TRANSCRIPT: [Medvedev] Report on the Government’s performance in 2012 (continued)

Kremlin and St. Basil's

(Government.ru – April 17, 2013)

[completion of transcript/earlier part in JRL#73]

Dmitry Medvedev’s speech:

Regional, municipal governance

I have already said that the standard of regional managerial teams is a key ingredient of success. You know as well as I do the regions that every year report considerable growth of GRP while not having oil or gas resources. That deserves the highest praise. Anyone who wants to work looks for ways of doing it, and those who don’t want to work look for excuses for doing nothing.

At the same time, and this was one of the questions raised by our colleagues from the Communist Party, regional debt increased 15 per cent to R1,40-bn in 2012. The government rescheduled part of the regions’ debt to the federal budget. As a result spending in 36 regions was reduced by about R123bn. What is the key? The key is to have a plan for state debt reduction. It enables the regions to minimize loan payments and to service their debt in the coming years. But we shouldn’t restructure all the debt: every constituent entity must prove what it is planning to do.

Another issue concerns decisions at the federal level that may entail additional spending for the regions (our colleagues from One Russia have asked this question). Of course we will allocate money for this, to balance the budgets in connection with new financial commitments, including those that have arisen from the adoption of presidential executive orders. This year R60bn has already been transferred to the regions to compensate part of the cost of raising public sector wages. A further 40bn will be transferred to improve the quality of social institutions. The regions will not be left in the lurch, I want everybody to understand that, but the regions must be conscious of their own responsibilities.

Amendments to legislation have been made to increase regional tax revenue. I agree with my One Russia colleagues that delegating additional authority to the regions and municipalities must be matched by redistribution of financial and material resources. I would hate for you to get the impression that I and the government as a whole have forgotten what we said some time ago, I mean R1,000bn of additional revenues to be directed to the regions. The situation is not all that simple. Nevertheless we must find a way to provide that money. And I would like to address this question to everyone, including my colleagues in the government.

Another topic is the basis for the formation of municipal budget revenues. We have said that a tax on real estate is to be introduced in 2014. This has prompted a question from the Communist Party. All the regions have determined the cadaster value of buildings, structures, premises and construction projects in progress. In Moscow and St Petersburg this was financed from the regional budgets and in all the other regions from the federal budget. The government has prepared draft amendments to the Tax Code and other legislative acts that would include a tax on real estate in the Russian tax system. The regions that can effectively increase their tax revenue potential will get additional incentives as in previous years. In 2012 about R10bn were allocated for these purposes from the federal budget.

Promoting business activity, investment

Dear colleagues, I have more than once said to various audiences that entrepreneurial activities and entrepreneurial talent are among the main values and drivers of our country’s development. Our task is to create a competitive business climate and rules for doing business. This is the key to the successful fulfilment of our plans. I should mention several key issues.

First, as part of the National Entrepreneurial Initiative, procedures have been identified that cause the biggest problems for business. These have to do with simplifying permits and control procedures which are often excessive and very costly. Seven roadmaps have been approved in the main spheres of state regulation and six more are to be developed by mid-year. It is important that systematic monitoring be organized not only by the government but also by experts: the fulfilment of decisions (and this is what I’d really like to stress) must be assessed by business itself and not by somebody else. It will be good if they have a direct say in the development of these roadmaps, if they say: “Please, correct these specific provisions because they won’t work.” And this way we’ll be able to start a much needed dialogue between government and business.

We are making good progress in some areas, for example, tax administration, and not such good progress in other areas. The problems here have been piling up for years and they can’t be solved in only a few months. This requires a daily effort. Sustainable development requires large-scale investment. The main resource is the development of investment activity in the regions and of course the personal motivation of the leadership, the federal executive bodies and the regional executive bodies. A new system for evaluating their performance – a more understandable and clear-cut system – has been developed. Last year the Standard for Activities of Executive Bodies was introduced in 13 regions, and this year in 22 more regions. The Russian Direct Investment Fund attracts more than R4 in foreign investment for every rouble of its own investments. Its main task is to ensure the maximum return on invested capital. Over the past five years Russia has been sixth in the world and second among the BRICS countries in terms of attracting foreign direct investment. This is a good indicator, about 265bn dollars, but there is still room for improvement. We hope that by 2018 we shall bring the volume of direct foreign investment to 70bn dollars a year.

