Putin pledges pro-growth tax reform, stable rouble

Reuters News
Posted: Dec 21, 2011 7:08 AM
Putin pledges pro-growth tax reform, stable rouble

By Gleb Bryanski

MOSCOW (Reuters) - Russian Prime Minister Vladimir Putin called on Wednesday for sweeping tax reforms to boost investment-led growth, while pledging to keep the rouble stable without imposing any capital controls.

Putin, seeking to return to the Kremlin at a presidential election next March, said he would seek to restore growth rates to the boom-era levels of the past decade while weaning Russia off its dependency on the price of its main export, oil.

"We have set a goal to propel the mechanism of economic growth to 6 percent minimum, but it would be better if it is 6-7 percent," Putin told a congress of Russia's small- and medium-sized business lobby, Delovaya Rossiya.

Putin has set a goal of lifting Russia's $1.9 trillion economy, now the world's 11th largest, to fifth in the global rankings by the end of this decade.

To achieve that, he wants to boost investment rates as a share of gross domestic product to 25 percent by 2015 from 20 percent now, which is less than half the rate in faster-growing China.

Economists say that the 2008-09 financial crisis has lowered the 'speed limit' for Russian economic growth, now running at just over 4 percent, and supply-side measures will be needed to overhaul Russia's consumption-driven economic model.

Putin gave no details of his proposed tax reforms, but a policy platform is expected to be ready by February.

"Generally it is obvious that today the country needs a decisive tax manoeuvre, a modern structure of the tax system is needed," Putin said.

"Money and investments are always heading where there is ... a high profit rate. Now it is the energy sector. And we must turn the flows into high-tech and industrial businesses."

Putin said that Russia would neither sacrifice prudent fiscal policy in a dash for growth, nor put at risk its achievements in bringing down inflation, set to end this year at a post-Soviet low of below 7 percent.

"We will continue doing everything necessary to ensure a stable rouble exchange rate and low inflation," he said.

He also rebutted calls to reimpose restrictions on capital movements as capital flight, driven by political uncertainty surrounding Russia's election cycle and risking risk aversion abroad, accelerates.

Net capital outflows from January to November reached $74 billion, accelerating in the run-up to this month's parliamentary election, in which Putin's ruling party saw its majority cut and which triggered popular protests against alleged ballot fraud.

Putin said that Russia, which lifted capital controls in 2006, would ensure "unconditional freedom for capital flows."

($1 = 31.9270 Russian roubles)

(Reporting by Gleb Bryanski,; Writing by Andrey Ostroukh, Editing by Douglas Busvine and Susan Fenton)