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Additional measures to speed up economic growth and increase household incomes were the main topic. Several current issues were also discussed.

At the beginning of the meeting, Minister of Construction and Housing and Utilities Vladimir Yakushev and Minister of Energy Alexander Novak delivered reports on readiness for the heating season. After that, Deputy Prime Minister Olga Golodets and Head of the Federal Tourism Agency Zarina Doguzova reported on the results of the tourist season. Minister of Labour and Social Protection Maxim Topilin and Minister of Economic Development Maxim Oreshkin made reports on the main theme of the meeting.

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Excerpts from transcript of meeting with Government members

President of Russia Vladimir Putin: Good afternoon, colleagues,

Let’s begin with several current issues. First, of course, is getting the housing and utilities sector ready for the heating season. I know that, unfortunately, there have already been shortcuts and problems in several regions.

But before that, I would like to remind you – and I will ask Mr Yakushev (Minister of Construction and Housing and Utilities) to talk about the utilities in a minute – about my latest trip to the flooded districts (Do you remember? Mr Mutko [Deputy Prime Minister, Chairman of the State Commission on Flood Relief Efforts in the Irkutsk Region] remembers this), this is about the various requests from people, 117 requests total, which is a lot.

At that time, I asked my colleagues – Mr Mutko, Mr Yakushev and the Irkutsk Region governor – to take their share of requests and fulfil them. I know from my experience that once focus on this is lost, interest in fulfilling these requests also evaporates. I would like to point out that they not only have to be reviewed but also resolved.

Just yesterday I talked with Mr Menyailo, the Presidential Plenipotentiary Envoy to the Siberian Federal District, and as you might recall, we agreed that he would review and monitor this. Soon the Executive Office will set a meeting, and I will ask everyone to report what has been done on each request. Agreed?

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Deputy Prime Minister Olga Golodets: Mr President, Mr Prime Minister,

Indeed, this year the tourist season picked up the pace: the number of tourists since the beginning of the year has reached 54 million, which is 10 percent more than last year.

We have been implementing a federal programme for the systematic support of tourism, and we know by now which support measures were the most effective. Improvements in transport accessibility and large infrastructure projects have the biggest effect on the number of tourists. The opening of new destinations depends above all on the given area’s attractiveness for tourists.

Last year we opened the Crimean Bridge, and this year 3.3 million tourists have travelled across it. More tourists are using it every day. This is why we offer new routes for those who travel in Crimea by car, including The Golden Ring of the Bosporan Kingdom and the Imperial Route. In other words, we give people an opportunity to gain an insight into the history and culture of Crimea.

Another issue concerns new destinations and services. This year we have opened 45 new subsidised flights to the most popular tourist destinations, as well as 869 additional rail trips. I would like to say a few words about rail trips. Russian Railways is working so smoothly and quickly responds to even the slightest changes in tourists’ preferences, offering double-decker trains, and this helps attract tourists.

The Golden Ring [in central Russia] has been seriously upgraded. We have introduced a new destination called The Silver Necklace. We have connected Petrozavodsk with Veliky Novgorod and Veliky Novgorod with Kaliningrad, which gives people from around the country an opportunity to see a new culture and new historical landmarks. We see the demand for such trips growing every month.

The hotel business is another important component of the tourism industry development. Working within the framework of the state programme, we pinpoint the regions that should be given priority attention and help them to develop infrastructure. Private companies are building hotels there. The number of hotels has increased by 11 percent over the past year, which translates into 246,000 new beds. The class of hotels varies from simple camping projects to luxury hotels for sophisticated clients. We see that business is ready to invest serious money in tourist destinations.

Amenities play an important role in attracting tourists. The number of beaches that have all the amenities at Crimean resorts has increased 1.7 times compared with 2014 and reached 455 against 261.

It is also very important to organise large festivals and events, which means event tourism. New events are held every year. In the summer, we host about 300 events at major tourist destinations, such as the festival in Chersonesus, the festival of Russian opera in Astrakhan, the Ruskeala festival in Karelia, the Far East festival, the Trans-Siberian art festival, the Hero and Time film festival in the Stavropol Territory, and the Gorky fest in Nizhny Novgorod attract big audiences of the admirers of Russian art.

