter of all government spending next year will go to defense (411.4 billion rubles, or $13.1 billion at the projected average ruble-dollar rate of 31.30) and law enforcement and security (310.5 billion rubles).

But Kasyanov called it "a budget of social progress" and pro-middle class because it is aimed at further reducing the tax burden and over-reliance on natural resources. The 5 percent national sales tax will be scrapped next year and value added tax will drop to 18 percent from 20 percent.

The budget forecasts economic growth of 5.2 percent, slightly off this year's expected 6 percent, and lowers the tax burden by 1 percent of gross domestic product.

Kasyanov said lower taxes would boost economic growth and help achieve President Vladimir Putin's goal of doubling GDP within a decade, which is "the panacea in our struggle with poverty."

Revenues are expected to hit $91.4 billion, bringing a surplus of nearly $3 billion. But that will all depend on the price of oil, the nation's major export. Spending is based on the assumption that Urals crude will average $20 a barrel in 2004, while projected revenues are based on $22. Urals currently trades at around $24.50.

To guard against an unexpected drop in the price of crude, the government is pushing through a bill alongside the draft budget that will create a stabilization fund to hold windfall revenues.

Finance Minster Alexei Kudrin told lawmakers that creating the fund is crucial because it "forever secures us from situations ... like default."

The draft budget puts inflation at between 8 percent and 10 percent, which would be the lowest in post-Soviet Russian history and down from an expected 12 percent this year.

The crucial second reading is scheduled for Oct. 17. The government wants the bill to pass all four readings in the lower house of parliament and win the approval of the Federation Council so that it can be signed by the president ahead of the Dec. 7 parliamentary elections.


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The Moscow Times, September 22, 2003

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