On the government’s initiative, a range of new legislation has been prepared and is in force, the so-called third antimonopoly package, and decisions have been taken on sectoral markets. I’m referring to exchange trading in fuel and raw materials, the drug market, air carriers, and communications and education services. Of course, free competition and pricing is the basis of a market economy, but for certain exceptionally critical goods – medicines, baby food, goods that are brought to the Far North – we continue to regulate retail prices and the rates for the natural monopoly services. In all the other cases of course the government can influence the market indirectly or if unregulated price growth is having a serious negative impact on consumers. Our colleagues from the LDPR have asked this question. This is stipulated by law. Improving the state contract system is a separate issue. A newly adopted law will come into effect on 1 January next year. At this point we are preparing the supporting legislation.

The question of proceeds from privatization has been asked by my comrades from the One Russia party. Of course, these revenues should be taken into account, but they are very difficult to estimate. You can understand: the market changes, something can be sold for reasonable money and something can’t, and then we are forced to delete a property from the privatization list. Our deal on Sberbank has been postponed twice for these reasons. In the long run, we obtained good results last year and made R160bn. The question is, when to sell. It is another thing that the privatization rules and the government’s plans should be calculated in advance. Information about any meaningful deal should be available for public discussion and evaluation. We have such a programme for several years to come.

Second, government spending should be more concerned with investment. The priorities here include investment in education, health care and infrastructure as well as creating stable and effective demand for innovation derived products and services. Here we need to use the public-private partnership mechanism in every way. The main resources are allocated through state programmes. There are 40 approved state programmes to develop key branches of the economy and social affairs. I would like to stress that the state programmes are not a mechanical mix of federal targeted programmes, as they may sometimes seem to be (the old federal targeted programmes are taken, put together and called state programmes). This is not the case. This is a new regulatory tool for implementing the government’s economic policy. It offers investors (which is very important in my view) long-term prospects and guidelines to 2020. This year, for the first time, based on the state programmes, we will approve and submit for your consideration, colleagues, a mid-term programme-related budget. Of course, and I agree here with members of A Just Russia that we need to carefully monitor all these programmes and better control budget spending. That’s self-evident. We are looking to your help and criticism needed in some or other cases.

Third, a stable and predictable tax system is of prime importance for a long-term investor. I have said time and again that we are not planning to increase the tax burden on business. May I remind you of last year’s decision to abolish the tax on corporate non-fixed assets. This is an additional incentive to renew fixed assets. As for taxing luxury items, this is a different matter. Appropriate decisions are in the making on cars priced over R5m, by increasing transport tax on them by several times. The government has already submitted the relevant draft law to the State Duma. Tax revenue continued to grow last year. The consolidated budget received R12,500bn, an increase of 10 per cent. But ladies and gentlemen, we should take a realistic view of things: the possibilities for increasing revenues will be greatly restricted in the near future. This is due to several reasons, including the issue the Russian Communist Party was discussing. The shortfall in taxes as a result of using low-tax jurisdictions is doing damage to our economy. We are aware of this problem and are addressing it.

In addition, we must ensure greater transparency for international cash flow not only inside our country. The G20 has already adopted the relevant decisions. These rules are also being formulated within the OECD framework, in keeping with what are called the Basel decisions (adopted by the Basel Committee) and the International Association of Insurance Supervisors. In our country a special federal law on transfer costs has been enforced since January 2012 (the Russian Communist Party question also refers to this) which establishes criminal responsibility for incorporating a legal entity with fictitious names and illegal documentation. These measures should generally pay off. Speaking of capital outflow, it is still very large. True, it has fallen since last year, it has also dropped by a decent margin compared with 2011, but in countries with comparable economies this kind of outflow doesn’t exist and it means something is amiss in our country. We should further improve legislation as recommended by the Financial Action Task Force and other international organisations.

