OREANDA-NEWS. Vladimir Putin announced the signing of the 20142016 Budget Policy Address at a meeting with members of the Government Cabinet, heads of both houses of the Federal Assembly and the Presidential Executive Office.

The address outlines the basic budget policy objectives over the next three years. The Government will use the Presidents budget policy address as the basis for drawing up the draft budget for the period in question.

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PRESIDENT OF RUSSIA VLADIMIR PUTIN: Good afternoon, colleagues,

Today we are meeting again, as we did last year, about the 2014-2016 Budget Policy Address. I think it is necessary to draw your attention to several points and priorities.

The main rationale behind budget policy is supporting economic growth. This is the main goal of our joint work. By what means should we achieve it? By radically improving the efficiency of our budget policy, unconditionally honouring all our commitments in the social sphere, and realising the strategic objectives defined in the executive orders of May 7, 2012.

We need to switch to a long-term development policy in our public sector, and this means increasing the share of government spending on education, science and infrastructure, significantly improving the quality of social services, and stimulating business development and private investments.

All of these objectives were mentioned in the previous Budget Policy Address, and some work in this direction has been conducted. Nevertheless, we must admit that new planning principles and measures to increase the efficiency of government spending are being introduced very slowly. We cannot wait and delay major decisions any longer. We need to achieve a new and better budgetary policy in the near future.

These conditions determine our internal and external economic conditions and trends. At present, the possibilities of quickly and constantly increasing budgetary spending have been exhausted or close to it. We need more productive, superior solutions.

Colleagues, what goals must we achieve over the coming three-year period?

First, we must ensure a stable and balanced budgetary system as well as the unconditional fulfilment of government obligations, primarily social ones, even in the event of an unfavourable external economic environment. It is for precisely this reason that the budget rule was adopted.

I consider it necessary to finalise our budget strategy through to 2030 over the next three months, and if necessary, we must make changes to long-term forecasts of socioeconomic development.

The budget strategy must evaluate possible risks and clarify how we will act in any scenario, including an unfavourable one. It must also set out clear guidelines for financial support of government programmes: funds should be allocated for plans that really envisage transformations and in order to achieve specific targets.

Unfortunately, this is not the first year (it is more like the fifth) that we have talked about the need to introduce a number of government programmes. We talked and talked, and then finally all the new members of the Government managed to gradually plan these programmes.

Nevertheless many of them you know this yourselves need further development. The objectives they contain are not supported by adequate resources and some programs have been adopted in several versions. Moreover, these versions differ significantly both in terms of planned results and funding required.

Friends and colleagues, if there are not enough funds to cover everything, then we need to set priorities. For this reason we have instituted these programmes.

I would emphasise that, in practice, state programmes must dovetail with strategic and budgetary planning; they must establish general policy requirements for both federal departments and regions in their respective fields; and, they must ultimately become a tool for developing and implementing public policies in the long-term.

I would ask that as you prepare the budget, you once again analyse government programmes, identify their priorities, and ensure that the latter correspond with the relevant goals and real possibilities afforded by budgetary funds.

The second goal: we need to significantly optimise the budgets structure, to find reserves and redistribute them in the light of the strategic objectives outlined in the executive orders of May 7, 2012. We should increase the amount of funds spent on areas that have the greatest impact on economic growth and social development.

Important reserves can be generated by increasing the efficiency of budget spending, focusing on targeted social assistance, and carrying out structural reforms in the social sphere. Finally, they also depend on ensuring a long-term balanced budget for the pension system, which will reduce the Pension Funds dependence on government subsidies. This is conditional on the fact that the living standards of Russias older generation consistently improve.

This is related to the third goal: making crucial decisions about a pension formula is a high-priority task. Weve discussed this together many times, and I know that its a difficult task. In general we can say that you are almost there; we must see this work through to its end.

A pension formula should allow for a differentiated approach to each citizen: the more years of service and the higher the salary, the higher the pension. And of course the formula must be fair, stable, transparent and, crucially, clearly understood by both employees and employers.

