| The Prime Minister entered into a new conflict with ministers The situation within the government of Mikhail Fradkov once again resembles a public apparatus war: the conflict between the prime minister and some subordinates provokes scandal after scandal, which, apparently, has become one of the reasons for a new surge in rumors about the imminent resignation of the head of the cabinet of ministers. The story of the end of last week has not yet been forgotten, when Mr. Fradkov unexpectedly and virtually without explanation denied Alexei Kudrin a trip to the World Economic Forum in Davos (thus provoking a sharp reaction from the Ministry of Finance), which has already provoked a new internal squabble.
Moreover, the topic has long been known - reducing the value added tax. The positions of the opposing sides are also known. The Prime Minister, at the suggestion of Deputy Chief of Staff of the Government Mikhail Kopeikin, insists on reducing the VAT to 13%, which, in their opinion, will accelerate economic growth; Finance Minister Alexei Kudrin and Economic Development Minister German Gref are categorically against it. If the parties had limited themselves to just another escalation of the discussion that emerged at the beginning of last year, the scandal would not have happened. However, things took a much more serious turn.
On Tuesday, a source in the government apparatus said that the clause on reducing VAT to 13% in the next three years is included in the medium-term program of socio-economic development of Russia for 2006-2008. This was done in the depths of the White House apparatus retroactively, after the discussion and approval of the program at a government meeting on December 29 last year. The approved document spoke only of the fundamental need to reduce taxes; specific parameters for the reduction were not fixed.
Alexey Kudrin, whose department plays a key role in determining the state’s tax policy, and German Gref (under his leadership the program was developed) learned about the White House’s intention to deal with VAT according to its own understanding, as they say, from the media. The answer was not long in coming. Alexey Kudrin responded from Paris, where he discussed with his French colleague the agenda of the upcoming meeting of G8 finance ministers in Moscow, and German Gref responded from Davos, Switzerland, where he went as the head of the Russian delegation instead of Mr. Kudrin.
The head of the Ministry of Finance said yesterday that the appearance of a proposal to reduce VAT to 13% in the final version of the medium-term program “came as a complete surprise to many members of the cabinet, since it was not even in the protocol decision of the government meeting.” “This means that the prime minister has taken responsibility,” says Mr. Kudrin. “In my experience, for the first time, such important changes are being made to a document of this level, rejected at the preliminary stage of preparation of the document, not discussed at the cabinet meeting when the program was considered, and not agreed upon with the main ministers.”
“For me, this is a somewhat unexpected result of the administrative reform,” the minister remarked sarcastically. Alexey Kudrin is confident that “such a hasty reduction of VAT to 13% in the next three years will stop the downward trend in inflation, excessively strengthen the ruble, and create a situation of budget deficit, which will have to be covered from the stabilization fund, which in turn will worsen the macroeconomy.” “Ultimately, in a couple of years we will have to raise VAT again,” the head of the Ministry of Finance told RIA Novosti. The maximum that Alexey Kudrin agrees to is a reduction in VAT to 15% from 2009 while simultaneously canceling the current ten percent preferential rate on a number of socially significant goods.
German Gref, who has his own disputes with Alexei Kudrin, for example, around an investment fund, this time completely expressed solidarity with his colleague. “With a flat rate, the minimum you can go to is 15%. 15-16% will be a level that can be discussed,” said the head of the Ministry of Economic Development.
The intra-governmental conflict around the VAT will, without a doubt, be resolved sooner or later. However, new ones will constantly arise. And the reason is not only in the personalities of the prime minister and ministers. The problem lies in the peculiarities of the Russian system of executive power. Ministers are appointed and removed by the president, and not always at the request of the head of government. It is clear that ministers are ultimately responsible to the head of state. If Vladimir Putin, for some reason, does not want or cannot dismiss this or that minister, and the prime minister, due to different visions of economic processes, does not want or cannot work with him, then a situation arises that can be observed in the current cabinet of ministers. Moreover, like any chronic disease, it only gets worse over time. And it turns out to be at the stage when surgical intervention becomes inevitable. The public harsh reaction of the ministers probably indicates that such an outcome of events remains to be expected for a relatively short time. Mikhail VOROBYEV |
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