Insurance tax shortfall could be offset by high-wage levy - Putin
MOSCOW. July 7 (Interfax) - Russian Prime Minister Vladimir Putin is proposing to compensate for budget revenue shortfalls, caused by a decrease on the insurance payment rate from 34% to 30%, by introducing an additional rate on higher wages above 512,000 rubles.
"Lost revenue [from the decrease in insurance rates] is considerable; this comes to 460 billion rubles. In order to cover at least a portion of budget shortfalls, the proposal has been made to introduce additional insurance payments to social funds on wages above 512,000 rubles," Putin said at a government meeting on Thursday.
He said that rate on transfers might reach up to 10% "The total [rate] for these transfers is up to 10%. Let's discuss this further," Putin said.
Deputy Prime Minister Alexei Kudrin, who is also the country's finance minister, said the government Thursday approved the initiative to introduce the surcharge on salaries above 512,000 rubles from 2012.
He said the extent of the surcharge would be discussed separately and would be up to 10%, but 7% for small businesses.
He also said it had been decided to make a further analysis of the impact of the rates on businesses and on individual sectors, including high-tech. "The rate might still be discussed, but generally speaking it will be introduced," he said.
Kudrin said the shortfall from the lower insurance contributions would be 460 billion rubles in 2012 unless the surcharge on high wages is introduced. If the shortfall were to be plugged by borrowing alone, this would create additional macroeconomic risks, and the accumulation of macroeconomic risks would pose a greater threat than higher tax rates.
"The 460 billion rubles would be just under 1% of GDP and it will increase our exposure to oil or borrowing," Kudrin said.
Borrowing currently stands at 2.181 trillion rubles, and, since the budget deficit cannot be widened any further, another 460 billion rubles could be added.
"And this [2.181 trillion rubles] is the borrowing ceiling," Kudrin said, adding that the government had concluded that additional borrowing is impossible, just like increasing the deficit.
Kudrin said most of the burden from the surcharge on high wages would lie on the financial and extractive sectors, where most salaries exceed 512,000 rubles a year. Transport and retail, where these wages account for a fifth of the total, will also be affected.
The hi-tech industries were most worried, but some of them have already been removed from the risk zone. "This is a local zone with which we'll be working to find ways to optimize the tax burden on such companies. The IT and tech companies already have a concession - they'll pay 14% [insurance] next year," Kudrin said, adding it would be more risky to widen the budget deficit than to raise taxes.