A lot of tourists also attend sporting events, such as Volga Swim – an open water race; a run along the Golden Ring that was attended by 40,000 this year; or the international polar Ultramarathon. We plan these events to support tourists’ interest in visiting historical or natural sites in the summer.

On September 20, the Russian Government approved the new Tourism Development Strategy, which envisages eight main measures for the development of tourism in Russia. They include economic measures, such as interest rate subsidies and subsidised air tickets as well as the establishment of priority development areas and special measures to promote certain routes, simplify visa requirements and train modern specialists.

But there is another topic we focus on separately: the support of children’s tourism. The programme to support children’s tourism is working in test mode. It has been launched in 12 Russian regions. Children living in these regions can travel along specially developed routes, such as My Russia – the City of Peter the Great, Far East Frontiers, Lermontov Sites, and several others. We hope that special attention will be paid to this strategy, and children’s tourism will receive special support.

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Vladimir Putin: Our main subject concerns additional measures to speed up economic growth and increase household incomes. This is quite understandable because economic growth is not an end in itself, and the final result, namely, higher incomes, is more important.

In this connection, I would like to recall that we have already agreed on certain specific measures in this direction. To be more precise, the wages of social sector workers and those of some other categories of employees, not covered by the relevant May executive order, should be indexed by 4.3 percent from October 1.

The minimum wage is to increase by 850 rubles or 7.5 percent from January 1, 2020, reaching 12,130 rubles per month.

The old-age pensions of retirees are to be indexed by 6.6 percent from January 1.

The number of families receiving benefits for their first and second babies should also increase from January 1. As we have agreed, the number of these families should increase from 45.7 percent to 68 percent. Moreover, families will receive this money and these payments until their children turn three. I hope that this measure will prove effective.

And now a few words about raising service pay and pensions of retired officers. The pay to service personnel and persons having the same status are to be indexed from October 1, and overall the pensions of retired officers are to increase by 6.3 percent.

I would like our colleagues to report on the extent to which the Government is prepared for the implementation of these measures.

(After that, Minister of Labour and Social Protection Maxim Topilin reported on this subject. While commenting on the report, First Deputy Prime Minister – Minister of Finance Anton Siluanov noted that the draft budget, reviewed by the Government last week, contained the required funding for fulfilling the presidential instructions. The required funding for raising pensions and benefits meets the specific amounts under national legislation).

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Vladimir Putin: I would like to say a few words before we listen to the Minister of Economic Development. The Government has made a socioeconomic development forecast until 2024 and drafted the federal budget based on that forecast. The forecast says that in 2021, the growth of GDP should exceed three percent. That is – above the global average, as our goal was.

But to achieve this, it is quite obvious that we will need to make a breakthrough in fixed investment. Its growth needs to more than double, from the current two percent to five percent as early as next year. This is a challenge and, I would even say, an ambitious task, which is quite difficult to implement.

But we – I am primarily referring now to my colleagues from the Government’s economic bloc – constantly discuss these things, including with the Central Bank’s leadership, on a regular basis at least, and are jointly searching for the best ways to achieve this goal – to ensure economic growth and achieve a rise in people’s incomes on that basis.

I asked you back in July, if I remember rightly, to prepare the corresponding proposals. I hope to hear about these proposals today, formulated as practical steps for implementation, so that we can close this discussion and state what the Government plans to do so that this goal is unconditionally attained.

Go ahead please.

Minister of Economic Development Maxim Oreshkin: Mr President, Mr Prime Minister,

If you look at the latest statistics, it suggests that there was some revival in growth rates to about 1.6–1.7 percent at the beginning of the third quarter, but as you said, firstly, these are ambitious tasks, and secondly, there are risks of an economic slowdown in the next 12 months instead of acceleration. It is clear that there are factors beyond our control.

