This post first appeared on Russia Insider
GDP forecasts for 2015 are set to rise after the Russian government has decided against introducing a secondary sales tax of 3% on top of VAT.
The tax which would have greatly complicated the retail sales legal framework would have added at least three percent to inflation and hit GDP by approximately 0.5%. Economists, unanimously, had reacted negatively to the original announcement of its introduction.
Its removal from the 2015 to 2017 budget is in effect a mini-stimulus and also shows how serious the Russian government is about supporting growth. They also withheld from increasing the VAT rate, which should also prop-up growth than was otherwise expected for 2015.
The removal of the sales tax will greatly lower inflation and thus ease the pressure significantly on the central bank. As a consequence, it now seems certain that we have reached the end of interest rate hikes from the central bank and we can now expect cuts to come probably in early to mid-2015.
Finance Minister Siluanov also announced that they expect the 2015 budget to run a deficit of 0.6% to GDP and that spending is seen at 20% of GDP. Defence spending will rise by 21.4% in 2015 and social spending will rise by 7.3%.
Furthermore, the government is also creating a new anti-crisis fund, on top of the existing National Welfare Fund and National Reserve Fund, which will receive 5 billion dollars in 2015.
The government also announced that it will increase its investment into the agricultural sector which is already seeing extremely fast growth as reported on previously.
Siluanov said that "all proposals by the Finance Ministry were approved, except, we will have to negotiate an approval regarding... the pension system". The pension system in Russia was the other main concern of economists going into the budget, but the Russian government appears not to be ready to resolve the underlying funding issues at this juncture, instead deciding to focus on short term growth.
Siluanov also said that the economy had grown by 0.7% year on year from January through till the end of August, and that he expects growth to be around 0.1% to 0.2% for the third and fourth quarters.
He maintained his recently upgraded forecasts, as reported on previously, of 1.2% growth in 2015, 2.3% in 2016 and 3% in 2017.
This post first appeared on Russia Insider
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