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Russia: Tax Shortfall May Cause Constant Budget Battle

Moscow, 8 April 1997 (RFE/RL) - A senior Russian official says that poor tax collection in the first quarter of this year could force the government to seek approval of the State Duma for spending cuts, effectively re-opening the budget debate over spending priorities.

Deputy Finance Minister Sergei Shatalov said in Moscow at a round table on tax reform yesterday that the government intends to submit a plan to the State Duma this month outlining how the government intends to sequester -- or cut -- spending because tax revenues fell below budget targets in the first three months of the year.

The 1997 budget law requires the government to consult the Duma on spending cuts when revenue collection falls below 90 percent of quarterly budget levels. The provision raises the possibility that the battle over spending priorities could continue throughout the year.

The 1997 budget took months to get approved in the opposition-dominated Duma as conservative legislators pressed for more spending and the government tried to defend a low budget deficit.

Most economists and many government officials say the current budget forecasts unrealistic revenues targets which the government will be unable to meet. However, some observers point out that the government may not be too concerned over having to consult the Duma on cuts because it has ignored spending plans in the past.

The prospect of political infighting over the budget throughout the year could wreak havoc on already chilly relations between the Duma and the Cabinet, diverting attention away from pressing tax reform legislation.

Shatalov said tax collection was improving, but he acknowledged that tax collection under the 1997 budget "will be very difficult." He said the government had collected less than half of planned levels in January, February and March.

Shatalov said the revenue shortfall would mean that the government will only support social payments and expenses related to financing Russia's internal and external debt. More spending cuts will only serve to deepen Russia's payments crisis, which has forced the government to delay payments to millions of workers and pensioners in an attempt to keep the budget deficit in check.

Stressing that tax reform is urgently needed to deal with the budget crisis, Shatalov said that the government would begin with canceling a series of tax exemptions, which he said led to a loss of some 160 trillion rubles every year.

But Alexander Pochinok, head of the State Duma's tax commission, said yesterday that legislators are unlikely to pass a new tax code for the next 18 months.

The government already has submitted the first part of the new tax code, and has promised to submit the rest before the end of the month. The International Monetary Fund has said several delayed installments of its $10 billion loan to Russia will remain frozen until the tax code is submitted to the Duma.

The IMF has previously delayed tranches under the loan program, citing the government's failure to collect budgeted tax revenues. During his visit to Moscow last week, IMF Managing Director Michel Camdessus stressed the urgent need for the government to boost tax revenues, calling its inability to do so "a crisis of the state."

Analysts have said the government is considering pushing a general tax code through the Duma, and then issuing decrees for the more sensitive areas of reform where legislators are likely to put up a fight.

But intransigence in the Duma is not considered insurmountable. Nikolai Petrov, an analyst at the Moscow-based Carnegie Endowment for International Peace said it was all a question of political will, and the government currently holds all the cards.

"The government has been successful when it needs to get results, like when it got the budget passed," he said. "If they really want to get it through, they can do it."