As the year draws to a close, the stream of bad economic news keeps pouring out of Russia. A growing suspicion that the country may be headed toward recession after next year's presidential elections has triggered capital flight and sent many investors heading for the exit. Yet outgoing President Dmitry Medvedev was not about to give Russians some optimism amid the gloom. Speaking at a State Council session on Monday, Medvedev criticized Russian officials for failing to communicate bad economic news with frankness and empathy. Russia, he said, faces "serious challenges" ahead due to ongoing global economic recession. And it was the government's obligation, he said, to tell Russian citizens honestly about the hardships to come.
President Medvedev seems to be urging frank dialogue with the restive Russian middle-class, which has taken to the streets in recent weeks to protest election fraud, analysts say. However, his teammate, Russia's head of government and presidential candidate Vladimir Putin, does not appear to share such views. Putin told the same meeting on Monday that the state should use modern means of communication more extensively "to inspire citizens' confidence in the future." "The main goal is national psychotherapy to inspire citizens' confidence in the future," Itar-Tass quoted Putin as saying. Putin went on to compare himself with former U.S. President Franklin Delano Roosevelt, who appealed to citizens weekly on the radio during the Great Depression. He said that while the options of the American president were limited to radio, "There is now television and the Internet. But we use them ineffectively," Putin concluded.
The prime minister also expressed displeasure with plans put forward by a presidential working group on the demarcation of state power to transfer wide-ranging economic powers to the regions. Medvedev had earlier told the council that while Russia has overcome the 2008 to 2009 financial crisis, a new wave of the crisis was inevitable. Therefore, the national wealth distribution system must be decentralized to give Russia's regions wider room to use taxes for local development, he said. "Financial decentralization must provide the regions with substantial extra means for comprehensive work. It is time to recognize that Russia is so complicated as a federation that we should take into account these differences to create differentiated legal, investment and maybe fiscal regimes in separate regions," he said. According to the Russian president, regions and municipalities could rake in additional one trillion rubles ($32 billion) as a result of power decentralization.
In the annual State of the Nation Address, which he delivered Thursday to State Duma deputies, president Medvedev proposed reinstating the direct election of governors, which were scrapped by then-President Vladimir Putin in 2004. "There is an idea of appointing ministers for territorial affairs or granting additional powers to presidential representatives," Medvedev told the Council on Monday. He added that it would be the new administration's job to choose the future configuration of the federal executive authorities and governance system for Russia's regions.
More radical proposals had also come from the presidential working group on decentralization, which is charged with finding ways to boost the financial self-reliance of the regions. Excise taxes on tobacco and alcohol, petrol and diesel, as well as taxes on cars and motorcycles must be transferred to the regions, Regional Presidential envoy Alexander Khloponin advised. Khloponin, who is also a member of the working group, said the regional authorities could receive additional 170 billion rubles ($5.3 billion) if the group's proposals were implemented. It will also reduce the number of subsidized regions from the present 70 to 60, he said.
Deputy Prime Minister Dmitry Kozak, who heads the group, said the government also needs to abolish tax concessions for land and properties that are used for defense, customs, police and natural monopolies. The regional authorities must also be given supervisory functions in such areas as epidemiology, environmental control and veterinary surveillance, said Kozak, who was the driving force behind the previous policy of centralization.
The deputy prime minister also gave a rare insight into Russia's unwieldy bureaucracy. He reminded officials that the working group's proposals would effectively transfer control of about 100 state functions, which are currently being performed by 220,000 employees spread across 18 institutions around the country. The federal government has been spending 67.5 billion rubles ($2.1 billion) every year to maintain the bureaucracy, Kozak said. Federation Council Speaker and former St. Petersburg Governor Valentina Matviyenko put her weight behind the proposals, stressing that the regional authorities need greater financial independence and self-sufficiency, and even the right to collect taxes.
"Despite such acquiescence, any discussion about the delegation of economic and political power to the regions without the express approval of the Russian prime minister is romantic," said Vladimir Pribylovsky, a political analyst with Panorama, a think tank. Vladimir Putin said on Monday that he is against the transfer of authority to the regions in areas subject to federal regulation, such as healthcare, sanitary inspection and labor relations. The premier also raised issue with the proposal for the partial replacement of the value-added tax (VAT) with turnover tax, and its eventual transfer to the regions. Russia, he said, needs to spend up to 20 trillion rubles ($632.4 billion) on defense, security and state orders in the near future. "If we reduce VAT even by one percent, how do we replenish the shortfall in revenues?" Putin asked the proponents of the demarcation of state power. "Or should we slash these programs? And how do we finance salary increases for law enforcement, [and] with what do we index state pensions?"
