It is truly remarkable: The StateDuma adopted the government’s 1999 budget draft in a brief two-month period- a new record. Many believe this was possible because Prime Minister EvgeniiPrimakov enjoys majority support in the Duma. This is true. At the sametime, political support alone is not enough to push a budget through theconvoluted corridors of parliament’s lower house. After all, the deputiesare under the strong influence of industry bosses and tycoons. Budget battlestraditionally have been times of the most aggressive lobbying efforts.Until recently, the Duma was the main focus of lobbyists, a place wherebusiness magnates and political dealers felt at home and resolved theirproblems for moderate prices.
They had little success in whatis, in fact, a coalition government.
But lobbyists no longer need tocajole dozens of Duma deputies since it is much easier to make friendswith deputy prime ministers. In the short period of time this governmenthas been in power, the White House has become a lobbyist’s mecca.
Many political observers who watchthe White House say it is evident that there is no real government, butsimply a prime minister and a pack of lobbyists passing as ministers. Theseat of Russian government has become their club where they meet everyThursday.
Naturally, the elite of lobbyistswants additional subsidies for the black holes of the Russian economy,that is, agriculture and the military-industrial complex. These branchesof the economy have been depressed since the Soviet era and can suck uphuge amounts of money. The appetite of these two sectors for state supportand subsidies is enormous.
After Yuri Masliukov was appointedfirst deputy prime minister, many expected a new era to begin, favoringthe military-industrial complex. The forecasts have turned out to be onlypartially correct. Instead of supporting the defense industry as a whole,Masliukov has employed the tactic of "pinpoint" assistance to individualenterprises (the mobile telephone company Vimpelcom and enterprises relatedto rocket and missile engineering) by granting them tax exemptions anddirect financial support. But Masliukov was promptly eclipsed by DeputyPrime Minister Gennadii Kulik.
As a member of the Duma BudgetCommittee for the past four years, Kulik has won the reputation of beinga devoted champion of Soviet-style collective farm system. But in his lobbyingefforts, Kulik never sought to benefit at the expense of others. WhiteHouse monetarist reformers used to stand their ground and insist on fiscaldiscipline, austere spending, strict monitoring and auditing of all expenditures.The situation has changed drastically with the advent of Evgenii Primakov’spremiership. While making proposals to provide additional subsidies tothe agricultural sector, Kulik always specified sources of revenue to financethem. Upon joining the government, Kulik successfully lobbied to placethe production and sale of alcohol under government control and has madea series of attempts, some of them unsuccessful, to do the same with tobaccoand meat. When the government tackled tax reform, Kulik championed a VATincrease to 15 percent from 14 percent (earlier, the tax had been reducedfrom 20 percent to 14 percent). He said that additional revenues generatedby the VAT increase should support agriculture. If the proposal is adopted,collective farm bosses can forget all their worries and sleep well. Evenif the Finance Ministry decides to make further cuts to the budget, VATmoney will safely flow into their coffers.
The power ministries (defenseand interior) tried to get additional funding using Kulik’s techniques.These ministries also have a strong lobbying presence in the White Houseat the moment. It has been a long time since Defense and Interior ministershave sent couriers to the Duma to lobby for financing instead of approachingdeputy prime ministers for economy. When budgets and taxation laws werebeing drafted, the power ministries suggested increasing their department’sfunding from 2.5 percent to 3.5 percent of GDP by targeting a part of incometax revenues.
Though much fuss has been madeabout an austere budget, the draft laws currently under discussion in theDuma can hardly qualify as reformist. Most of the present legislative activityis the result of a successful lobbying campaign aimed at making life easierfor inefficient and unproductive enterprises. This, above all else, concernsMoscow-based enterprises, especially since Georgii Boos, recently electedto the State Duma, a favorite of the Moscow mayor and founder of the largeststreet illumination business in Moscow, is pressing the idea through. Astax minister, Boos quickly found the right approach to Evgenii Primakovand proposed a brilliant populist campaign. The essence of the Boos reformis lowering the tax on profit (which no one pays in reality anyway) andcutting the VAT (the most effectively collected tax). Meanwhile, he proposespreventing a fall in tax revenues by strengthening collection methods andintroducing two new taxes: a sales tax and an assessed income tax.
Finance Ministry officials spenta lot of time trying to convince their fellow government members that theloss in revenue due to a VAT reduction could not be recouped by year’send. Although the newly proposed taxes are good, finance ministry officialssaid it would be dangerous to depend on them without having sufficientexperience in implementing new taxes. They further substantiated theirviewpoint with statistics and sound data.
All that has been heard in replyare demagogic pronouncements on the need to lighten the taxation millstonefor producers in order to stimulate production growth. The words of GeorgiiBoos proved to be more persuasive to Primakov than the arguments and projectionfigures submitted by Finance Ministry officials, and Boos’s proposal wasaccepted.
Two months later InternationalMonetary Fund experts questioned the tax reform proposal and they too pointedout exactly the same problems as the Finance Ministry had earlier. TheIMF mission was similarly skeptical about tax revenues rising after a 25percent reduction in VAT revenue (just as the finance ministry officials).If this had been the only complaint put forth by the IMF, it still mighthave been possible to support Boos’ reform. Since there were more concernsvoiced by the IMF, the government suggested an amendment to the Duma deputies,which was merely delaying the implementation of changes from spring tomid-summer this year.
This slight hurdle is unlikelyto tarnish the tax lobbyists’ reputation. On the contrary, with the IMFbeing uniformly portrayed as an evil agency aspiring to strangle Russia’seconomy for the sake of abstract figures; the members of the club appearto be virtual heroes and genius strategists capable of giving up theirprinciples and agreeing to a compromise in order to keep Russia from beingdeclared bankrupt.