Business | Oil & Gas

Russia to redistribute $162b oil wealth funds

Russia's Finance Ministry unveiled a draft fiscal strategy to 2023 on Sunday, proposing to raise social security taxes from 2010 and reform the $162 billion oil wealth funds to back up the pension system.

  • Reuters
  • Published: 23:21 August 17, 2008
  • Gulf News

Moscow: Russia's Finance Ministry unveiled a draft fiscal strategy to 2023 on Sunday, proposing to raise social security taxes from 2010 and reform the $162 billion oil wealth funds to back up the pension system.

Under the proposal, Russia's oil revenues will be redistributed between the liquid Reserve Fund designed to support the budget in case the oil price falls and the National Wealth Fund (NWF), earmarked for riskier investment.

The Reserve Fund will shrink to six per cent of gross domestic product from the current 10 with the cash going to the now-$33 billion NWF, whose main task going forward will be the support for the pension system.

"The main challenge for the whole financial system of the country is the pension fund deficit. We should admit that today's pensions are not sufficient," said Finance Minister Alexei Kudrin.

The Finance Ministry also wants to raise the effective rate of the employers' Unified Social Tax, the backbone of the Russian pension system, to 24.7 per cent by 2010 from 21.5 per cent now and introduce a three per cent social tax on individuals.

"We will have to raise taxes. We are now at the threshold when higher pensions will require higher budget spending," Kudrin said.

Russians currently pay a flat income tax of 13 per cent.

The proposal, part of fiscal strategy till 2023, also sees the budget going into deficit from 2014 and suggests Russia may tap oil wealth funds and borrow to keep up with ambitious goals of diversifying the economy and supporting social welfare.

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