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The address outlines the basic budget policy objectives over the next three years. The Government will use the President’s budget policy address as the basis for drawing up the draft budget for the period in question.

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President of Russia Vladimir Putin: Good afternoon, colleagues,

Today we are meeting again, as we did last year, about the 2014–2016 Budget Policy Address. I think it is necessary to draw your attention to several points and priorities.

The main rationale behind budget policy is supporting economic growth. This is the main goal of our joint work. By what means should we achieve it? By radically improving the efficiency of our budget policy, unconditionally honouring all our commitments in the social sphere, and realising the strategic objectives defined in the executive orders of May 7, 2012.

We need to switch to a long-term development policy in our public sector, and this means increasing the share of government spending on education, science and infrastructure, significantly improving the quality of social services, and stimulating business development and private investments.

All of these objectives were mentioned in the previous Budget Policy Address, and some work in this direction has been conducted. Nevertheless, we must admit that new planning principles and measures to increase the efficiency of government spending are being introduced very slowly. We cannot wait and delay major decisions any longer. We need to achieve a new and better budgetary policy in the near future.

These conditions determine our internal and external economic conditions and trends. At present, the possibilities of quickly and constantly increasing budgetary spending have been exhausted or close to it. We need more productive, superior solutions.

Colleagues, what goals must we achieve over the coming three-year period?

First, we must ensure a stable and balanced budgetary system as well as the unconditional fulfilment of government obligations, primarily social ones, even in the event of an unfavourable external economic environment. It is for precisely this reason that the budget rule was adopted.

I consider it necessary to finalise our budget strategy through to 2030 over the next three months, and if necessary, we must make changes to long-term forecasts of socioeconomic development.

The budget strategy must evaluate possible risks and clarify how we will act in any scenario, including an unfavourable one. It must also set out clear guidelines for financial support of government programmes: funds should be allocated for plans that really envisage transformations and in order to achieve specific targets.

Unfortunately, this is not the first year (it is more like the fifth) that we have talked about the need to introduce a number of government programmes. We talked and talked, and then finally all the new members of the Government managed to gradually plan these programmes.

Nevertheless many of them – you know this yourselves – need further development. The objectives they contain are not supported by adequate resources and some programs have been adopted in several versions. Moreover, these versions differ significantly both in terms of planned results and funding required.

Friends and colleagues, if there are not enough funds to cover everything, then we need to set priorities. For this reason we have instituted these programmes.

I would emphasise that, in practice, state programmes must dovetail with strategic and budgetary planning; they must establish general policy requirements for both federal departments and regions in their respective fields; and, they must ultimately become a tool for developing and implementing public policies in the long-term.

I would ask that as you prepare the budget, you once again analyse government programmes, identify their priorities, and ensure that the latter correspond with the relevant goals and real possibilities afforded by budgetary funds.

The second goal: we need to significantly optimise the budget’s structure, to find reserves and redistribute them in the light of the strategic objectives outlined in the executive orders of May 7, 2012. We should increase the amount of funds spent on areas that have the greatest impact on economic growth and social development.

Important reserves can be generated by increasing the efficiency of budget spending, focusing on targeted social assistance, and carrying out structural reforms in the social sphere. Finally, they also depend on ensuring a long-term balanced budget for the pension system, which will reduce the Pension Fund’s dependence on government subsidies. This is conditional on the fact that the living standards of Russia’s older generation consistently improve.

This is related to the third goal: making crucial decisions about a pension formula is a high-priority task. We’ve discussed this together many times, and I know that it’s a difficult task. In general we can say that you are almost there; we must see this work through to its end.

A pension formula should allow for a differentiated approach to each citizen: the more years of service and the higher the salary, the higher the pension. And of course the formula must be fair, stable, transparent and, crucially, clearly understood by both employees and employers.

Let me draw your attention to the following: we need to keep the basic rate of insurance premiums for businesses at current levels. We cannot solve the pension system’s problems by increasing the tax burden incumbent on business, and by suppressing entrepreneurial activity and economic growth.

Depending on the final parameters of the pension formula, we should also indicate to what degree National Welfare Fund resources can be used to cover deficits in the pension system.

Another thing I want to draw your attention to. We have given our citizens the right to decide over the course of this year on where to direct their four-percent insurance premiums: either to their insurance, or to the funded part of their pension. Naturally, it would be unfair to deprive those who will use the pension system in the future of this right. I think that they should benefit from this too.

But I would draw everyone’s attention to the following: this will be possible only after adopting laws which fully, and I want to emphasise this, fully ensure the establishment of a functioning system to guarantee pension savings.

We have enough problems with fraud victims to understand that with regards to ​​pension savings, citizens’ pension rights, we must act extremely carefully. These funds should be guaranteed, as should their safety.

We should also pay attention to problems relating to the transparency of the pension system and extra-budgetary funds. Let me remind you that as of January 1, 2014 all extra-budgetary funds will be transferred to the cash services of Federal Treasury agencies. I would ask you to prepare accordingly, and I would like to draw your attention to the fact that this date will not be postponed.

And I would also ask the Government to decide on the feasibility of transferring the administrative aspects of compulsory insurance contributions to the Federal Tax Service. I know that the Government’s social bloc believes that this work should be conducted where it currently is, but representatives of businesses and of the economic bloc believe that the Federal Tax Service can do it more efficiently. I do not want to and will not impose my opinion on anyone, but I would ask you to definitively decide on this and bring these discussions to an end. Let me emphasise that the Government must make decisions this year, 2013, on all matters relating to further developing the pension system.

The fourth goal. The Ministry of Finance was ready to put off funding for the State Arms Procurement Programme until a later date. We have adopted this programme; now we must carry it out, and do so efficiently. We have also talked about this many times.

