Russia, on quest for budget savings, to raise retirement age

MOSCOW (Reuters) - Russia’s government wants to raise the retirement age for both men and women and to increase value-added tax, unpopular measures it hopes will ease pressure on state finances, Prime Minister Dmitry Medvedev said on Thursday.

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Russian officials, including President Vladimir Putin, have long talked about raising the retirement age but have shied away from doing so, in part because such measures risk stirring up popular discontent and damaging politicians’ popularity.

However, Medvedev said on Thursday that the government, which Putin re-appointed last month after his own re-election for another six-year term, was now facing a shrinking workforce and had to act to protect the budget.

“We have long prepared for a higher retirement age and have only reached this point now,” Medvedev told a cabinet meeting in an announcement that coincided with the opening of soccer’s World Cup in Russia.

Medvedev said the government wanted to increase the retirement age for men to 65 from 60 years of aged and for women to 63 from 55. The changes would be introduced gradually, starting in 2019.

The Russian budget is under pressure from a growing number of pensioners and a shrinking workforce caused by sluggish birth rate in the early 2000s.

A higher pension age would allow the government to raise pensions payments while freeing up state funds that could be spent on spurring economic growth amid Western financial and economic sanctions.

Medvedev said the government also wanted to raise value- added tax to 20 percent from 18 percent. That increase could add at least an extra 600 billion roubles ($9.64 billion) a year to government revenue, said First Deputy Prime Minister Anton Siluanov.

He said a higher rate of VAT would lead to higher prices, adding 1.5 percent to the consumer inflation index.

The central bank made no immediate comment on the measures proposed by the government, observing a week of silence before a rate-setting meeting on Friday.

The government is likely to introduce legislation into the State Duma, the lower house of parliament, in the near future to enact the VAT and retirement age changes.

It is rare for the Duma, which is controlled by the ruling party, United Russia, to oppose the government on major policy initiatives.

($1 = 62.2125 roubles)

Writing by Andrey Ostroukh, editing by Andrew Osborn and Larry King