The VAT increase has found an excuse

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Photo: Alexander Kryazhev / RIA Novosti

The increase of VAT from 18 percent to 20 percent represents the lesser of two evils in comparison with other possible variants of replenishment of the budget. To such conclusion experts of the Russian Academy of national economy and public administration (Ranepa) and the Gaidar Institute in their joint study, which is published in the latest issue of “Monitoring the economic situation in Russia” (at the disposal “of the Tape.ru”).

The study authors noted that the main task of the VAT increase is the budget for the implementation of the “may decree” of the President. In his analysis of changes in macroeconomic indicators, they start from the so-called basic, or theoretical scenario of economic development without tax reform and any changes to fiscal policy.

“According to their estimates, a similar rise in VAT will lead to lower GDP, consumption, investment, exports and imports (relative to the baseline scenario) of approximately 0.4–0.6 percent,” the study says.

The other option — increasing insurance premiums for employers — would have led to more serious consequences for the Russian economy, the study authors write. GDP in this case would be reduced by 0.8-1.1 percent, and investments by 1-1. 5 percent. The third solution is the growth of income tax — could lead to a GDP contraction of 0.6-1%, investments — by 1.8-2.5 percent and household consumption by 0.4-0.7 percent.

“Therefore, in this situation, conclude the authors, the increase in value added tax is a more favourable solution compared to others. However, they notice that there are more effective measures of economic policy, which could theoretically solve the problem of execution of the may decree without raising taxes, including increasing the efficiency of the public sector and public procurement and reducing corruption,” the study says.

The authors believe that the effect of an increase in VAT on inflation is not threatening and will be limited to an additional 0.9 to 1.5 percent to its level in 2019.

Previously, experts of the Ranepa said that the increase in VAT is one of the limiting factors for economic growth in the current year, along with the sanctions and uncertainty in commodity markets. According to their calculations, the GDP growth in 2018 will amount to 1.8 percent (versus 1.5 percent in 2017).

14 June, Prime Minister Dmitry Medvedev announced an increase in VAT from 18 percent to 20 percent. It will take place on January 1, 2019. On the same day it was announced phased increase in the retirement age to 65 years for men and 63 in women by 2034.

Video, photo All from Russia.

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