The resources have been allocated. Indeed, they are substantial, important resources. The military industry must be ready to accept the money, but not only that; it must have the appropriate industrial and technological foundation to fulfil contracts for supplying equipment and weapons.

And if you see that some parts of the industry are not up to the task, the Defence Ministry must come up with its own plan for a more rational allocation of budgetary resources over time. This will give the Government the opportunity to use financial resources to address routine challenges more efficiently.

At the same time, colleagues, I want to draw your attention to the following: of course, the total amount of the state arms programme, the total amount of funds we have allocated for it should remain unchanged.

Fifth, we need to use additional mechanisms to stimulate economic growth, including by developing infrastructure. I am referring to using National Welfare Fund resources and pension money for sustainable infrastructure projects. This must generate a multiplier effect throughout the economy, as well as guarantee the absolute safety and recoverability of the funds.

And of course we have to elaborate a single, clear mechanism for selecting such projects and allocating resources. Each project must undergo an independent technology audit and expert evaluation with the participation of business community representatives. At the same time, you need to create new tools for attracting private investment into infrastructure development, and using public-private partnership mechanisms.

Of course, this is not an easy task. Recovering these funds will take time, this is not so-called fast money; these are serious long-term, long-lasting projects. And there are enough resources in the world, as you are well-aware: there are a large number of major international funds looking for opportunities to invest. Of course, generating profits is very important for them, but the most important thing is the unconditional repayment and reliability of such investments. Russia is able to offer such opportunities.

Sixth. Each ruble spent by the Government should promote changes in the public sector. This is something we’ve already talked about a thousand times. It’s time to move to concrete actions and introduce new financial principles whereby money follows consumers of services, citizens, and does not simply enrich various offices.

To do this, first of all we need to legislate a common reference list of state and municipal services, and to establish a uniform methodology for calculating the costs of such services. Along with this, the content of government tasks must be affiliated with the targets of government programmes. In this way our objectives in healthcare, education, culture and other priority sectors will be clear.

Furthermore, one of our most important goals is to increase the competitiveness of our tax system. We are now adopting a whole set of measures to improve the business climate and make our national jurisdiction more appealing. This includes making tax payment procedures more convenient for businesses. Domestic entrepreneurs and international experts have noted this.

We must continue to create stimuli for both Russian and foreign businesses, investing our resources into the creation of new factories within our nation.

We will soon be implementing suggestions on tax benefits for investment into the Far East and supporting the development and exploitation of new extractable resource deposits, including the continental shelf. We should continue to simplify tax management, bringing it as closely in line as possible with business accounts, and generally improve the quality of our tax administration.

At the same time, we need to limit people’s ability to mitigate taxes on a legal basis and transfer profits to offshore accounts, as well as to increase the financial burden on owners of prestigious, expensive property. In short, we must create tax conditions such as to ensure that investing money into Russia is more advantageous than hiding it on some island or spending it on luxury items.

Seventh, our joint work with the regions to carry out the executive orders of May 7, 2012 has once again demonstrated the need to change the fiscal relations system. Based on the figures from 2012, the state debt in nearly one out of three regions is equal to over half of its revenue. At the same time, the share of investment spending is declining.

In this regard, I feel it is essential for us to conduct constant monitoring of the financial situation in Russian regions, as well as the municipal districts, including such basic indicators as changes in key parameters of their budgets, the structure of their spending, and state and municipal debt. Corresponding measures should be taken based on the results of this monitoring. And it is important for the measures to be taken in a timely manner.

At the same time, Russian regions must have the opportunity to plan their work without worrying about constant changes in the “rules of the game,” on the basis of a clear volume of co-financing provided from the federal budget. This will be particularly true when every region will be required to pass three-year budgets, starting next year.

And finally, eighth. We must assure extensive transparency and openness in the budget process for our citizens. This is one of the key conditions for increasing the efficacy of state investments and the entire budget policy. We have been able to achieve significant results in this area: Russia is now in the top ten nations according to the International Budget Partnership’s budget transparency index. But this work certainly needs to be continued. Beginning this year, in 2013, all levels of government – federal, regional, municipal – must issue the Budgets for Citizens publication.

They must use a format that is accessible and clear to average citizens to show the objectives being funded by state resources, the volume of funding used, the intended results and the actual results, in order for citizens to independently draw conclusions about the efficacy of the spending, targeted use of funds, and the overall efficacy of the work by the government.

As far as the draft federal budget for 2014 and the planning period for 2015–2016 are concerned, the Government was supposed to have organised work with participation by experts to analyse the efficacy of budgetary spending and present suggestions for its optimisation, in accordance with January’s instructions. The results of this analysis should be reflected in the draft budget. I hope, colleagues, that this is precisely what will happen.

We are entering a decisive phase in preparing the budget for the next three-year period. I expect the closest, most constructive possible cooperation between the Cabinet and the parliament, including all political parties. Let me stress again: it is imperative that we have a budget oriented toward development, a budget that will assure the resolution of all priority challenges that our nation faces. Naturally, we repeat this often, and I do it as well, but I will say it again: all these objectives, including the social ones, can be achieved and resolved only by assuring rapid economic growth.

And in conclusion: unfortunately, we often consider priority objectives in the social and economic domains separately from budget policy issues. This is simply wrong. Developing areas should be fully reinforced through sources of funding. In turn, analysing the results achieved will allow us to objectively assess our efficacy in the use of government resources.

In this regard, I feel it would be expedient to make the Budget Address a component of the Address to the Federal Assembly, and I am asking the Cabinet to prepare corresponding amendments to the legislation so that once a year, the President can set corresponding objectives, and the parliament and Cabinet can focus on these priorities from the very start.

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