Fourth, we are interested in more liquid financial markets and expanding the number of investors, including through simplified access and increasing the free circulation of shares issued by Russian companies. We’ve started to establish a single regulator around the Bank of Russia as you know. We’ll also carry on the efforts to set up an International Financial Centre. This is a far from simple job, but it is useful for the country in any case, and I hope we will succeed.

Fifth, the year 2012 – the first year of full operation of the common economic space – saw its basic agreements come into effect. Preparations for the second-tier of inter-state documents are making good progress. The troika of Russia, Belarus and Kazakhstan is already using a common tariff, non-tariff and customs regulation system. As many as 90 functions and authorities in different fields of state regulation have been delegated to the supra-national bodies. These are no simple problems, but we are trying to grapple with them in one way or another.

Last year Russia became a full member of the WTO. The accession talks, I wish to remind you, lasted 17 years. Our objective now is to make effective use of the opportunities and at the same time try to relieve problems that are inevitable when joining the WTO. Less tariff protection and greater competition from foreign producers are, of course, creating difficulties for individual industries and some companies. These troubles were foreseen and factored in. We analysed them during negotiations and are now conducting the appropriate monitoring. There is still work to be done in adapting separate industries and enterprises to WTO conditions. This work is running smoothly and I hope the Ministry of Economic Development and other ministries will work it all out. Talks are also continuing on Russia’s accession to the Organisation for Economic Cooperation and Development.

Tackling corruption, building public trust

Now I would like to dwell on an objective whose fulfilment is essential if we are to hold out in the competitive struggle in international markets and in the international arena – it is the building of a modern state accountable to its citizens. Here the government’s thrust is three-pronged. First, this is, of course, increasing the effectiveness of the state machinery. We now have a system for making public the information about drafted regulatory acts and the results of their public discussion. All this is to be posted on-line. There is a fixed list of data that must be placed on the web starting in July of this year by state and local government bodies. Responsibility for the fulfilment of federal targeted and state programmes will, of course, remain with heads of the ministries and government departments. The government will only examine the progress of implementation at its meetings. A system of anti-corruption measures has been created within federal departments, and methods recommended for watching that employees observe bans and restrictions.

If a broader view is taken of the anti-corruption campaign, then it is highly important that every branch of administration should take part in this work, from the president, the government and parliament to the municipalities and, of course, the judiciary. This kind of struggle requires a serious effort and, of course, time, especially since schemes to bypass the law will always be a threat. They simply need to be exposed in a timely manner and those responsible punished. In principle, corruption is to a considerable extent a state of mind, and not just a violation of legislation. May I remind you that we have created a regulatory base for fighting corruption from scratch – this was done over the past several years. This base must be constantly improved, and the State Duma is actively working at it. The government has recently submitted a number of anti-corruption draft laws to the State Duma and I would like to draw your attention to them. In particular, judges must be obliged to report on all non-procedural violations in the cases they are reviewing (and there are many applications – from officials, deputies and entrepreneurs. But they are registered all over the world to avoid reproach, although this is not an easy task). We should also regulate procedures for subjecting judges to disciplinary action. Experts are drafting proposals to expand access to information on on-line court hearings and for tele-broadcasting them.The federal targeted programme on the development of the judicial system provides for stage-by-stage equipment of courts with audio and video recording devices. This should be done by all means and not only in Moscow or at the Supreme Court level. In addition, now all government draft regulatory acts are subjected to specialist expert review. Government officials are now obliged to declare their incomes and major expenses. Russia has joined several international anti-corruption conventions.

Government services are the second area of improving the state machinery. I’ve said on more than one occasion that the modern state should be open and friendly to the people and its actions should be prompt and effective. We are introducing the one-stop principle to this end. We are establishing multi-purpose centres that provide government services. There are more than 600 of them already operating in 71 regions. I’ve visited them more than once and I can tell you that it is much easier to receive a service there (at least this is my impression). It would be good to have them set up in all regions in the near future.

