Vladimir Putin outlined the program for economic development of Russia until 2030
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The program for the economic development of the Russian Federation until 2030, set out on Thursday by the president as part of his message to the Federal Assembly, looks like a continuation of stimulating those sectors of domestic demand that provide the maximum contribution to long-term growth and economic restructuring. First of all, these are investments in infrastructure, personnel, housing construction and demography, in the hope that their demand, in the face of reduced imports, will ensure the restart of domestic production and growth in exports. The process should be supported by relatively inexpensive systemic business support measures. The necessary funds for this, as the president could understand, will appear, among other things, through a redistribution of the tax burden – increasing it for more profitable companies and households and reducing it for poor, less profitable sectors and investors in priority sectors of the economy.
A new outline of economic policy, designed to outline the “circle of work” of the executive branch for the coming years, became a prominent part of the president’s address to the Federal Assembly in 2024. It includes support and development of the most influential trends that have emerged in the economy as a result of the implementation of national projects and the strategic planning system as a whole – adjusted for the needs that the Kremlin considers a priority in the conditions of gradual isolation and “sovereignization” of the development of the Russian Federation due to increasing external restrictions caused by military operation in Ukraine.
First of all, this is confirmed by the authorities’ plans to gradually reduce the share of imports in GDP to 17% (currently about 21%), increase non-resource, non-energy exports (an increase of two-thirds by 2030) and exports of agricultural products by 50% by the same date.
Otherwise, the state intends to continue to maintain high controllability of economic sectors to continue its adaptation to external restrictions and stimulate the creation of its own production facilities based on growing domestic demand. This is also evident in the areas of investment: with the total volume of government incentives until 2030 being about 10 trillion rubles. Among the priorities are the social sphere with an investment bias (extension of family mortgages and maternity capital programs), demand-oriented fight against poverty and a gradual increase in the minimum wage (up to 35 thousand rubles by 2030) and social payments tied to it, as well as investments in attracting investments : this is the modernization of housing and communal services, the costs of which are confirmed in the amount of 4.5 trillion rubles. until 2030, including private funds, additional costs for industrial mortgage programs and R&D subsidies (120 billion rubles for six years), construction of campuses for 400 billion rubles, additional capitalization of the Industrial Development Fund in the amount of 300 billion rubles, forgiveness of two thirds budget loans to the regions (price – about 200 billion rubles per year) for reinvestment of these funds, extension of the program of investment budget loans, etc.
These projects must simultaneously provide businesses with government orders, build support for the development of their own production and maintain high demand for their products, making companies’ investments in such projects profitable. Two new national projects deserve special attention: “Personnel” (an attempt to solve the problem of labor shortage over the long term; see page 2) and “Data Economy” (designed to maintain a high level of digitalization for the sake of efficiency of public administration; costs – 700 billion rubles until 2030 of the year).
Support for economic processes will also be deployed in science and education; for this, through a trillion-dollar state program and doubling private investments, it is planned to increase investments in research and development to 2% of GDP, private tools for this work will be increasing the salaries of university teachers (the government will launch pilot projects with September 1, 2024) and extension of the Priority 2030 program (from 2025 it will cost 190 billion rubles).
The financial infrastructure is also being prepared to return public funds and attract private investment in the economy. In particular, the Ministry of Finance has been instructed to launch a program of irrevocable savings certificates (as a source of long-term money in the financial system): “luring” citizens into it after the failures and freezes of previous options for building a savings system is expected to be double (up to 2.8 million rubles) by increasing the insurance ceiling in comparison with deposits.
A number of regulatory instruments are also being extended and developed: noting a record increase in the number of new companies in 2023, Vladimir Putin promised to support the state’s client-centric position in relation to business.
Thus, the government has been instructed to resolve the issue of SME+ companies, in particular by ensuring a smooth increase in the tax burden for growing companies during the transition from the “simplified” tax regime to the general tax regime (now, having exceeded the thresholds for revenue and staff size, they are deprived of tax preferences). A related idea is to provide an amnesty for business splitting (dividing companies when revenue thresholds are exceeded to preserve tax preferences).
In terms of reducing administrative pressure, legislative fixation of a complete transition to a risk-based approach in control and supervision is promised.
De facto existing experimental regimes in this area, after demonstrating their effectiveness, are transferred to permanent ones, and this is largely a general rule for the Kremlin’s initiatives: the president demonstrated a similar approach on the issue of sources of funds that are supposed to finance activities to strengthen the economy’s reliance on its own demand . “The plans are big, so are the expenses, large-scale investments are coming, so are the expenses,” the president explained when addressing this topic.
For now, the government and the State Duma have been tasked with modernizing the tax system and fixing it after the changes until 2030.
Guidelines in this direction are given quite generally: “to think through approaches to modernizing our fiscal system towards a more equitable distribution of the tax burden towards those with higher personal and corporate incomes, and, on the contrary, it is necessary to reduce the tax burden on families, including through deductions.” In the case of citizens, this can be understood as a hint at a further increase in personal income tax for high-income citizens and recognition of the successful refusal from a flat income tax scale in 2021, when another personal income tax rate was introduced, increased from 13% to 15% for citizens with annual earnings from 5 million rub. It is proposed to expand this experience by reducing the burden on the poor (directly or only through the expansion of tax deductions – it is still unknown).
For business, we can talk about increasing the taxation of increased profits on an ongoing basis, while the need to stimulate those who invest in the implementation of investment projects is stated. In this context, the recent sudden introduction of one-time levies on companies (windfall taxes, exchange duties) also looks like the development of a model that can now be institutionalized. Business, we note, itself proposed to the authorities to increase the income tax and link the burden with the investment activity of enterprises in exchange for predictability of tax policy through formulaic solutions that allow planning capital investments.
Note that the economic part of the message was voiced in conditions when even economists – members of the board of directors of the Bank of Russia cannot explain the nature of economic growth in the Russian Federation – whether it is due to an increase in the gap between potential and cyclical growth, when supply does not keep up with demand – or a decrease in this gap due to labor and capital productivity. In the Bank of Russia’s materials from the last meeting on the key rate, the probability of further investment growth with reduced sensitivity to a high rate due to record capacity utilization, noticeable profits, optimistic expectations and high costs of stopping already started projects is assessed as high. In this scenario, it would be easier to curb inflation and increase growth potential itself.
However, the supply of investment goods in the second half of 2023 (average quarterly estimates of the Center for MACP, taking into account the seasonality of their production and import) was declining, and now part of the profit will be redistributed by the state to other investments of the same quality, the performance of which is difficult to assess – which also reduces the likelihood of companies intensifying investments. Pro-cyclical injections will only delay the achievement of the Bank of Russia’s inflation target and, most likely, will further increase the output gap. The problem is that, like the production of capital goods, domestic output of non-manufacturing consumer goods is also contracting.
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