Russia Said to Eye Drastic Budget Measures to Rev Up Economy

Pensioners in Vladivostok, Russia, on Sept. 27, 2015.

Pensioners in Vladivostok, Russia, on Sept. 27, 2015.

Photographer: Andrey Rudakov/Bloomberg
  • State may raise pension age after presidential election
  • Russia weighs tax-system overhaul to boost budget revenue

Russia’s government is said to be weighing unprecedented and unpopular steps that it says will revive growth, including increasing the retirement age and raising taxes on the rich, following the 2018 presidential election, according to a senior administration official.

The government is discussing lifting the pension age to 65 after the ballot, according to the official, who asked to remain unnamed because of the sensitive policy deliberations. In a bid to shore up the budget and reduce stress on the economy, the state is also considering a new wave of selling assets that can eclipse previous privatization drives, the official told reporters Friday.

Beset by falling oil prices, a sliding currency and sanctions linked to Ukraine, Russia’s economy is contracting for the first time since 2009, and the country is running the widest budget deficit in five years. The government’s policy deliberations signal a potential change in tack after President Vladimir Putin steered away from raising the retirement age to help the under-funded pension system. Russia has also put the sales of state assets on hold as declining energy prices and the weak ruble weigh on potential proceeds.

The ruble has tumbled about 35 percent against the dollar in the past 12 months, while oil prices fell to a six-year low in August. The economy of the world’s largest energy exporter will contract 3.9 percent to 4.4 percent this year and may shrink as much as 1 percent next year before returning to growth in 2017, according to a Bank of Russia forecast that assumes oil staying at $50 a barrel in 2016-2018.

After struggling to contain an exodus of capital, Russia recorded its first quarterly inflow since 2010 in the third quarter, as the economy. The net private inflow of capital was $5.3 billion in July-September, ending 20 consecutive quarters of outflows, according to initial estimates published by the central bank on Friday. The current-account surplus narrowed to $5.4 billion, compared with the $8.95 billion median estimate of 14 economists in a Bloomberg survey.

The budget remains a challenge, though, with the Finance Ministry raising its 2016 deficit plan to 3 percent of gross domestic product on Thursday and rolling back cuts to defense spending, according to Minister Anton Siluanov. He earlier said that Russia’s bombing campaign aimed at supporting Syrian President Bashar al-Assad won’t carry additional budget costs this year.

Siluanov has repeatedly called for what he says is an urgent need to raise the retirement age from 55 years for women and 60 years for men, saying it would boost economic growth as the working-age population shrinks. At the same time, he said on Sept. 16 that Russia is considering delaying sales of state assets because it’s “not the best time” and he didn’t expect an increase in revenue from such sales in the coming years.

That may change, as the government official said the administration may try to sell collateral held by banks against bad loans. The auctions may eclipse the size of previous such efforts, the official said, without specifying a time frame.

The tax system may also be altered after Putin suggested in December to leave tax conditions unchanged for businesses for the next four years. The government may revise the tax system to boost dwindling revenue after the 2018 ballot, the official said.

Putin’s popularity, which surged after Russia annexed Crimea last year, has remained resilient despite the country’s economic woes, with his approval rating hovering above 80 percent, according to Levada Center poll. Putin hasn’t ruled out running in the 2018 vote.

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