As the year draws to a close, the stream of bad economic news keeps pouring out of Russia. A growing suspicion that the country may be headed toward recession after next year's presidential elections has triggered capital flight and sent many investors heading for the exit. Yet outgoing President Dmitry Medvedev was not about to give Russians some optimism amid the gloom. Speaking at a State Council session on Monday, Medvedev criticized Russian officials for failing to communicate bad economic news with frankness and empathy. Russia, he said, faces "serious challenges" ahead due to ongoing global economic recession. And it was the government's obligation, he said, to tell Russian citizens honestly about the hardships to come.
President Medvedev seems to be urging frank dialogue with the restive Russian middle-class, which has taken to the streets in recent weeks to protest election fraud, analysts say. However, his teammate, Russia's head of government and presidential candidate Vladimir Putin, does not appear to share such views. Putin told the same meeting on Monday that the state should use modern means of communication more extensively "to inspire citizens' confidence in the future." "The main goal is national psychotherapy to inspire citizens' confidence in the future," Itar-Tass quoted Putin as saying. Putin went on to compare himself with former U.S. President Franklin Delano Roosevelt, who appealed to citizens weekly on the radio during the Great Depression. He said that while the options of the American president were limited to radio, "There is now television and the Internet. But we use them ineffectively," Putin concluded.
The prime minister also expressed displeasure with plans put forward by a presidential working group on the demarcation of state power to transfer wide-ranging economic powers to the regions. Medvedev had earlier told the council that while Russia has overcome the 2008 to 2009 financial crisis, a new wave of the crisis was inevitable. Therefore, the national wealth distribution system must be decentralized to give Russia's regions wider room to use taxes for local development, he said. "Financial decentralization must provide the regions with substantial extra means for comprehensive work. It is time to recognize that Russia is so complicated as a federation that we should take into account these differences to create differentiated legal, investment and maybe fiscal regimes in separate regions," he said. According to the Russian president, regions and municipalities could rake in additional one trillion rubles ($32 billion) as a result of power decentralization.
In the annual State of the Nation Address, which he delivered Thursday to State Duma deputies, president Medvedev proposed reinstating the direct election of governors, which were scrapped by then-President Vladimir Putin in 2004. "There is an idea of appointing ministers for territorial affairs or granting additional powers to presidential representatives," Medvedev told the Council on Monday. He added that it would be the new administration's job to choose the future configuration of the federal executive authorities and governance system for Russia's regions.
More radical proposals had also come from the presidential working group on decentralization, which is charged with finding ways to boost the financial self-reliance of the regions. Excise taxes on tobacco and alcohol, petrol and diesel, as well as taxes on cars and motorcycles must be transferred to the regions, Regional Presidential envoy Alexander Khloponin advised. Khloponin, who is also a member of the working group, said the regional authorities could receive additional 170 billion rubles ($5.3 billion) if the group's proposals were implemented. It will also reduce the number of subsidized regions from the present 70 to 60, he said.
Deputy Prime Minister Dmitry Kozak, who heads the group, said the government also needs to abolish tax concessions for land and properties that are used for defense, customs, police and natural monopolies. The regional authorities must also be given supervisory functions in such areas as epidemiology, environmental control and veterinary surveillance, said Kozak, who was the driving force behind the previous policy of centralization.
The deputy prime minister also gave a rare insight into Russia's unwieldy bureaucracy. He reminded officials that the working group's proposals would effectively transfer control of about 100 state functions, which are currently being performed by 220,000 employees spread across 18 institutions around the country. The federal government has been spending 67.5 billion rubles ($2.1 billion) every year to maintain the bureaucracy, Kozak said. Federation Council Speaker and former St. Petersburg Governor Valentina Matviyenko put her weight behind the proposals, stressing that the regional authorities need greater financial independence and self-sufficiency, and even the right to collect taxes.
"Despite such acquiescence, any discussion about the delegation of economic and political power to the regions without the express approval of the Russian prime minister is romantic," said Vladimir Pribylovsky, a political analyst with Panorama, a think tank. Vladimir Putin said on Monday that he is against the transfer of authority to the regions in areas subject to federal regulation, such as healthcare, sanitary inspection and labor relations. The premier also raised issue with the proposal for the partial replacement of the value-added tax (VAT) with turnover tax, and its eventual transfer to the regions. Russia, he said, needs to spend up to 20 trillion rubles ($632.4 billion) on defense, security and state orders in the near future. "If we reduce VAT even by one percent, how do we replenish the shortfall in revenues?" Putin asked the proponents of the demarcation of state power. "Or should we slash these programs? And how do we finance salary increases for law enforcement, [and] with what do we index state pensions?"