This year global economic growth dropped to its lowest level last seen during the crisis year of 2009. This indicator is expected to come in at slightly above 2.5 percent. However, one of the key problems we are currently facing is the short-term decline in lending within our banking system. A slowdown of the consumer lending segment is without a doubt a trend headed in the right direction, since it curbs the increase in household debt and could help prevent a major collapse in the future, but at the same time we are witnessing a major slowdown in other segments of the lending market. For example, mortgage portfolio growth decelerated over the past 12 months: in February this portfolio was equal to 1.3 trillion rubles, but as of the end of August it stood at 1.1 trillion rubles. Let me reiterate that all this is taking place against the backdrop of a slowdown in other types of lending.

In July and August, we had a number of meetings with you, as you have mentioned, and there was much debate at these meetings on the future inflationary trends. We can now see that inflation will be below four percent in early October already, which is a target indicator. The inflation rate is expected to decelerate to about 3.6 percent in 2019, and below three percent in the first quarter of next year. This decline exceeds the expectations that I mentioned in July 2019.

Vladimir Putin: This is understandable, to a certain extent. After all, we all know about the monetary overhang that was created by deficiencies in implementing the national projects, while the Central Bank tampered with the macroeconomic indicators a little bit in anticipation of the 700 billion rubles. As a result, inflation is below the target indicators.

Maxim Oreshkin: The situation is not exactly what it seems to be. Let me explain why.

Vladimir Putin: I know. I heard your discussions. Sorry for interrupting you. Please, continue.

Maxim Oreshkin: Speaking of budget spending, it is mostly the capital spending curves that have shifted to the right. They are the ones that have the least effect on short-term inflation. All current spending is on schedule, and the overall spending is increasing. For this reason, in terms of operating expenses and consumer demand, all budget allocations were made as required.

It is true that there is a certain overhang. This is a problem, but let me reiterate that in our opinion this factor has a very limited impact on inflation. In any case, by the end of this year, the money will be working within the economy, and all these trends will have been accounted for by early 2020.

Vladimir Putin: I have only one request for the Prime Minister: I ask you to oversee this, Mr Medvedev. I mean, if an industry is not ready for the next step, there is no use showering it with money. We need to inject as much money into the economy as would work effectively and not simply lead to price hikes.

Maxim Oreshkin: This actually concerns only short-term growth problems – until the end of this year or the first six months of the next. It is clear that the three percent target cannot be achieved without supplementing the short-term policy with a number of structural long-term measures. These measures are actually contained in the plan that we have just submitted. You instructed the Government to draft a plan before October 15. We sent this version back in early September. Now we are in the active phase of coordinating it with our colleagues from the Central Bank and from the Presidential Executive Office.

I would now like to talk about the key areas that I consider the most important from the perspective of long-term economic growth.

The first block concerns intensifying investments at the regional level. Here we propose a smart profit tax reduction for companies that are investing actively.

How will it work? We have already introduced the concept of investment incentive in the Tax Code, which means that a company that invests can pay less profit tax during the period of investment, when the fixed assets are put on its balance.

The authority to do this lies with the regional governments. But the regions, for obvious reasons, are not too eager to introduce the tax privilege because at the first stage – one or two years – it will reduce the regional revenue and raise the budget deficit. Furthermore, the Finance Ministry might not allow this due to the inter-budgetary agreements signed.

Secondly, the regions are reluctant to take this short-term risk fearing they will not be able to survive the lower revenue period. And when income from new projects begins to flow in, other regional heads might be at the helm to reap the benefits.

Another example of funding reduction in the past few years is infrastructure investment in the regions. Yes, we do have a comprehensive plan for the trunk infrastructure and national projects on safe and high-quality roads that are currently building investment in targeted major projects and in the road system in the country in general. But, obviously the demand for additional investment in infrastructure remains very high in the regions. Both these measures increase the regional budgets’ deficit. So, it’s absolutely necessary to assist them with federal resources.

We met with Mr Medvedev yesterday and discussed possible options. Now we are in the final stage of discussing specific sources and ways to fund these programmes.

