Russia's Prime Minister Dmitry Medvedev
Russia may be forced to raise taxes in next year's budget to make up for the impact of Western sanctions imposed over Moscow's Ukraine policy, Prime Minister Dmitry Medvedev said Tuesday.
The budgets for 2015-2017 will "have to reflect the current situation in the Russian and global economies, including the negative consequences of sanctions launched against some of our companies and, in essence, against the whole country," he told a government meeting.
The United States and European Union, after months of wrangling, last month formally adopted broad economic sanctions designed to squeeze Moscow for its alleged role in supporting rebels in eastern Ukraine.
A first step limits access by Russian state-owned banks to Europe's financial markets, chief among them London, which will increase their cost of doing business and hinder their contribution to the economy.
Sales of arms and dual-use technology are banned, along with sensitive technologies in the oil sector. But Europe has baulked at applying sanctions to Russia's gas industry, which supplies around a third of the EU's needs.
"Of course the conditions for foreign lending are not very good, foreign investment is also rather doubtful," said Medvedev, adding that Russia will have to "actively engage in import substitution" to make up for the shortfall in Western technology.
Moscow has been mostly dismissive of the sanctions, saying Russia can survive on its own with some officials even suggesting sanctions will be beneficial for domestic manufacturers.
Analysts, however, have cautioned that sanctions will likely push the country into recession.
The IMF last month said it now expects the Russian economy to grow by just 0.2 percent this year, although Russian officials have stated they see an expansion of around 1 percent.
In a sign that the budget is facing a crunch, Medvedev said Russia may also need to raise taxes to make up for the impact of the sanctions -- a measure some analysts say could further hurt growth.
"We have to analyse additional possibilities of mobilising income, including... even an increase of the tax burden, though this measure should be left for the last resort," Medvedev said.
The Vedomosti daily last week cited sources as saying that President Vladimir Putin is approving a measure allowing Russian regions to introduce a sales tax of three percent.
Russia currently has no sales tax but has an indirect value-added tax of 18 percent.
Reuters: 05. August 2014
Moscow may force European airlines to fly around Russia
Moscow may force European airlines to fly around Russia
Russia's Prime Minister Dmitry Medvedev (L) meets with Transport Minister Maxim Sokolov and Aeroflot Deputy General Director Vadim Zingman (not pictured) at the Gorki state residence outside Moscow, August 5, 2014.
Russian Prime Minister Dmitry Medvedev threatened on Tuesday to retaliate for the grounding of a subsidiary of national airline Aeroflot because of EU sanctions, with one newspaper reporting that European flights to Asia over Siberia could be banned.
Low-cost carrier Dobrolyot, operated by Aeroflot, suspended all flights last week after its airline leasing agreement was cancelled under European Union sanctions because it flies to Crimea, a region Russia annexed from Ukraine in March.
"We should discuss possible retaliation," Medvedev said at a meeting with the Russian transport minister and a deputy chief executive of Aeroflot.
The business daily Vedomosti reported that Russia may restrict or ban European airlines from flying over Siberia on Asian routes, a move that would impose costs on European carriers by making flights take longer and require more fuel.
Vedomosti quoted unnamed sources as saying the foreign and transport ministries were discussing the action, which would put European carriers at a disadvantage to Asian rivals but would also cost Russia money it collects in overflight fees.
Shares in Aeroflot - which, according to Vedomosti, gets around $300 million (177.82 million pounds) a year in fees paid by foreign airlines flying over Siberia - tumbled after the report.
At the height of the Cold War, most Western airlines were barred from flying through Russian airspace to Asian cities, and instead had to operate via the Gulf or the U.S. airport of Anchorage, Alaska on the polar route.
However, European carriers now fly over Siberia on their rapidly growing routes to countries such as China, Japan and South Korea, paying the fees which have been subject to a long dispute between Brussels and Moscow.
The daily quoted one source as saying a ban could cost carriers including Lufthansa, British Airways and Air France 1 billion euros ($1.3 billion) over three months.
However, state-controlled Aeroflot would also be hurt if it lost the fees. Aeroflot was the worst performing stock in Moscow on Tuesday, closing down 5.9 pct compared with a 1.4 percent drop on the broad index.
Lufthansa said it operates about 180 flights a week through Siberian airspace but declined further comment, as did British Airways.
The EU has widened its sanctions after last month's downing of a Malaysian airliner over territory in eastern Ukraine controlled by pro-Moscow rebels, with the loss of 298 lives.
MISERABLE SUMMER
The suspension of the airline flying to Crimea prevented Russians from taking cheap holidays on the Black Sea peninsula at resorts such as Yalta. This has added to a miserable summer during which a series of Russian travel companies have gone under as the economy flirts with recession and the rouble falls.
Itar-Tass reported on Tuesday that the IntAer travel operator had become the latest to fold, stranding about 500 holidaymakers abroad. The company blamed "a sharp fall in demand and purchasing power and the rise in the exchange rates of foreign currencies and the negative political situation".
Russians have been increasingly taking holidays in countries such as Greece, Croatia, Bulgaria, Turkey and Egypt. However, the rouble has fallen 9 percent this year against the dollar due to the slowing economy and the effects of the crisis in relations with the West, forcing up the cost of foreign trips.
Around 15,000 tourists are stuck abroad following the collapse of the larger Labirint holiday firm, although industry officials have promised customers will be compensated from insurance policies which the companies had to take out.
A Greek tourism official said the country expected 1.1 million Russian tourists this year, down from 1.35 million in 2013. Arrivals from Ukraine, where government forces are battling the rebels in the east, are down 50 percent.
Andreas Andreadis, who heads the Association of Greek Tourism Enterprises, expected this would cost the country 300 million euros ($400 million). Greece still aimed to boost numbers of Russian visitors to 2.5 million a year by 2021, he said, but added "Things look like they will be getting worse before they get better."
While the mass travel market suffers, sanctions imposed by the United States have targeted individuals close to Russian President Vladimir Putin.
Billionaire Gennady Timchenko said U.S. company Gulfstream had stopped servicing his private plane. "Gulfstream has ceased to fulfil its contractual obligations, grounding my jet which had been purchased from it for a lot of money," he told ITAR-TASS news agency in an interview.
Gulfstream had been banned from any contact with Timchenko, he said, and could no longer supply spare parts. Pilots had also been banned from using the jet's navigation system.
However, Timchenko said Russia's business elite would not put pressure on Putin to change tack on Ukraine due to the sanctions which would only strengthen support for his policies.
AP: 05. August 2014
Putin orders Russia government response to sanctions
MOSCOW (AP) — Russian President Vladimir Putin says he has ordered the government to develop measures in response to Western sanctions.
Putin, in a meeting with state officials in the city of Voronezh on Tuesday, did not specify what the measures might be but said: "I have given the order today to formulate them," Russian news agencies reported.
Russia has been hit by an array of increasingly strong sanctions by the United States and the European Union that seek to punish Russia for its annexation of the Ukrainian region of Crimea and alleged support of separatist rebels in eastern Ukraine.
Putin said the measures must be carefully designed to avoid affecting Russian consumers.
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