Russia to Lose 20 Billion Rubles in 2011 Revenue, Kudrin Says

Russia’s government will get 20 billion rubles ($636 million) less revenue than previously planned in 2011 because of tax breaks for small businesses, Finance Minister Alexei Kudrin told reporters in Moscow today.

President Dmitry Medvedev said yesterday small businesses will get a two-year grace period before they have to pay the higher rate of payroll taxes that comes into effect next year. Payroll taxes that companies contribute to the national health- care and pension systems are set to rise to 34 percent from 26 percent starting 2011.

“Social spending has been rising too rapidly, by an average of 30 percent year-on-year for the last three years, including 45 percent this year,” Alfa Bank economists Natalia Orlova and Dmitry Dolgin said in an e-mailed note from Moscow. “The only two options for balancing the budget in the long term are further increasing the tax burden or boosting inflation.”

Annual inflation is set to slow to between 6.5 percent and 7 percent in 2011 from about 8.3 percent this year, Deputy Economy Minister Andrei Klepach said in London yesterday. The Finance Ministry aims to narrow the government budget deficit to 3.6 percent of gross domestic product next year from about 4.6 percent at the end of 2010.

The government needs to boost taxes to help meet its spending plans, including a 9 percent increase in pensions next year, Prime Minister Vladimir Putin said on July 28. In addition, Russia may sell Eurobonds denominated in rubles in 2011 after selling foreign-currency debt this year, Deputy Finance Minister Dmitry Pankin said in London yesterday.

Ending all tax breaks in Russia could balance the budget without raising taxes, Kudrin said on Nov. 19, adding that he isn’t proposing to do this.

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Maria Levitov in Moscow at mlevitov@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

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