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President of Russia Vladimir Putin: Good afternoon, Mr Prime Minister. I understand that the work on the budget is nearing completion?

Prime Minister Dmitry Medvedev: That’s right, Mr President, the Government has completed the task. The budget will be finished and submitted to the State Duma within the next couple of days.

The work was very intense over the past few days; one of our priorities was to incorporate the ideas that were voiced at the Government meeting on a number of items, including some social issues, such as the wages of faculty members at universities. We considered a number of options to generate additional revenues (I will brief you in detail later). There are some opportunities that give us room for manoeuvre.

However, I must admit that the budget is very tight, both for 2013 and for the 2014 and 2015 planning period. I think we should hold a meeting to calculate everything to the last penny, which may actually be a positive factor that will serve to strengthen fiscal discipline at the federal level, as well as in regions and municipalities.

Vladimir Putin: Yes, as you know, I have discussed this with our colleagues. This is the first budget of the new Government, the first budget of the new Finance Minister, and it is a very important event for the whole team and its individual members, and for the whole country. This is the nation’s main financial document for next year, Russia’s chief financial law.

Indeed, the budget is very difficult, very complex. I believe that the budget rule adopted by the Government reflects the objective state of our economy, and we must do everything we can to adhere to it. That is why the budget is so tight. I also want to thank you and the colleagues in the Government for finding ways to address the most pressing social issues, including, for example, higher wages for the cultural sphere.

The budget is very tight, and some may say in certain areas it is too tight, yet we have found a way to make a step forward and provide support in the areas where the most pressing social issues remain unresolved, especially in this sector that is vitally important for our nation, and it has people working there for very little money. They can by right be called selfless enthusiasts.

You and I are both aware of what is happening in the developed economies that were thriving until recently, including those in Europe. They don’t increase funding for anything; it’s all about consolidation, cuts in social spending and raising the retirement age. The most recent and highly visible events are unfolding in Spain. We must bear in mind all the risks that affect our economy, the global and European economy, but we must also do everything to fulfil our social commitments. Judging from the draft budget, it was built around these priorities.

Dmitry Medvedev: That is absolutely true. The budget is tight but it has retained its focus on social issues, which we have successfully achieved for the past 12 years. And every budget incorporated all of the Government’s social obligations, whatever the situation when it was calculated – I remember drawing up the budget for 2009 and 2010, when we were facing even greater challenges.

”The budget is very tight. I want to thank the colleagues in the Government for finding ways to address the most pressing social issues, including, for example, higher wages for the cultural sphere.“

It has been the same this time, despite adherence to the budget rule you have mentioned. It is true that we are using this rule for the first time. It caused a lot of controversy, but it provides a guarantee against any sudden changes in the hydrocarbon market. Unfortunately, our economy is very dependent on oil and gas prices, and this provides a kind of insurance for our country in case the global macroeconomic environment worsens, that is, if there is a downturn in the global economy.

Vladimir Putin: We have already talked about social issues, and I am glad that the Government has found an opportunity to address these priorities. However, although the budget is clearly focused on social programmes, it should also be a development budget. I know that the Government has found a way to reinvest in our Direct Investments Fund, which plays a major part in the development of our economy, especially in innovation. That is the first point.

The second priority is to provide support for export-oriented and high-tech industries, and implement protective measures pertaining to Russia’s accession to the WTO. I think that these are the key aspects of economic development that must be taken into consideration.

Dmitry Medvedev: The budget reflects all of this. Indeed, the Direct Investments Fund was established to invest in the most important sectors, including high-tech, which you mentioned.

The funding has been allocated and the protective measures related to Russia's membership in the World Trade Organisation have been planned. It was our goal to join it for a long time and we took great efforts, but WTO accession must not be accompanied by a collapse in some sectors of our economy.

That is why we have made significant allocations to support farmers as part of the Agriculture Development Programme until 2020, and we have increased the funding. Incidentally, we have retained the zero interest rate on loans to farmers, and we have made it permanent.

Other vulnerable industries must also obtain support through budgetary financing and loans. That includes automobiles and aircraft building, and some other sectors.

Vladimir Putin: The Direct Investments Fund was established on your initiative, wasn’t it?

Dmitry Medvedev: That’s right.

Vladimir Putin: We must support it.

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