Agenda: Additional support for small and medium-sized businesses and 13 other issues
Dmitry Medvedev’s opening address
Transcript:
Dmitry Medvedev: Good afternoon, colleagues. We have a packed agenda today. I will name a few priority issues, but this doesn’t mean the other issues are of secondary importance.
Government meeting
The first issue concerns support for small and medium-sized businesses, which has always been a priority for the Government, because small and medium-sized businesses ought to become the key driving force of economic growth and must ensure long-needed competitiveness and new jobs for our economy.
In the past two years we have adopted many decisions aimed at supporting small and medium-sized businesses. Not that we did not do anything in this regard before, but important financial and legislative decisions were taken in the post-crisis period to lift administrative obstacles, reduce the tax burden and protect business from corruption. I spoke about this in detail during my meeting with business leaders in Sochi. Although they were mostly the leaders of big companies, we talked about supporting small businesses. Today we will talk about additional support measures. All of them were drafted with the assistance of the Expert Council – council members have been invited to this meeting – and discussed by the Open Government. What are they exactly? First, the insurance premium incentives programme will be extended for companies working in industry and the social sector.
As I said in Sochi, it would be expedient to consider introducing tax breaks for start-up companies, at least at the level of regions and municipalities, and first of all for production. However, this issue should be discussed separately.
Second, we should create a federal guarantee support fund for small and medium-sized companies. The draft budgets for 2014, 2015 and 2016 stipulate the allocation of 30 billion roubles for this. I hope this will ease these companies’ access to loan resources.
Third, a special tax regime has been proposed for self-employed people who are not sole proprietors. We hope this will encourage people who have not registered their employment to legalise their position and will reduce the figure for unofficial employment, which is currently very high.
Fourth, the system of federal and municipal procurement, as well as the procurement programmes of large companies with state capital, should stipulate a structure and a quota for the purchase of goods and services from small and medium-sized businesses. We have discussed this many times and now we should start acting here.
And, finally, the Ministry of Economic Development proposes the following major measure: starting in 2015, all revenues from the simplified-taxation plan should be transferred to local budgets.
These are still proposals, and unequivocal decisions have not been made on the issues. Let’s discuss them once again, and let’s finalise them.
There are several more items on our agenda, including the development of the systems of cadastral registration and registration of titles. We will also examine high-priority development aspects of Eurasian economic integration. I am talking about the creation of the Eurasian Economic Union here. I would like to remind you that the Union should start functioning on January 1, 2015. A week ago, I visited Astana and attended a meeting of the Supreme Eurasian Economic Council at the level of heads of government. A number of decisions were made there, so let’s continue discussing these issues.
Today, we are also examining a large legislative package, which comprises six documents. They stipulate amendments to national legislation, and they deal with a highly important issue: that is, pensions, or the preservation of pension savings, to be more exact.
It is common knowledge that during the accumulation of pension savings, individuals born in 1967 and later have the right to manage the relevant part of their pension insurance premiums. For instance, they can invest these premiums in a managing company of their choice, or they can transfer these assets to a private pension fund. Today, it is high time we saw to it that all savings which have been invested receive more sound guarantees, and it is the Government’s task to ensure reliable investment and, of course, pension rights.
The measures being proposed by the legislative package must tighten requirements on the work of private pension funds, and they must stipulate tougher control over the investment of pension savings. And, most importantly, they must ensure the fulfillment of obligations to all insured persons.
There are also plans to extend the right of insured individuals to choose their own pension support plans until late 2015. They can decide to spend 6% of insurance premium rates on financing their pension savings or spend nothing at all. Of course, those individuals who keep silent will not lose their respective insurance premiums, which will swell their pension insurance savings.
And we must minimise the risks in a situation where an individual decides to choose another insurer implementing mandatory pension savings plans. We are determining the relevant procedure and terms for the compensation of deficient assets, and there are plans to set up a pension-savings guarantee fund, which would be managed by the Deposit Insurance Agency state corporation. By the way, all private pension funds planning to continue their work and to implement mandatory pension insurance plans will have to undergo Bank of Russia audits.
