Yesterday’s speech by PM Vladimir Putin in his final report to the Duma on the Government’s work in 2011, in our opinion, was absolutely truthful. Indeed, few governments can boast of such results - GDP growth in Russia is ahead of many countries, wages are rising and the ruble has strengthened its position. We have a low external debt, population growth and increased pensions. But the report clearly omits several important facts about the life of the country, without which the picture is incomplete.
Despite all the successes, money and people are fleeing the country. In the four years of Putin's premiership the capital flight from Russia reached a catastrophic level - $ 338.9 billion – the amount equal to Russia’s entire annual state budget.
Capital flight is accompanied by a brain drain: according to polling agency Levada Centre, over the past 12 months the desire to leave the country was expressed by about a third of the polled residents of cities with a relatively high level of education. During the last three years 1.3 million people left Russia, 40% of them had college education.
The intellectual and financial elite are leaving the country, among other things, because Russian entrepreneurs have in recent years been subjected to monstrous reprisals from the state. During the last 10 years, according to the Center for Legal and Economic Research, every sixth entrepreneur was criminally prosecuted. Two-thirds of the companies owned by the prosecuted business-people were closed and two million people employed by them lost their jobs. According to experts, more than 100,000 business-people are currently behind bars.
The country is suffering from a catastrophic shortage of investment: its volume still has not surpassed the pre-crisis highs. Of those capital investments that are being made, two-thirds are the large-scale State-financed oil and gas pipelines. The rest look more like desperate hole-patching rather than investments: 70% of the 10,000 enterprises polled in the survey conducted by the Higher School of Economics have invested in the replacement of old equipment. The reason for these investments was not the low efficiency of the equipment, but its complete physical depletion.
One of the reasons why companies cannot invest is significant rise in tax burden, which Mr. Putin for some reason forgot to mention. When the current cabinet commenced its work, the total tax burden was 35.8% of GDP; now, according to presidential aide Arkady Dvorkovich, the tax burden reached 40% of GDP.
Increased social tax contributions not only slowed down investment and growth, but also pushed some business in the ‘grey economy’ contributing to the development of ‘cash transactions’ and criminal schemes.
Budget problems also have increased. Following the crisis, most governments have actively pursued a policy of belt-tightening, bringing their expenditures to more reasonable levels while Putin's government has done the opposite: during the post-crisis years the share of social spending in our budget has risen from a fourth to a third. A pre-crisis budget deficit (excluding oil and gas revenues) of 2-3% of GDP rose to 10% of GDP today. The current budget would not sustain the 2008-like shocks when the price of oil has fallen by 75%. Unfortunately, Russian senior citizens are still not well-off. While pensions did increase, they barely reach the subsistence level.
Mr. Putin is proud of the fact that we began to build more apartments, but he did not mention that today fewer people can afford them. Housing became less affordable because of the rise in corruption price premiums. Builders set aside 20% to 50% of the value of the investment project for the bribes to government officials. According to authors of the "Strategy 2020", Russian corruption leads to a 15% higher prices for food and 25%-30% for real estate. In the 2011 ranking of perceived corruption by Transparency International Russia occupies 143th place out of 183 - on par with Nigeria and Uganda.
The report to the Duma ought to have mentioned the growth of monopolistic state-owned corporations - we have eight now with one more on its way. It would also be nice to include in the report the number 1 trillion rubles (33B$) – this much, according to President Dmitry Medvedev, is stolen every year in State procurement.
Apart from that, Putin's report is an exemplary one and is full of progressive ideas.
Despite all the successes, money and people are fleeing the country. In the four years of Putin's premiership the capital flight from Russia reached a catastrophic level - $ 338.9 billion – the amount equal to Russia’s entire annual state budget.
Capital flight is accompanied by a brain drain: according to polling agency Levada Centre, over the past 12 months the desire to leave the country was expressed by about a third of the polled residents of cities with a relatively high level of education. During the last three years 1.3 million people left Russia, 40% of them had college education.
The intellectual and financial elite are leaving the country, among other things, because Russian entrepreneurs have in recent years been subjected to monstrous reprisals from the state. During the last 10 years, according to the Center for Legal and Economic Research, every sixth entrepreneur was criminally prosecuted. Two-thirds of the companies owned by the prosecuted business-people were closed and two million people employed by them lost their jobs. According to experts, more than 100,000 business-people are currently behind bars.
The country is suffering from a catastrophic shortage of investment: its volume still has not surpassed the pre-crisis highs. Of those capital investments that are being made, two-thirds are the large-scale State-financed oil and gas pipelines. The rest look more like desperate hole-patching rather than investments: 70% of the 10,000 enterprises polled in the survey conducted by the Higher School of Economics have invested in the replacement of old equipment. The reason for these investments was not the low efficiency of the equipment, but its complete physical depletion.
One of the reasons why companies cannot invest is significant rise in tax burden, which Mr. Putin for some reason forgot to mention. When the current cabinet commenced its work, the total tax burden was 35.8% of GDP; now, according to presidential aide Arkady Dvorkovich, the tax burden reached 40% of GDP.
Increased social tax contributions not only slowed down investment and growth, but also pushed some business in the ‘grey economy’ contributing to the development of ‘cash transactions’ and criminal schemes.
Budget problems also have increased. Following the crisis, most governments have actively pursued a policy of belt-tightening, bringing their expenditures to more reasonable levels while Putin's government has done the opposite: during the post-crisis years the share of social spending in our budget has risen from a fourth to a third. A pre-crisis budget deficit (excluding oil and gas revenues) of 2-3% of GDP rose to 10% of GDP today. The current budget would not sustain the 2008-like shocks when the price of oil has fallen by 75%. Unfortunately, Russian senior citizens are still not well-off. While pensions did increase, they barely reach the subsistence level.
Mr. Putin is proud of the fact that we began to build more apartments, but he did not mention that today fewer people can afford them. Housing became less affordable because of the rise in corruption price premiums. Builders set aside 20% to 50% of the value of the investment project for the bribes to government officials. According to authors of the "Strategy 2020", Russian corruption leads to a 15% higher prices for food and 25%-30% for real estate. In the 2011 ranking of perceived corruption by Transparency International Russia occupies 143th place out of 183 - on par with Nigeria and Uganda.
The report to the Duma ought to have mentioned the growth of monopolistic state-owned corporations - we have eight now with one more on its way. It would also be nice to include in the report the number 1 trillion rubles (33B$) – this much, according to President Dmitry Medvedev, is stolen every year in State procurement.
Apart from that, Putin's report is an exemplary one and is full of progressive ideas.
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