As he and other Chamber Board members met with Prime Minister Mikhail Fradkov Friday, Primakov cited data from a World Bank report, according to which twenty-three business groups hold a third of the nation's industry and one-sixth of its jobs. Excessive monopolization hinders the restructuring of the economy, the development of innovative technologies, the promotion of small businesses, and the reduction of the wealth gap. It also has a negative effect on pricing, not just in the oil sector, but also in ferrous metallurgy and mechanical engineering.
Primakov brought up the manufacture of ball and roller bearings as an example to illustrate his point. This industry used to export one-third of the total output, but has now had to reduce its exports to just 9 percent because of a leap in metal prices. If the prices are pushed up further, Russia may lose its ball and roller bearing industry altogether, he warned.
Primakov called for a distinction-based approach in raising taxes for the raw material industries. In his opinion, assets held by those industries should now be transferred to manufacturing industries so as to bring about the restructuring of the Russian economy. One of the steps toward that goal could be an increase of taxes payable by producers of crude oil and other commodities, he said. He cautioned against an indiscriminate approach, emphasizing the need to make individual assessment of each oil well. The failure to do so may badly hit small and medium-sized businesses working in the petroleum industry, he explained.
Surplus profits should be taken from raw material industries and sent into manufacturing industries with the help of an export tariff mechanism that has been up and running in Russia since 1998, Primakov said.
The President of Russia's Industry & Commerce Chamber also called for a return to progressive taxation, from today's flat income tax scheme. The idea is to narrow the wealth gap, he explained. At present, the incomes of Russia's rich surpass those of the poor by a factor of 15. The 20% tax rate won't make the upper class any poorer, Primakov believes.
Prime Minister Mikhail Fradkov indicated, however, that the current income tax rate of 13 percent would not be changed any time soon. He said that the Cabinet was going to focus instead on measures to reduce businesses' tax burden, including through social security tax cuts, while at the same time taking surplus profits away from oil producers.