It is no less important to develop on-line services. It is now possible to receive more than 700 services of federal executive bodies through the unified portal. One more new feature of the government activities is open work with experts, business community and civil society. Open work is important in itself, but it is also important to back it up by specific actions. The Open Government was formed in 2012. This is a new mechanism for implementing state policy. The Expert Council is also working. It consists of 500 highly qualified experts with the most diverse political and economic views. Now the council must present a second report on major issues at each government meeting. We have been working on a very complicated issue: a law on industrial safety. It has allowed more than 100,000 real economy enterprises to avoid unnecessary checkups. I think this is a good example of work with experts.

Culture, welfare, social development

Ladies and gentlemen, we understand that we need large-scale investment, new production lines and economic growth to reach the state’s main goal of upgrading living standards. These standards depend on many factors: education, use of the professional potential, medical services, housing conditions and environmental safety. We live in an era of globalisation, when the issue of self-identity is becoming increasingly important for each nation. Our community and our distinctive character are based on our culture. This is directly connected with the nation’s belief in itself and a decent future, and ultimately with progress.

The state programme on culture and tourism was endorsed last year. It provides for a stage-by-stage increase in the salaries of cultural workers, the expansion of the grant programmes for young specialists in this sphere and the formation of multifunctional development centres in small and medium cities. I think this is very important because for some reason we associate culture with capitals or regional centres only, although it is a multi-dimensional notion. It is vital to ensure equal access to the country’s cultural treasures by using information technology. A unified portal – culture.ru – was created last year for access to museums and cultural heritage sites. Development of domestic tourism, especially for children and young people, is yet another important area. Four hundred cultural and educational tourist programmes are currently being drafted.

Another indicator of the nation’s health is care for the weak and unprotected. I’d like to speak about the problem of orphans, which has been particularly urgent in the last few years. The public custody system numbers almost 120,000. But I’d like to say right away that no government measures and no comfortable, modern orphanages for children can replace a family. All of us are clear on this. Over the past year, 44,000 parents were stripped of their parental rights for various reasons. We should try to change this situation. This is, if you like, a national mission: a country with a rich culture and long-standing traditions of charity is capable of achieving these goals on its own. Importantly, these issues should be dealt with not only by the state, but also by social and business organisations and citizens. The national strategy of action for children creates a good basis for this. It has been discussed by the Open Government and at other forums. In accordance with the decisions taken by the president and the government, rules have been established that make it easier for Russian citizens to adopt children. This is especially important for those who have already raised or are raising adopted children. It is important to make state support more effective, and in order to do that it’s important to improve the federal laws. Here we are also counting on the support of the State Duma deputies. We have just submitted three draft laws on financial support for adoptive parents and guardians, which set out the responsibilities of guardianship and custodianship agencies to provide social, medical, psychological and educational support.

I agree with the opinion of the deputies, and our colleagues from the Communist Party have also mentioned this, that providing housing to young adults when they leave an orphanage is one of the most pressing problems. This problem is real and is being addressed very slowly. Last year, subsidies in the amount of over R6bn were allocated from the federal budget, and another 16bn came from regional budgets. As a result, 23,000 young people received housing, which is not bad, but we need to do more to speed up the solution to this problem. When I was trying to figure out what this problem looks like in different regions. It looks very different: some regions are planning to spend money on this, and then it becomes their priority, and orphans receive housing, others aren’t. It really is a matter of choice of our colleagues from the regions. I think that they should all be playing by the same rules.

We are also paying close attention to people with health restrictions. Let me remind you that last year Russia ratified the Convention on the Rights of Persons with Disabilities. The state programme Accessible Environment has been approved. Its goal is to provide decent conditions for disabled people on public transport, in the streets, in public places, stores, theatres, and government buildings as well. A law has been adopted designed to ensure ongoing inclusive education for disabled people. The amount of social benefits for disabled people has risen, albeit not by much, and monthly payments to parents or caregivers who take care of disabled children are up as well. We plan to create 14,000 new special jobs each year in the period 2013-2015. As you may be aware, by 2015, the level of employment among people with disabilities should be two-thirds of the average level of employment for all categories of citizens.