Let me draw your attention to the following: we need to keep the basic rate of insurance premiums for businesses at current levels. We cannot solve the pension systems problems by increasing the tax burden incumbent on business, and by suppressing entrepreneurial activity and economic growth.

Depending on the final parameters of the pension formula, we should also indicate to what degree National Welfare Fund resources can be used to cover deficits in the pension system.

Another thing I want to draw your attention to. We have given our citizens the right to decide over the course of this year on where to direct their four-percent insurance premiums: either to their insurance, or to the funded part of their pension. Naturally, it would be unfair to deprive those who will use the pension system in the future of this right. I think that they should benefit from this too.

But I would draw everyones attention to the following: this will be possible only after adopting laws which fully, and I want to emphasise this, fully ensure the establishment of a functioning system to guarantee pension savings.

We have enough problems with fraud victims to understand that with regards to pension savings, citizens pension rights, we must act extremely carefully. These funds should be guaranteed, as should their safety.

We should also pay attention to problems relating to the transparency of the pension system and extra-budgetary funds. Let me remind you that as of January 1, 2014 all extra-budgetary funds will be transferred to the cash services of Federal Treasury agencies. I would ask you to prepare accordingly, and I would like to draw your attention to the fact that this date will not be postponed.

And I would also ask the Government to decide on the feasibility of transferring the administrative aspects of compulsory insurance contributions to the Federal Tax Service. I know that the Governments social bloc believes that this work should be conducted where it currently is, but representatives of businesses and of the economic bloc believe that the Federal Tax Service can do it more efficiently. I do not want to and will not impose my opinion on anyone, but I would ask you to definitively decide on this and bring these discussions to an end. Let me emphasise that the Government must make decisions this year, 2013, on all matters relating to further developing the pension system.

The fourth goal. The Ministry of Finance was ready to put off funding for the State Arms Procurement Programme until a later date. We have adopted this programme; now we must carry it out, and do so efficiently. We have also talked about this many times.

The resources have been allocated. Indeed, they are substantial, important resources. The military industry must be ready to accept the money, but not only that; it must have the appropriate industrial and technological foundation to fulfil contracts for supplying equipment and weapons.

And if you see that some parts of the industry are not up to the task, the Defence Ministry must come up with its own plan for a more rational allocation of budgetary resources over time. This will give the Government the opportunity to use financial resources to address routine challenges more efficiently.

At the same time, colleagues, I want to draw your attention to the following: of course, the total amount of the state arms programme, the total amount of funds we have allocated for it should remain unchanged.

Fifth, we need to use additional mechanisms to stimulate economic growth, including by developing infrastructure. I am referring to using National Welfare Fund resources and pension money for sustainable infrastructure projects. This must generate a multiplier effect throughout the economy, as well as guarantee the absolute safety and recoverability of the funds.

And of course we have to elaborate a single, clear mechanism for selecting such projects and allocating resources. Each project must undergo an independent technology audit and expert evaluation with the participation of business community representatives. At the same time, you need to create new tools for attracting private investment into infrastructure development, and using public-private partnership mechanisms.

Of course, this is not an easy task. Recovering these funds will take time, this is not so-called fast money; these are serious long-term, long-lasting projects. And there are enough resources in the world, as you are well-aware: there are a large number of major international funds looking for opportunities to invest. Of course, generating profits is very important for them, but the most important thing is the unconditional repayment and reliability of such investments. Russia is able to offer such opportunities.

Sixth. Each ruble spent by the Government should promote changes in the public sector. This is something weve already talked about a thousand times. Its time to move to concrete actions and introduce new financial principles whereby money follows consumers of services, citizens, and does not simply enrich various offices.

To do this, first of all we need to legislate a common reference list of state and municipal services, and to establish a uniform methodology for calculating the costs of such services. Along with this, the content of government tasks must be affiliated with the targets of government programmes. In this way our objectives in healthcare, education, culture and other priority sectors will be clear.