RS Brief news Vladimir Putin's New Economy

Vladimir Putin's New Economy

March 2012

© RIA Novosti, Aleksey Druginin
Vladimir Putin
Vladimir Putin, Prime Minister of Russia

“We need a new economy with a competitive industry and infrastructure, a well-developed service sector and efficient agriculture. An economy that works on the basis of modern technology. We need to build an effective mechanism to reinvigorate the economy, to find and attract the huge necessary material and human resources”. Those are the words of Vladimir Putin, the current Prime Minister of Russia, taken from an article published in the business newspaper “Vedomosti” as a part of Putin's ongoing presidential campaign.

Putin envisages a diversified economy in which sectors other than the already modern energy sector will be better-developed and competitive. The shares of high-tech and intellectual sectors in the GDP should increase by 50% by 2020, and high-tech exports from Russia should double.

The Prime Minister believes that the most important factor in achieving this goal will be the achievement of technological leadership in a number of industries, including pharmaceuticals, high-tech chemistry, composites and non-metallic materials, aerospace industry and nanotechnology.

Another task highlighted by Mr. Putin is to attract capital from both foreign investors and domestic businesses. He recommends “using tax and customs incentives to allow investors to channel funds into innovative industries”.

The Prime Minister noted that he is counting on Russian capital to play an active role in the privatisation and further development of high-tech assets. At the same time it is necessary to search for buyers among foreign investors, those who are willing to contribute, not only by investing in the research and production base, but also through their contacts and their place in major international markets.

The article outlined the following global steps, which are necessary to attract much-needed capital:

First: Expansion of the domestic market, making it more attractive for direct investment.

Second: Improving the business climate and increasing the country's attractiveness for long-term capital facilities. It is necessary to change the whole ideology of state control over the activities of business, starting afresh with the fact that establishing conditions for honest entrepreneurs is more important than the possible risks associated with unscrupulous behaviour.

Third: Introducing programmes involved in investing public resources, through pension and trust funds, as well as collective investment funds.

The Prime Minister also addressed tax-related issues. “We will not increase the tax burden on non-commodity sectors. That would be contrary to our whole policy of economic diversification. However, we have a reserve for the growth of tax revenues in several areas: expensive real estate, luxury consumables, alcohol, tobacco, rent payments in areas where they are currently undervalued. First and foremost, what people are calling a “wealth tax”, but is, to be precise, a “luxury goods tax”. Key decisions should be taken later this year, so that next year the owners of expensive houses and luxury cars will be paying higher taxes. At the same time, it is important not to get too carried away, otherwise members of the middle class may end up falling under these new measures”, explains Mr. Putin in his article.

Vladimir Putin also once again raised the issue of the fight against “one-day firms”: “as a result of all of this, honest business will benefit. After all, it will not have to compete with those who thrive on fraud and cheating the state”.

Addressing the lawmakers, the Prime Minister encouraged them to stop adjusting the laws to the needs of the budget deficit. “We must once and for all resist the temptation to adjust the tax system to meet increasing expenditure commitments. Such a policy reinforces uncertainty around the economic environment for business, seriously compromising the attractiveness of our economy for investment”.