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President Vladimir Putin: Aleksander Dmitrievich, I know that today you met with State Duma deputies, and discussed the medium-term programme, and that there was also a detailed discussion on the development of the Russian aviation industry. Let us start with that.

Aleksander Zhukov: At the end of December, the Government will examine a medium-term programme for development for 2005–2008.

This programme envisages the development of virtually all areas: education, health, and all the areas of Russian industry, agriculture – in short, it is a thorough programme for the country’s development over the next three years.

The programme envisages the development of the main areas of Russian industry, and the tendency is to move away from a specialised economy towards an innovation economy. It also envisages the serious development of housing construction. We have already made preliminary steps here. Next week the Duma will pass 25 of the 27 housing laws. Of course, this is not the end of the matter, as the programme envisages the fulfilment of these laws and a move to cheap mortgages and cheap construction.

Or, for example, the development of such an important high-technology industry as aircraft construction. Here the Ministry of Industrial Energy submitted a project to the Government to create a powerful aviation corporation on the basis of our factories, which would be competitive on the world market. We want to have a powerful aircraft construction corporation. I think that this is a very important project, because all the other industries will be stimulated by aviation. In the 2005 budget, we have already increased the allotment for aircraft construction by four times. A total of 15 billion rubles has been allocated to develop this industry. And there are many industry strategies of this kind – each one has its own path of development.

Mr Putin: Recently, the Minister for economic development and I discussed the Government’s policy in the near future for high technology, which you just mentioned. What are the Government and the State Duma actually planning to do to develop the innovation sector of the Russian economy?

Mr Zhukov: We have several areas which are quite competitive, above all the space industry, and we will continue to develop it.

Mr Putin: How do you feel about elements of state support of the IT-business, like in India, for example?

Indeed, there is support of information technology in India. Progress in this direction has begun here, and innovation zones are already been created: in Dubna, in Zelenograd and in Arzamas. But it is clear that without state support they will not be able to gain wide distribution, so we have a programme to create technology bases. The most important thing here is to create an infrastructure so that intelligent people remain in Russia. By creating good working conditions, we hope to attract them so that they develop technology in Russia.

Mr Putin: What are these goods conditions: will we pass a law?

Mr Zhukov: We will pass a law, there is a bill on technology bases. I think that we will offer certain tax privileges, which cannot be used for other purposes.

Mr Putin: What do you think, in these tax preferences which the regions can give, how far do you think we can go?

Mr Zhukov: Given our experience of previous years, when the regions abused their abilities to give tax privileges, creating offshore zones – we have now moved away from this practice, and restricted abilities quite seriously. Nevertheless, regions still have the right to reduce profits tax by four percent to attract investors and prolong investment projects.

Mr Putin: This is not a matter of registering oil and other companies involved in raw materials – it is strictly a matter of innovation technology. And I am not sure that four percent is enough. This is the first point. And the second point – which is well-known – is that in innovation activity, in high-technology production, the main expenses go towards paying highly qualified personnel. And here, another tax is critical for them – the common social tax.

Mr Zhukov: We are examining this possibility, but I would like to say that from 1 January next year, we will greatly reduce the common social tax: it will be 10% lower. Nevertheless, we will examine the possibility of lowering it further, in areas where the main product is intellectual work, and the main cost of the product is the salaries paid.