Social services are another issue. The state social support programme has been approved. The draft law On the Basics of Social Services has been put together and widely discussed and submitted to the State Duma. I would like the deputies to pay close attention to this document, because it lays the foundation for the future of this sector and affects the interests of more than 34 million of our citizens, primarily, the elderly, war veterans, the disabled, families with children and people who simply find themselves in difficult situations.

With regard to pensions, after a long public discussion, the government approved the strategy for the long-term development of the pension system to 2030, and formulated new approaches to forming and calculating the retirement pension. The issue is not only about ensuring the rights of retired people, but also about taking more account of the salary and the length of employment in such calculations. Moreover, everyone needs to understand that a decent pension can be based only on official salaries, excluding any kind of semi-legal schemes. I believe that the pension formula should encourage people to work under legal labour arrangements. Colleagues, we have discussed the extremely high-profile issue of the retirement age, and decided not to raise it, taking into account the current situation in our country. At the same time we need to try to make it profitable for our citizens to continue working after they reach retirement age. We want to encourage people to lead an active life after they retire. Pension readjustment mechanisms will also be preserved.

Housing and utilities

And now regarding housing. In 2012, over 65m sq.m. of housing was built, which is a 5-per-cent increase on 2011, so there is some growth. Around 700,000 mortgages were issued, but this does not cover the existing need. The question is: how are we going to solve the housing problem, from the development of which markets? Surely this should be regular housing construction development, cooperative construction and the building of rental housing. Our targets should be low-income people since high-income citizens have long sorted out their housing problems, and we are also aware of that. These problems can be solved by increasing economy class housing and lowering mortgage rates. That is no easy task.

I was, if you like, at the birth of the Affordable Housing project which we launched in 2006. Unfortunately, I’d like to note that we didn’t really succeed in setting up a modern mortgage market. Mortgage rates are still pretty high despite the reduction in the rate of inflation. We have to make concerted efforts to remedy this situation and bring it up to a modern level in line with Russia’s economic potential. Last year a draft law was submitted on amendments to the Housing Code and other legislation governing non-profit leasing, construction and management of rental properties.

The state offers social benefits for the acquisition and construction of housing to young families, scientists, teachers and doctors, young professionals, those who have gone to work in rural communities. Overall, R25bn have been allocated for these purposes. As we promised, the programme of providing housing for veterans of the Great Patriotic War is nearing completion. In addition, R40bn have been transferred to the savings and mortgage system for military personnel.

There is one more social programme that creates a lot of concern, including among our colleagues from the Communist Party, that is relocating people from the Far North to the mainland. The resettlement is taking place using federal and regional funds, and also those of large enterprises. It requires a lot of money but we cannot neglect the problem. We will not able to solve it within the coming year or two. I shall issue instructions to the relevant ministry to prepare additional proposals on this matter.

And now about the problem that most of our citizens (well at least half of them) consider to be the most urgent: housing maintenance and utilities. People are indignant, and rightly so, at the price levels and the increases in payments which are more often than not unrelated to any improvement in the quality of the services; at the worn-out infrastructure, hazardous dwellings, rusted pipes, entrances and stairwells in a horrific, depressing condition. Naturally these problems must be solved in a systemic way, taking into account people’s opinions.

In 2012 the government identified a list of minimum services and work necessary to properly maintain a residential apartment block. The document, by the way, was widely discussed. It includes over 100 operations to be carried out by the managing companies. According to the document, the relevant bodies and tenants should sign a contract and it is to be strictly observed. A draft law on self-regulation prepared with the government’s participation has also been submitted to the State Duma. I hope when adopted these rules will finally bring order to this area, or at least contribute to it.

A few words about attracting investment. The Fund for Supporting Housing Maintenance Reforms was given the right to subsidize investors’ interest rates. At the end of last year a law on the long-term regulation of tariffs was passed. This is important for investors who want to be sure that operating conditions will not change in the coming five or even 10 years.

