''This is a significant factor affecting social policy''

Head of the Accounts Chamber Tatiana Golikova warns that tax changes proposed by the Ministry of Finance may have a negative effect on budget and inflation

''This is a significant factor affecting social policy'' Photo: kremlin.ru

Anton Siluanov's recent proposal of a ''tax manoeuvre'' has been criticised by the head of another influential financial institution. Head of the Accounts Chamber Tatiana Golikova believes that the changes will aggravate Russia's budget deficit as the supposed revenue from VAT increase is less than a shortage from a decrease in social security payments.

The intervention by the head of the Accounts Chamber indicates that the proposal could face resistance from some quarters in ruling circles, considers Reuters. Two weeks ago, the Ministry of Finance announced its idea to cut employers' mandatory social security contributions from 30% to 22% and to increase value added tax (VAT) from 18% to 22% to compensate an expected revenue shortage.

Golikova, whose supervisory body is responsible for monitoring of budget spendings, said that the reform could create a budget shortfall and spur inflation. She assumes that the changes may force the government to increase its support for the pension fund as part of the social security contributions is used to replenish the state pension fund. The supposed drop in payments means that less money is going into the fund, which is already in deficit. Last year, the government spent around 3,4 trillion rubles from the budget to cover the Pension Fund's liabilities.

Answering the question if the proposed tax changes would increase the burden on the budget, which is already in deficit due to low tax revenues, Golikova said: ''In this conception, in this construction, yes.'' The Accounts Chamber estimates that in the case of implementation of the changes, social security payments will contract by 1,5 trillion rubles while revenues from VAT will increase by only 1,3 trillion rubles.

Pension Fund of the Russian Federation in Kazan. Photo: Kazaneer

Apart from the budget shortfall, the tax manoeuvre will stimulate inflation. According to the Ministry of Finance, the VAT increase may cause a one-off 2% increase in prices, which is a half of the Central Bank's target level for 2017. ''This (proposal) means that a half or even more of that 4% (of inflation)… would be made by our own hands… This means that the Central Bank will have to make additional efforts to maintain the inflation level,'' said Golikova. ''This is a significant factor affecting social policy.''

The chamber had yet to calculate how the changes would affect Russia's economic growth. Although the economy contracted 0,2% last year, it is expected to grow by 2% in 2017. The ministry wants to implement the combined change from 2019. The reform is aimed at enticing businesses out of the shadow economy.

By Anna Litvina