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President of Russia Vladimir Putin: Colleagues,

Government efforts to draft the federal budget are entering the final stage. By November 1, the draft is to be submitted to the 7^th State Duma. I am confident that the Government will be able to engage in a constructive dialogue with the newly elected lower chamber of Parliament as it works on the country’s main financial document.

I propose that we discuss budget policy priorities at this meeting so as to bring about concrete solutions regarding the basic parameters of the future budget. I would like to start by highlighting a number of important features.

The macroeconomic environment remains challenging. In fact, the Russian economy is gradually recovering from the downturn, but the positive trends are still fragile. Make no mistake, we need to create a macroeconomic environment that would foster economic growth, while keeping in place the downward trend in consumer inflation. In the medium term, the inflation rate should decrease to 4 percent.

As for public finances, ensuring sustainability and balance is still a major priority. So far, we have been forced to run a budget deficit. That said, it remains within limits that are absolutely acceptable, but we must make sure that reliable sources are available to cover this deficit. It is unacceptable to overspend the reserves or to pile up sovereign debt.

We must also continue to reduce the federal budget’s dependence on oil prices and better manage and increase the collection of taxes and other revenue sources, in particular VAT and customs duties. I hope that transferring the Federal Customs Service and Federal Tax Service to the Finance Ministry will have a positive effect in this respect.

I know that the Government is considering several plans for increasing tax collection in some industries, but I would like to say that these measures must not suppress the reviving business climate.

Next, we must be especially accurate when planning budget expenses, we still need to focus on the implementation of social commitments, and continue to enhance the efficiency of budget spending for social programmes. This spending must be more targeted, as we have said repeatedly, and be used more efficiently.

I urge you to pay special attention to the funding of priority projects in healthcare, education, housing and utilities, road maintenance, support for small and medium-sized businesses and several other areas. Allocations for these projects must be stipulated in the budget in full.

Based on the results of this meeting, I ask the Government to analyse all these proposals and report back to me on a timeframe to submit the final draft federal budget to the State Duma.

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