RUSSIAN FINANCE MINISTER SPEAKS AGAINST FINANCING TAX CUTS FROM STABILIZATION FUND

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MOSCOW, February 1 (RIA Novosti) - Finance Minister Alexei Kudrin voiced his opposition to the Cabinet staff's proposal to finance tax cuts from Russia's Stabilization Fund, citing unfavorable macroeconomic implications.

Speaking at a RIA Novosti press conference Tuesday, Mr. Kudrin said the Cabinet had proposed cutting the value added tax rate down to 13 percent. As a result of this measure, the Treasury would lose 316 to 318 billion rubles (the U.S. dollar currently buys 28.11 rubles) in annual tax revenues, so the Cabinet staff suggests that the loss be made up with money from the Stabilization Fund.

According to the Finance Minister, this proposal needs to be analyzed in depth, primarily in terms of its implications on the nation's macro-economic performance. He believes the move will make it harder for Russia to meet its economic growth targets and to curb inflation. Spending money from the Stabilization Fund to finance the tax gap would send the annual inflation rate at least 1.5 to 2 percentage points upward, making the national currency appreciate by 0.5-1.5 percent.

The Cabinet's proposal is based on the assumption that the mid-term price of oil on the world's commodity markets will be quite high, said the Finance Minister. So, the negative impact on Russia's macroeconomic performance would be even stronger in the event of price drop, he warned.

In Mr. Kudrin's view, the proposed measure could also be a serious impediment to the government's plans to improve the living standards of people employed in the public sector and to raise the welfare benefits for disadvantaged population groups. Since the 1998 financial crisis, the government has been working hard to restore population incomes to the pre-crisis level, and it would now like to build on its achievements rather than see them undermined, the minister pointed out.

The bottom line is, the Russian authorities should not go ahead with the proposed measure unless they aresure it won't hamper economic growth and will be no obstacle to their welfare policy targets for the next three years.

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