Cabinet Moves to Limit Wage Increases

The cabinet has proposed a series of economic measures that would limit wage increases, allow bankrupt enterprises to be sold off and put an end to all exemptions from the country's trade taxes, top officials said Tuesday. The decrees, if signed by President Boris Yeltsin, would be the second major move in economic policy in as many weeks, signaling the determination of both the government and Yeltsin to bypass the parliament in pushing through the reform program, First Deputy Prime Minister Alexander Shokhin told a joint press conference with other senior officials.In announcing that the draft decrees had been submitted to Yeltsin, Shokhin appeared to signal that the government was trying to seize the initiative from the president. Yeltsin had criticized Prime Minister Viktor Chernomyrdin two weeks ago for not moving quickly enough to implement reforms, and issued six decrees that reduced taxes, cut tax exemptions and liberalized exports.Indeed, Shokhin criticized Yeltsin's chief economic adviser Alexander Livshits on Tuesday for creating the impression that the first package of decrees had been drafted by the president, rather than by the government."I can only repeat myself by saying that the first package of decrees was conceived in a six-hour-long meeting between the president and the prime minister a couple of weeks ago," Shokhin said.Shokhin said the cabinet had submitted a draft decree to Yeltsin that would impose a punitive tax on enterprises that raised salaries by more than 70 percent of the monthly inflation rate. Using the tax, the government hopes to force enterprises to use their revenues for investment instead of salaries, Shokhin said.The restriction would also keep the gap between upper and lower incomes from widening further and help to hold down inflation, said Shokhin's spokesman, Vladimir Kuznetsov.Many enterprises have raised salaries faster than the rate of inflation while leaving unpaid debts to suppliers and subcontractors.Limiting wage increases would be unpopular, however, and Shokhin said the decree could have a hard time passing Yeltsin's desk. Kuznetsov added that Yeltsin had rejected an earlier draft of the decree.Both Livshits and a presidential spokesman, Alexander Orfyonov, declined in interviews to say how many draft decrees had been submitted, or whether any were likely to be signed soon.A second decree submitted to the president would open the way for the assets of insolvent enterprises to be sold off to pay creditors, an acute move in a country where thousands of enterprises are de-facto bankrupt but few have been closed down. Russia has a bankruptcy law, adopted in March 1993, but it does not provide a mechanism for the assets to be sold off and has been only sparingly used.Shokhin said that one of last week's presidential decrees, on the reorganization of state enterprises, would allow for over 1,000 bankruptcies in the state sector alone.But Shokhin said the bankruptcy procedures would still be limited. Under the government's proposal, at least 50 percent of funds raised in the sale of a bankrupt company's assets must be used to provide social benefits and services for the employees. It does, however, provide for a minimum of 20 percent of the sale proceeds to be used to pay off creditors.According to Shokhin, Yeltsin had given initial approval to this draft decree but wanted some details changed.A third decree would ban the government from granting new exemptions on import or export tariffs to certain enterprises. In the first package of decrees, Yeltsin already had ordered the government to cancel existing tax exemptions.Many taxes have been rendered ineffective as revenue-raising measures because top ministers have granted exemptions to the most powerful enterprises.Shokhin said the government wanted to lower export taxes, including a controversial oil-export tax, while doing away with the exemptions.The government will see one of its drafts challenged this month: the budget proposal now in parliament. Several factions plan to ignore a limit on the budget deficit, set by these same factions last month, and vote for additional spending on defense, science and culture.Shokhin rejected a proposal by the State Duma's economics committee to boost government spending by nearly 29 trillion rubles and pay for it by raising revenues from privatization and trade tariffs. He called the plan "murderous" for the government's efforts to control expenditure.