25 March 2004 18:05
New deputy premier says reforms will benefit Russia`s population
Deputy Prime Minister Aleksandr Zhukov has said the new government faces the task of pushing ahead with reforms in
all spheres. The administrative reform will improve the government's efficiency, and tax reform will boost the
economic growth and solve many social problems. He said Russia no longer needed a "shock therapy". Zhukov said
the reforms were being implemented in people's interests, not at their expense. The following is an excerpt from a
report broadcast by Russia TV on 24 March:
[Voice over] Prime Minister Mikhail Fradkov calls him Integrator. The name should not be confused with Terminator,
although the Kremlin intends to get him to do away with the old government structure and create a new one. This graduate
of Harvard Business School plays football, and on the field he prefers attack. He is a veteran of the State Duma, and he
has won a seat in all the convocations in the history of modern Russia. His MP colleagues say that when it comes to
counting the state's money no-one can pull the wool over Aleksandr Zhukov's eyes, as on that score he is an
authority.
[Presenter] Why did you agree this time round? After all, previous premiers [Yevgeniy] Primakov and [Sergey]
Stepashin had also made you offers to move from your job as a deputy and join the government. Stepashin had also offered
you the job of deputy premier.
[Zhukov] You know, I have been a State Duma deputy for 10 years now. It will be interesting to try my hand at a new
job.
[Presenter] Did you stay there too long?
[Zhukov] You know, legislating is a very important thing, but work in the executive could be even more important
today. It is an interesting offer. It seems that I can be useful here.
[Presenter] You have what is probably the hottest job in the government now. You are responsible for the
implementation of administrative reform. You no doubt meet the president of the country practically every day to discuss
this and he no doubt insists that the pace must not slacken. People in the White House [Russian government HQ] say that
they've already calculated that you need 36 hours a day just to countersign all the papers. What does your work
currently consist of?
[Zhukov] This is of course currently a very complex period in the government's work because we don't just
have to deal with administrative reform, to which the president has devoted so much attention. And the decree that came
out fundamentally changes the whole system of administration. But at the same time the pace of substantive reforms must
not be lost. Moreover, the new government faces the task of pushing ahead with reforms in all spheres as rapidly as
possible because, I would say, the old government had somewhat slackened the pace in the last six months.
[Presenter] Yes, well, we shall have more to say about the substantive reforms. But, on the subject of the
administrative reform itself, what is it? After all, it has quite a lot of critics.
[Zhukov] I think the critics don't have an entirely proper understanding of it. The purpose of the
administrative reform is not to transplant functionaries from one chair to another. Its essence is substantially to
reduce unnecessary functions that the government is carrying out today.
[Presenter] For instance?
[Zhukov] There are very many such functions. For instance, there is an enormous number of various types of licensing
in the most varied fields of activity. In places where it is quite unnecessary, an official nevertheless sits and gives
out an enormous number of licences, permits, and so on. All this is putting a very strong brake on the development of
our economy and on the development of entrepreneurship. It is putting a brake on the development of reforms. The essence
of the administrative reform is, first, to reduce the number of unnecessary state functions and, second, to make the
whole of the bureaucratic structure work much more effectively, so that everyone should do their own job.
You see, previously, a ministry, any ministry - just consider this - combined several functions. The first function
was to issue various normative documents and instructions, and to draft laws and various orders, and so on. Then, the
same ministry was involved in issuing various permits and in carrying out checks. In other words, it issued licences and
controlled everything happening in a particular sector. And the selfsame ministry was essentially involved in economic
activity because it has within its remit a large number of enterprises operating on the market, providing services to
members of the public, and so on. In other words, it's a thing in itself: it writes its own instructions, it
carries out its own controls, and it operates on the market. It is absolutely the wrong paradigm.
[Presenter] What's going to happen now?
[Zhukov] Today all these functions have been separated. The ministries are considerably more compact. They have the
job of formulating policy in specific sectors. In reality, their job is - or should be - just normative: drafting laws
and issuing the necessary decisions and instructions that govern a specific sector. Under them are services involved in
checking the way enterprises in the sector are operating.
[Presenter] The way the regulations are actually being observed?
[Zhukov] In essence, it's a question of checking how the regulations are being observed. And then there are the
agencies, which perform all the economic activities. Moreover, there is no strict subordination, and the ministry does
not in theory have the right to interfere in the work of the services and agencies. This structure is much more
transparent from the point of view of decision-taking, it's more compact and, in the final analysis, the reform
won't stop at the level of ministries, agencies and services. The reform will embrace the absolute entirety of the
administrative system. It should result in the substantially more effective functioning of the bureaucratic structure
and of course a reduction in the number of officials.
[Presenter] Aleksandr Dmitriyevich, the press has already coined such phrases as executive paralysis and the obesity
of power, and sceptics have already calculated that the number of federal departments at various levels will not
decrease but increase. They even say that the number of bureaucrats will increase, which means that the number of black
cars with much-hated blue flashing lights will also increase, and that the whole thing has nothing to do with raising
the competitiveness of our economy. Are all these calculations wrong?
