Yeltsin Issues Deadline for Fiscal Reform

Setting up a showdown with Communist lawmakers over Russia’s economic future, President Boris N. Yeltsin issued a veiled threat Tuesday to dissolve parliament if it does not quickly adopt a package of emergency fiscal measures.

At a rare joint session of Cabinet members and lawmakers to address Russia’s mounting financial crisis, Yeltsin and Prime Minister Sergei V. Kiriyenko called on parliament to approve a program of billions of dollars in budget cuts and tax measures by early July to stave off economic collapse and social upheaval.

The government said that today it will submit almost two dozen legislative measures aimed at boosting the economy by reducing taxes on the output of big business and increasing them on individuals, while at the same time lowering the top-end personal rates. Russia will try to squeeze more revenue from small enterprises, foreigners and those who seek to shelter their assets in overseas tax havens. It will also step up its tax collection efforts, especially pressing to get a grip on revenue from alcohol.

“We have lost the momentum of reforming the economy,” Yeltsin declared. “The extreme degree of tension in Russian society is a fact. Our economic policy is in need of serious adjustment.”

Afflicted by the Asian fiscal crisis and struggling under a huge national debt, Russia has reached a crossroads and must decide whether to continue its transition to a market economy, officials said.

Russia now spends more than one-third of its annual budget just to service its debt. Industrial enterprises, Kiriyenko said, owe the government more in back taxes than “all the money that exists in the country.”

The government package includes many measures proposed in the past--such as a comprehensive overhaul of the tax code--that have been blocked for months or years by the opposition-controlled Duma, the lower house of parliament.

But Yeltsin raised the stakes by setting a deadline and suggesting that he will disband the 450-deputy Duma if it does not act before its members leave for their summer vacation, now scheduled to begin July 16.

The Russian Constitution--a document largely written and forced through in 1993 by Yeltsin that creates a nearly omnipotent presidency--gives him broad powers to act against the Duma.

Dissolving the Duma would permit the president to rule by decree--enacting his economic program and any other laws he desired--until a new group of lawmakers was seated up to four months later.

“All the laws must be passed before the start of parliamentary recess,” Yeltsin warned Duma members. “We have no other way. And if the package of laws envisioned in the program is not approved, other measures will be taken.”

Yeltsin successfully used the threat of disbanding the Duma earlier this year when he forced through the confirmation of Kiriyenko as his prime minister. While most members of the chamber objected to the choice of the little-known, 35-year-old energy minister, they gave in to Yeltsin rather than lose their jobs, free apartments, government cars and other perks.

But initial reaction to the government’s program was less than enthusiastic.

Gennady A. Zyuganov, the Communist Party leader and a Duma member, said the proposal was unacceptable and was merely “a technical chain of standard words.”

“Mr. Yeltsin started intimidating and threatening the state Duma, was rude and left without hearing out representatives of parliament,” protested Zyuganov, who lost to Yeltsin in the 1996 presidential race and plans to run again in 2000.

Yuri D. Maslyukov, an economist and Communist Duma member, observed that the only new element in the program “is the government’s determination to implement it.”

The government, negotiating this week with the International Monetary Fund over the release of a $670-million loan and a potential new aid package of up to $15 billion, staged the presentation of its program at a special Cabinet meeting with both houses of parliament. Many of the proposals offered have been sought by the IMF as a condition of further loans.

Kiriyenko, at times seeming more like an accountant than a prime minister, delivered a detailed address that laid out simple principles of economics, such as the idea that the government should not spend more than it takes in. “The impact of the world financial crisis has cost us dearly, but it also has shown us how badly the country needs a sober and realistic budget policy, the ability to live according to one’s means,” he said.

Included among at least 20 pieces of legislation Kiriyenko will submit to parliament today was a proposal to cut the current budget by $6.2 billion and increase taxes by $3.2 billion. To provide incentives for economic development, he also called for reducing taxes on industry while transferring a greater share of the tax burden to individual taxpayers through improved tax collection. At the same time, his program would cut the income tax rate to a standard 20% from a high of 35%.

“We must . . . shift the tax load from production to consumption,” Kiriyenko said. “This is not just some short-term, anti-crisis measure. This is the fundamental strategic aim and the entire essence of the proposed program.”

Other proposals would increase tax revenue from small businesses, Russian firms registered in offshore tax havens, such as Cyprus, and an estimated 60,000 foreigners living in Russia.

One bill would let regional governments adopt a sales tax of up to 5%. Another would attempt to establish a complete government monopoly over the notoriously corrupt alcohol industry.

“A country cannot live if it does not collect taxes,” the prime minister said. “We cannot have double standards. We all want to help the coal miners and the pensioners, but why the outcry when the tax authorities really start to act tough?”