The State Duma is also considering a law on concessions. A set of measures has been approved on demolishing hazardous/run-down housing. The fund was allocated about R160bn for this purpose. The work on dilapidated housing (there was a conversation with the president about this yesterday) will be extended until 2018 in view of a large volume of accumulated works. In general, I’d like to say, going back to that problem, that this mechanism proved to be very popular, and I must admit it appears to have been a success. May I remind you that we designed the fund to last for just a few years, but no matter where I went, no matter what the region, I met with governors, and each territory’s leader then said to me: You know, we need to renew it for sure. People have expectations and the mechanism is working, and therefore we will continue to act.

Our colleagues, members of the A Just Russia party, are concerned about whether the regions will be able to fully co-finance the programme to overhaul housing in the short term. This is indeed a problem, and I must admit, I too have repeatedly discussed it with our regions – all of which, of course, want to change the ratio. On the other hand, we must take into account the existing provisions of regional finances themselves. But now the fund is entering into appropriate agreements with the regions, about which there is still an ongoing debate. We will look into this and identify the optimum ratio based on the resulting feedback.

A key objective is to make municipal infrastructure more energy efficient. The current state of affairs is still entirely unfavourable, but there are the beginnings of a new, modern, energy efficient municipal structure. In Biyisk, Altay Territory, the first energy-efficient district has been built, and the latest technology was used there. This is a good example for colleagues in other regions to follow, because such examples help resolve problems.

Environment, road safety, sport,

This year has been declared a Year of Environmental Protection. We need to reach a new level of understanding of the issues and the necessary level of environmental education. There has been a huge, incomparable amount of environmental damage, and work to repair it cannot be postponed. About 15 per cent of our territory is in poor condition, and considering how large the Russian Federation is, the magnitude of the task is clear. This damage has not accumulated over just three or five or seven years – it has accumulated over decades, and we need to address it without fail, because each year the situation in many areas continues to deteriorate. We are going to do this as part of the programme I mentioned.

One of the most pressing issues is road accidents. I won’t speak at length on the subject. I know about the discussions that are under way in the State Duma and about the different approaches. Nevertheless, I believe that we need to move in the direction of supporting bills that increase administrative penalties, because, unfortunately, the numbers are very bad. And everything I’m talking about shows that things are improving, but in a variety of seemingly ordinary things, we have regressed. But why are there road accidents? Of course, there are more cars, but have we really become less civil? Probably, yes, our colleagues say. So, if we are indeed less civil, we have to adopt resolutions on the compulsory enforcement of civility, as well as resolutions on liability. I believe that we’ll talk about this some more in the course of answering questions. In any case, liability should be unavoidable and should not depend on the social, property or official status of the person who violates the rules of the road.

A few words about sport. We have momentous events ahead of us. We have appeared at other major competitions. Let me just note that in 2012, 235 new facilities for mass sports were commissioned, which, of course, is the basis for future developments. The first ever specialised training base for athletes with disabilities opened, the Oka republic-wide training base. I would also like to mention the joint project of the Ministry of Sport and the One Russia party: 124 sports and recreation complexes have to be furnished with equipment. This is what is left for the future.

Future sports events – the Summer Universiade and the Sochi Olympics – have, of course, had a serious impact on development. I will not list what has been done. The main thing is to act the right way, but it is even more important that this post-Olympic legacy works for the entire country.

It is a long report. This is the first time I’m making it. I can only say that even in the report, which lasts an hour and 45 minutes, it is impossible to show all of what we were doing. Yes, we have different approaches to many problems, but we’re doing it together.

Colleagues, I have endeavoured to tell you about the activities of the government for the first, not yet full, year.

We live in a dynamic, rapidly developing world. It is so global and complex that sometimes we cannot keep up with the changes. We, on the other hand, we live in a society with enormous possibilities. We have a country that is strong and comfortable for living, so we will, I hope, all see the Russia of tomorrow. But these are all generalities; the development of the state consists of daily progress, the work of each of us, and it depends on our faith in our own strength, our ability to utilise our skills, to justifiably defend our point of view, to respect the opinions of others and, of course, our responsible attitude to our country and our colleagues, and simply to our families and by extension to our homeland.

Thank you for your attention. I am at your disposal to answer questions.

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