[Zhukov] I think it is somewhat premature to make such conclusions after just 10 days of the administrative reform.
Of course, we will judge it by the results but the aims of the administrative reform of which I spoke are completely
opposite to what you have just said.
[Presenter] On the one hand, the president has given the government a negative assessment, on the other hand, jobs
have been found for virtually all the ministers with very few exceptions. Is the aim still to find them jobs?
[Zhukov] Of course, there is no such aim. Many ministers and people who used to be in charge of various areas have
been replaced by completely new people.
[Presenter] As ministers? As heads of agencies and services? They just moved a floor lower.
[Zhukov] I repeat that the administrative reform is not about moving bureaucrats from one chair to another. It has
totally different aims.
[Presenter] But in reality these bureaucrats are being moved from one chair to another.
[Zhukov] The success of administrative reform does not depend on who sits in what chair but on who performs which
function and how effectively. The role of a minister in the new structure of the government is completely different.
Ministers have become responsible for affairs in their sphere. While before endless negotiations were held between
ministries at the level of deputy prime ministers and government staff - let's describe it as collective
irresponsibility - ministers now have considerably greater powers, they are able to make independent decisions and are
personally responsible for them. By the way, the president said this several times in quite clear terms.
[Presenter] Does this not confuse anyone? Does everybody know where to run, what to do, how information is passed
around and how orders reach the regiment or in this case the ministry or agency - does everybody already know that?
[Zhukov] All the fundamental documents for all the new structures are to be approved within a month. Work has not
been suspended because of that, of course, and many important matters concerning work on the content are already
proceeding alongside administrative changes. Therefore, there is absolutely no paralysis or obesity in reality.
[Presenter] Just idle talk. The tempo has been set very high. One cannot help remembering Peter the Great, who put
Russia on its hind legs. Is this shock therapy take two? Such a term is also doing the rounds.
[Zhukov] I would not say so. Shock therapy should always be viewed in relation to how citizens' situation
changes. These current changes have not directly affected citizens. Quite the reverse, the aim is to create such a
mechanism which would help people.
[Presenter] How will you explain to citizens how they will benefit from this reform? So much is being said about
this. They must understand, after all, their role and their destiny.
[Zhukov] It is very easy. For citizens it is the aims which the president and government set to themselves that are
important. These aims, in my view, have been formulated absolutely clearly. There are really just two of them: to speed
up economic growth and, as a consequence, to improve people's living standards, i.e. to reduce the number of the
poor and to achieve considerably higher rates of growth of the population's real incomes. This is what citizens
must perceive. In the final analysis, they should not concern themselves with what bureaucrat sits in which chair.
[Passage omitted]
[Presenter] The tax reform is under way in parallel with the administrative one. You have said that you are working
on its content. It has already been decided that the income tax will be maintained at a rate of 13 per cent. What else
is known for sure regarding taxes? What will happen to the single social tax? What will happen to the tax on the use of
natural resources?
[Zhukov] The government has already proposed a very serious, comprehensive approach not only towards the tax reform -
that is to carry on lowering tax rates - but the tax reform is also closely interwoven with the reform of the social
sector. What is the gist of this approach? First, it is proposed to substantially lower the single social tax rate, the
highest and the most harmful tax of the present day, with the highest rate reaching 36 per cent. It is proposed to lower
it by 10 per cent, down to 26 per cent. This will cost the state over 10bn dollars which will be left to enterprises. It
will be left to industry. This is a very serious impetus for enterprises. This money can be channelled into investments,
and this is indeed a very important step towards speeding up the economic growth. At the same time, this reform is not
carried out at the expense of citizens. Therefore, it was decided not to increase income tax, although such proposals
had been considered as well.
[Presenter, interrupts] It was proposed to increase it by a couple of points.
[Zhukov] Yes, but this will never happen. I think that this is an absolutely right decision. At the expense of what
will the single social tax be reduced? It will be reduced at the expense of the budget which is ready to pay the Pension
Fund that amount of money of which it will fall short due to the reduced single social tax rate. Thus, this lowering is
being carried out not at the citizens' expense but at the budget's expense.
Second, the change to the single social tax is very closely linked to the proposed changes to the pension system.
Pension levels at present are low in the country and the indexation of pensions, unfortunately, hardly ever satisfies
the population. What has been proposed? At the same time there exist an enormous number of benefits which pensioners use
or more often do not use. [Passage omitted: recount of some benefits] So what has been proposed? To replace these
benefits, which are nowadays used just partially and not always by those citizens who really need them, by an increase,
quite serious increase in pensions expressed in cash. And benefit-holder pensioners will be able to decide on their own
how to spend this money.
[Presenter] Could you express this increase in figures?
[Zhukov] This increase will vary according to benefit-holder categories, for example, for the most important citizens
such as invalids of war or veterans of war, this increase will be very significant, amounting to R800 or R900, that is
significantly exceeding the basic pension level which today totals R600.
[Presenter] When can it happen?