We consider it essential to increase this regional investment, especially in the first half of next year, so as not to slow economic growth rates, and to lay a long-term foundation for increasing them. You mentioned an increase in investment to 5 percent next year and we must increase it to 7 percent in 2021. This means that we must act now and draft these investment programmes.

The second package of measures is aimed at restoring the trust of entrepreneurs in the government. There are four key sections in this package.

The first important task is to reform oversight activities. As you know, we have established deadlines for carrying out this reform in 2021. We will adopt harsh regulations and new legislation that will transfer all oversight activities to a risk-oriented approach. However, some specific steps are already being taken. In early September Mr Medvedev spoke about the pilot project of cancelling acts that were adopted in the Soviet period. They must be revised in the next four months and replaced with more up-to-date laws. This is a very important task.

The second track involves pilot projects in individual industries.

In public food service, my colleagues and I have written a White Paper that contains a set of requirements – important safety standards, but no redundant requirements – as we and the business representatives see it. We are now planning a simplified supervision procedure for the industry. Food service for children was specifically excluded from the procedure as a particularly dangerous and risky segment. This leaves regular food service. The new procedure will be tested in pilot mode in Moscow, Kazan and Kaliningrad. At the beginning of next year, if these regulations are deemed successful, it can be extended to the rest of the country.

A separate area is to reduce administrative barriers. The Government has drafted an action plan to change the business climate this year. They will remove a large number of administrative barriers in different industries and different areas. One of the results of this is that we expect Russia to continue improving its position on the World Bank's Doing Business ranking this year.

The third track is to create a predictable regulatory environment. The Government is now in the final phase of working on two bills: one guaranteeing a stable regulatory environment and part of the tax requirements for enterprises that make investments; the other describing clear principles for setting rates. These two things are extremely important for an entrepreneur planning investment projects to have an understanding of how the situation will develop with regulations and rates in the medium term.

The fourth, very important track has to do with restoring entrepreneurs’ trust in law enforcement and the courts. I have said this at previous meetings and I will repeat it: without reversing this trend – which, unfortunately, has been negative in the last few years according to business surveys – it will be very difficult to get a positive result on all investment activity.

The third package of measures concerns the provision of funding for investment. At this point, we are referring to the need to introduce new instruments for long-term savings for the public as soon as possible. The Finance Ministry has announced a programme on guaranteed retirement products that is very important.

We are referring to the creation of new mechanisms for collective investment in order to accumulate the resources of major stock holders in our raw material and other companies in special funds that invest in other sectors of the economy. This must be convenient and allow them to receive the same profits that are gained by foreign investors using RDIF to invest in projects in Russia.

Accelerated introduction of the best accessible technology is an important area that can step up investment activities in raw material and metallurgical companies. There is gradual progress here, but again, this is something that can produce a specific result, notably, an increase in investment activity.

At the meeting of the Military-Industrial Commission on Thursday we discussed the need to create conditions for investment in the defence industry companies, meaning issues related to debts. The introduction of a tax incentive for companies in this sector could create an additional resource. With profits of about 200 billion, 40 billion could be released for additional investment.

In general, the plan consists of eight sections. We have discussed some of them, such as the digitization of labour relations, additional measures to reduce structural unemployment, issues of proactive migration policy, foreign economic policy and the implementation of the vital technological agenda. We must emphasise the items that will produce the maximum effect on economic dynamics – the programmes of introducing artificial intelligence and robotization. There are also issues related to the need to increase the effectiveness of natural monopolies and sectoral programmes with yet another list of measures. Let me repeat that we are now in the process of approving these. We have a deadline you set – October 15 but the plan is already at a fairly advanced stage.

Thank you very much.

Vladimir Putin: At the Commission on the military-industrial complex we spoke about the profitability of the defence industry companies. We must return to this issue. Mr Medvedev, I would like to ask you to engage in this as well.

Prime Minister Dmitry Medvedev: All right.

Vladimir Putin: If we do not resolve this issue we will continually create problems related to the debt of these plants. This is the problem.

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