These are all the main points which I wanted to mention before we start our work.
I now give the floor to Alexei Ulyukayev who will report on the first issue, small- and medium-sized businesses. Please.
Minister of Economic Development Alexei Ulyukayev reports at the Government meeting
Alexei Ulyukayev: Mr Medvedev, ladies and gentlemen. A discussion of additional measures of support for small and medium-sized business is not a routine matter. We are forming a new economic model that you, Mr Medvedev, described at the forum in Sochi. We must make a breakthrough in attracting investment, in labour productivity growth and diversification of production. The initiative of small and medium-sized businesses is extremely important in this context.
Small and medium-sized companies create new jobs, including jobs that will make up for the potential reduction of manpower in the event of replacement of old production lines with high-tech ones. They are capable of making serious contribution to economic growth and to investment into the core assets that we have included into our programme. Partnership with small businesses is the basis of this entire work.
There are about 5.5 million small and medium-sized companies in Russia today. This may seem like a big number – about a quarter of the employed population and almost 20% of the GDP – but it is much less than in countries at a comparable level. Moreover, they are doing worse than before – their numbers and their personnel are decreasing, as well as their share in the credit portfolio of Russian banks. They don’t just disappear, rather, they join the illegal sector which, according to expert estimates, has already left them behind in terms of manpower. We are worried about this, because apart from tax and fiscal relations, this affects the operation of the entire production system.
This year about 500,000 private entrepreneurs, or 12% of the total, have stopped their operation. But this doesn’t mean they have stopped altogether – rather, they keep a low profile. Some of them have switched to the informal sector, which is already large, and maybe this is the consequence of some measures that are good in theory but fail to take into account the potential reaction of our people. I’m referring to such measures as the decision to increase insurance premiums for sole proprietors. We cancelled this measure and in 2014 we’ll introduce a differentiated approach to insurance payments – those who make up to 300,000 roubles a year will pay one minimal monthly wage (MMW) as before, whereas those who make in excess of this amount will pay one MMW plus one percent from the amount over 300,000. However, this effect is always asymmetric.
It is easy to drive people into the shadows but very difficult to bring them back to legal business. This is why we must be very meticulous in taking such measures, and must always think of the potential reaction they may produce.
This is why we’ve decided to retain discounted rates of insurance payments to extra-budgetary funds (the current rate is 20%), at least to 2018. We must resolve the problem of making appropriate pension commitments to this category of people, but we should not take action that may discontinue business or encourage it to become illegal.
Moreover, as Mr Medvedev mentioned, a number of additional measures have been suggested, such as the introduction of a simplified system for self-employed individuals that allows them just to buy a license for their category rather than formally becoming private entrepreneurs.
This license could be temporary and could allow people to work during their vacation or some other time, or combine it with some other activities, or work for a longer period. We have applied this approach to foreign citizens working in Russia and achieved good financial results. In 2012 they contributed almost seven billion roubles to the federal budget that wouldn’t have been accounted for otherwise. The main point is to achieve transparency, to understand who works where and how. Later some of these people may register as private entrepreneurs, others may establish small companies and still others may retain licenses. This flexibility allows us to make the best use of the working potential of our people and rid them of excessive red tape.
There is a proposal to redistribute taxes levied under this simplified system in favour of local budgets. Now they are received by the regional budgets. Bearing in mind the long-term budget strategy, we suggest that they should be gradually transferred to local budgets. We propose speeding up this process and transferring all of these revenues to municipal budgets. This is the environment in which small and medium-sized businesses operate. Therefore, the formation of a reliable income base for municipal entities will promote their dialogue with businesses, create a comfortable business environment and promote the growth of social services and production.