[Zhukov] It will be introduced from 1 January 2005. I think that such a reform simultaneously tackles two tasks - on
the one hand, the state decides to lower taxes and give the opportunity to entrepreneurship to develop and to speed up
the economic growth, on the other hand, many social problems are resolved, pensions are substantially increased and on
top of that a mechanism is proposed which enables citizens to transfer part of their money to the Pension Fund, if they
want to, and the state adds certain amount to their pension savings. This is very advantageous for citizens on low
income because this additional payment will amount up to R2,000.
[Presenter] Is it advantageous? This will probably reduce the number of people below the poverty line, and there are
about 30m such people in Russia and they are presumably watching us as well. What should they hope for? They, actually,
believe that the state is going to pay back its debts not only to its foreign creditors.
[Zhukov] First of all, this reform should improve the situation of the least affluent category of citizens. This is
an enormous number of pensioners who must get increase in pensions instead of non-targeted benefits.
[Presenter] Talking about the necessity of popular and unpopular reforms, President Vladimir Putin said that these
unpopular reforms may turn out to be more popular compared to that unpopular state of affairs which has emerged in the
health, education, housing and public services spheres. At least that was the point of the statements by the president.
What are you planning to do in these spheres? Say, in the health sector.
[Zhukov] In my view, there are no unpopular reforms, there are wrong reforms, wrong decisions leading to the
deterioration of the situation. If a reform improves the situation it will be popular in any case.
[Presenter] What may happen? What sort of right decisions are you counting on in the health sector? I am talking
about the health, education, housing and public services spheres, that is the spheres which the president talked
about.
[Zhukov] As regards the health sphere, a new wording of the law on a compulsory health insurance which solves many
still unresolved issues and, first and foremost, the issues related to health insurance of unemployed citizens has
already been prepared. It is a very difficult problem which is to be resolved. As for the housing and public services,
in this case there should be no talk about unpopularity of reforms. Ask people, try to find a single person in the
country who is happy with the functioning of public services. Here as well it is needed to go over to the system of
providing targeted subsidies to those who need them. Because, in reality, subsidies and benefits today are received by
people whose living standards are higher, who have larger flats and use public services more excessively, they receive
higher state subsidies. This is an utterly wrong system which does not enable the state to build up normal market
mechanisms in the housing and public services sphere, to move away from monopolization and through this to improve this
sphere. That is what the government will be engaged in.
[Presenter] Will the tax on immovable property change?
[Zhukov] We are proposing to change the tax on immovable property, to lower its rate significantly however, to move
to the real base, to real market value.
[Presenter] To market evaluation of property owned by a person.
[Zhukov] Absolutely.
[Presenter] As a result, they will pay more than they do now.
[Zhukov] Let us put it this way: Those who possess expensive immovable property, that is the rich, will pay more.
Those who possess immovable property which costs cheaper will pay less. And again speaking of the tax reform, the state,
as I have already said, is losing large sums of money by lowering the single social tax rate and is losing large sums of
money because compensation for the abolished benefits is well over what people receive today. I mean that it is paid in
full, even though not all these benefits are really used. This is an extra R170bn which will be spent on it
[compensation]. Thus, partially these losses will be compensated through additional taxation in the oil sector. Since
you have asked this question I can say that the package of government's tax proposals envisages an increase in
export customs duty on oil and the tax on extraction of minerals, which, given quite good conditions today, that is,
high prices, will give an additional budget revenue of around 3bn dollars. This in part compensates the losses incurred
due to the reduced single social tax rate.
[Presenter] Have I got it correctly? It means that the increase in export customs duty will act as a tax on the use
of natural resources.
[Zhukov] This is the very role which the export customs duty and the tax on the extraction of minerals play today.
They will be increased.
[Presenter] Well, among asked questions, there is one about education which is yet to be answered. What is the
government planning to do in this sphere?
[Zhukov] We are working on a full package of documents on education. It is needed to clearly delineate the sphere and
those state obligations on free education which must ensure whatever it is stipulated in the constitution, in the
current laws, that minimum which the state is obliged to provide in the sphere of education and give an opportunity to
others [interrupted by presenter]
[Presenter] What will that minimum be?
[Zhukov, chuckling] What will that minimum be?
[Presenter] Yes, you are saying that you have to define this minimum, thus how do you define it for yourself?
[Zhukov] It is a well-known fact that the state guarantees a free secondary education. This will definitely be
preserved. As regards the higher education, there will be clearly defined state orders on free education at the higher
educational institutions, while the rest will be on the commercial basis.
[Presenter] This year, Russia will probably lose its lead in the GDP per capita rate among the CIS countries, and
Kazakhstan will outstrip it. This is a well-known and, in fact, an inevitable prospect. What are we doing or have been
doing wrong? [Passage omitted: comparing GDP figures of the two countries]
[Zhukov] I think that we have quite an opportunity to compete. However, I have to say that many reforms, and indeed
tough reforms, in Kazakhstan implemented in mid-1990s could indeed be called a shock therapy. I think, today we do not
even have to do it again, to go through such a shock therapy once more. Now we will implement reforms which
simultaneously pursue two goals - speeding up growth rates and significantly improving social protection of the
population. [Passage omitted]
[RTR Russia TV] |
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