Some Yeltsin Tax Reforms Gain Support

The Communist-dominated lower house of parliament, indicating a willingness to cooperate with President Boris N. Yeltsin, gave preliminary approval Wednesday to part of the austerity program proposed by the Kremlin to end Russia’s fiscal crisis.

While opposition leaders warned that the program was insufficient to bail out the economy, the Duma gave tentative approval to nine of 20 major tax and spending measures offered by Yeltsin and Prime Minister Sergei V. Kiriyenko.

“We will support the package of laws that ease the tax burden and develop our industry,” said Communist Party leader Gennady A. Zyuganov. “But financial and economic measures alone will not save the country.”

Despite the attempt at compromise, investors continued to pull out of Russia’s stock market, which fell nearly another 4% to reach its lowest level in almost 25 months, as measured by the Russian Trading System index.

The Duma plans to meet again today and Friday to continue giving preliminary consideration to the emergency fiscal program. The house is then scheduled to convene again in mid-July and decide whether to give final approval to each of the measures.

“Our first task is to overcome the financial crisis and ensure the stability of the financial system,” Kiriyenko said in a speech to the Duma. “There is only one reliable way to achieving this--to live according to our means.”

Russia’s economy has been struggling all year as world oil prices have plummeted and investors have fled to safer markets. The government now spends more than a third of its budget to pay off its loans, is collecting only 75% of its expected tax revenues and owes more than $1.3 billion in back wages to workers.

Government leaders have repeatedly insisted that they will not devalue the ruble and destroy the stable currency that has been Russia’s main economic success of the past two years. But in recent months, the Central Bank has been forced to spend billions of dollars to prop up the ruble and is seeking another $15 billion loan from the International Monetary Fund to boost its reserves.

Some Russian economists argue that continued foreign borrowing will only drag the country down further and that devaluation of the ruble is inevitable.

“There is no getting away from it for one simple reason,” said economist Nikolai P. Shmelyov, deputy director of the Institute of Europe. “The ruble has been heavily overpriced from the very beginning and each passing day makes this problem more acute and self-evident.”

Much of the austerity package proposed by the government is designed to meet the International Monetary Fund’s conditions for further lending. Among the Kremlin proposals are measures to tax insurance payments, increase the value-added tax, boost levies on land and introduce a tax on barter deals. Another bill would reduce the overall income tax rate but increase potential revenues by shifting the tax burden from corporations to individuals.

One measure would give Russia’s regions the right to introduce a sales tax. Other bills would cut Soviet-era subsidies, including payments to families with children.

Many of the measures tentatively approved by the Duma have been proposed in the past. But the Duma acted only after Yeltsin threatened last week to take “other measures” if the Duma did not act.

The warning was widely interpreted to mean that Yeltsin would dissolve the Duma and enact his program by decree if the house did not approve at least part of his package.

For the most part, the bills that received preliminary approval from the Duma on Wednesday were among the least controversial in the package. One was a measure that would increase taxes on gambling; another would impose an imputed income tax on small business.

And while Yeltsin’s opponents were willing to compromise when casting their votes, they did not soften their strident rhetoric. “The executive branch of government is implementing reforms that are turning Russia into a Third World nation,” said Nikolai Kharitonov, leader of the Duma’s Agrarian faction, which is often allied with the Communists. “We need a real policy that would be beneficial for most of the population, not only for a handful of oligarchs.”