Vladimir Putin: Thank you very much. I don’t want to waste your time. I was not meant to take part in this event, but I said to the Prime Minister: “I want to have a look and hear what is happening to the idea that is investing all our agreements with real substance.” I am grateful to the heads of both Chambers of Commerce and Industry for staging this event. In my opinion, the meeting of the two Chambers in a working format is an important factor that creates a favourable atmosphere for the development of business ties.
For the benefit of our Spanish colleagues, I would permit myself to say a couple of words about what is happening in Russia. I am sure you know that in the previous year we have seen some positive trends in the development of the Russian economy. The results for the past year are known: the economy has grown by a little over 8% and industrial output by about 10%.
Another important feature of last year was that we met our social obligations to the population. While in the previous years arrears on wages, pensions and other social benefits varied between several months to a year and more, you can imagine that it was very problematic to carry out any liberal reforms of the economy, without which the country cannot develop. Because the very word “reform” was becoming a cuss word in Russia and caused resentment among the population. We had to overcome that trend and we have used the favourable economic situation to solve these social problems.
Now we have practically no arrears on wages, pensions and other social benefits that are paid mainly by the federal government. Moreover, real incomes have grown by nearly 24%. True, we now face another challenge, containing the growth of non-interest bearing budgetary expenditure. I think business people understand the implications.
Of course, the favourable foreign trade situation has helped because the prices of our traditional exports – above all raw materials and energy resources – have remained quite high; and the prices for goods that we imported have been comparatively low.
At the same time, it was also the result of purposeful activities of the Russian Government. They consisted in purposeful actions in the tax sphere, in the sphere of customs policy and in the phasing out of unreasonable state interference in economic affairs. Suffice it to say that we have introduced a flat income tax rate of 13%. It is probably the lowest income tax in Europe. And at the time when we were planning it, we of course counted on an increase of tax collection into the budget and on luring part of the economy out of the shadow sector. But of course we were criticised by our opponents who said it was not fair. People who earn a lot and have large incomes and those who barely make ends meet have to pay the same income tax rate – that is socially unfair. But I must tell you that the results have exceeded all our expectations. Tax collection increased not by 15%-20%, as we had planned, revenues increased by 70%. Naturally, it enabled the Government to redistribute the revenues in favour of the poor social strata and to fulfil the social obligations I have mentioned earlier.
The same happened in the sphere of customs taxation and bank regulation. We have substantially reduced the number of customs duties, simplified and lowered the customs rates. The result has also been positive. Proceeds for the treasury jumped. We proceeded in a similar manner in the sphere of social taxes, the wage tax and so on. Building on the positive practice and dynamics, we intend to move forward in the near future. The important factor is consolidation of society and economic stability. This is due in large part to the fact that the state has met its obligations to the population. Trust and support of the population have increased and, I think, they are a substantial if not the main factor of stability in the country.
We intend to move fast along this path in the very near future. A number of bills are pending before the State Duma which envisage further liberalisation of taxation and labour relations. I am referring to the adoption of the new Labour Code because the old one has been in effect since 1971. It is very outdated and does not meet the requirements of the market economy. There is a new pension law, a whole package of laws on reform of the justice system and measures to liberalise currency and banking legislation.
In terms of tax reform, the key part of the Tax Code of the Russian Federation is its Chapter 27, which introduces a new system of payment for subsoil resources. I repeat, all these documents, draft documents, are pending before the State Duma, and the deputies are fretting because they will have to extend the spring session. But that is better than having the whole people revile us for our failures – putting the blame both on the Government and the deputies.
To this I should add our plans in the sphere of restructuring natural monopolies. We have a very heated discussion on reorganising the country’s power industry, our main company in this sphere called RAO UES of Russia. We have practically prepared a concept of transforming the Ministry of Railways.
You know that Russia has all along been meeting its obligations to its creditors, and for quite some time now it has been doing it without having recourse to foreign refinancing. This year we turned down IMF loans, but we are coordinating our economic policy with the international financial institutions, including the experts of the International Monetary Fund. We have developed a programme and submitted it to the IMF, and we intend to put it into practice together with the IMF experts. By the way, our consistent efforts aimed at sticking to the macro-economic targets enabled the Central Bank of Russia to implement measures aimed at maintaining a stable national currency and accumulating gold and currency reserves. During the year the gold and currency reserves increased by several times to over $32 billion. And the reserves continue to grow.
I agree with my counterpart, the Prime Minister of Spain, that our bilateral relations have made good headway during the past years. The last year has seen a 70% growth in our trade, unlike many other European countries with which Russia has a trade surplus. In the relations with Spain everything is the other way around – our Spanish partners report a surplus. We do not mind that because we know that the Spanish and our leaders seek to upgrade our export and import with emphasis on high-tech spheres. We have a concrete plan for that. We have something to offer each other and there are areas in which we can cooperate effectively to mutual advantage. Our trade at present is worth about $1.3 billion. If all our plans are put into practice, I think that trade will increase many times over.
One of the priorities today is to work out an agreement to support and attract mutual investments. We have agreed that in the second half of this year the Prime Minister of the Russian Federation, Mr Kasyanov, will go to Spain on a working visit. And the following year the Spanish Prime Minister will come to Moscow as the head of the state which holds the chairmanship of the EU. And in the middle of next year, if nothing untoward happens, I will make a point of visiting Spain. I am saying it so that the business circles know that both on our side and on the Spanish side we will pay the closest attention to the development of bilateral relations at the highest government level.
I wish you success. Thank you.