In addition, we believe that to enable small and medium-sized businesses to fully utilise their potential, it is necessary to involve them in purchases for government and municipal needs, as well as for development institutes and public companies. The law on the federal contractual system will come into effect next January. It provides for certain assignment of quotas. No less than 15% of these expenditures should be used for the purchase of goods and services by small and medium-sized companies. The market of purchases for public companies alone amounts to seven trillion roubles. If this quota is observed the turnover of small and medium-sized businesses will amount to one trillion roubles.
Obviously, this is not an easy task and it is very important to build correct relations between big business and small and medium-sized companies. We’d like them to form long-term relations and establish a club of qualified suppliers to big businesses from among small and medium-sized companies. Initially large companies could contribute funds to the formation of a chain of small and medium-sized firms that would fulfill their orders. This is already being done in practice, for instance at the KAMAZ Automobile Plant where small and medium-sized businesses are working for it full time in the adjacent technology park. This mutually advantageous cooperation fully meets the interests of the large company as well as small and medium-sized businesses.
Entrepreneurs are always worried about the lack of funds – a very serious obstacle, all the more so for small and medium-sized companies without a serious credit reputation or reliable collateral. This is where the Government must extend a helping hand, in the form of guarantees and special long-term funds for their investment activities. We suggest depositing 100 billion roubles of the National Welfare Fund via a financial institution (in deposits of Vnesheconombank with a regular profit – inflation plus one percent) to finance long-term investment bank loans for medium-sized businesses. In this case, the cost of a loan for final borrowers would not exceed 10% and it could be granted for 10 years. In our estimate, this would increase the scale of investment projects of medium-sized businesses by 50%.
In addition, we have an operating system of warranty funds in practically all regions. More than 200 billion roubles worth of loans have been granted on their guarantees in the past six years. We’d like to complete the national warranty system by creating a federal warranty fund. Importantly, the Government has already made a decision on its capitalisation. It should be established as a non-bank creditor that will be regulated and controlled by the Central Bank. It will deal with the following tasks: elaborate methods and standards for the activities of regional funds; issue counter-indemnities for regional warranty funds to allow them to extend their credit limits; and grant direct guarantees to medium-sized companies (it will have the right to do this as distinct from regional funds). We believe that as a result, the share of loans to small and medium-sized business in the total scale of crediting may increase substantially. Now guarantees are granted to about two percent of the loan market for small and medium-sized businesses, and we expect this share to increase to at least five percent.
It is very important that these allocations have been envisaged, but I’d like to suggest that they appear as a separate item in the budgets for 2014-2015. In this case we could issue relevant legal norms as soon as possible.
We are working in one more major area and intend to step up our efforts there. I’m referring to the granting of subsidies to the regions for their programmes of support for small and medium-sized businesses.
I am referring to infrastructure projects, to setting up business incubators, technology parks and startups, and to providing subsidies to finance these projects. Until recently, the Government provided subsidies to regions based on quantity – the number of small and medium-sized businesses in the region. Now we are proposing a dual system, with 60% of financing to be provided based on numbers as before, and 40% as a reward for attaining goals, some Key Performance Indicators for small and medium-sized businesses, such as the number of people employed, jobs created and investments in SME capital (this could account for around 40% of the total subsidy amount). To provide an even stronger incentive for the regions, federal co-financing of these costs could be increased and could reach up to 95%.
The last point I would like to make is about the involvement of Vnesheconombank, the state development institution, which works out the programme for financing SMEs through its subsidiary, SME Bank, and provides guarantees. We propose streamlining this process, because this situation, in which VEB only provides just a basic guarantee resource for SME Bank, actually leads to a higher loan interest by 250 basis points for the end borrower. If VEB acted as the operator (we have discussed this issue with the bank leadership, and they said it would be an acceptable and effective format), we would be able to provide SMEs with a cheaper funding resource. VEB’s status will have to be stipulated by a corresponding agreement, so that SME financing would not be a marginal or non-core activity for the development bank, and so that it will be able to engage in this fully and effectively. This way VEB would be a truly connecting link between the government and commercial banks, and the amounts we allocate for guarantees and funding of operations would not remain on paper but would be channeled to support small and medium-sized businesses. Thank you.
