Russian lawmakers back higher taxes in preliminary vote

MOSCOW (Reuters) - Russian lawmakers on Tuesday backed a proposal to raise value-added tax in a preliminary vote, part of an unpopular budget package designed to shore up government finances which has already hurt President Vladimir Putin’s approval ratings.

The government is looking for extra money to implement Putin’s pledges of higher social spending for the next six years. It has already proposed raising the retirement age, a contentious measure announced on June 14, the same day that Russia began hosting the soccer World Cup.

On Tuesday, a majority of lawmakers in the State Duma, the lower house of parliament, approved legislation to raise value-added tax to 20 percent from 18 percent, something opponents complain would increase petrol prices which many Russians say are already too high.

Some parties voted against the proposal, saying the measure would hurt ordinary Russians and do little to boost economic growth. Putin, who was re-elected in a landslide vote in March, has said he wants to deliver higher growth and raise living standards.

Deputy Finance Minister Ilya Trunin, who presented the VAT proposal at the Duma, said the tax increase would generate more than 600 billion rubles ($9.49 billion) a year that could be used to finance nation-wide projects and infrastructure.

“This bill is aimed at ... financing expenditure on reaching goals set by the president,” Trunin said.

The proposed tax hike, along with a proposed higher retirement age, has angered people across Russia at a time when the finance ministry say the budget is not in urgent need of extra funds and is on track to post a surplus this year.

A survey of 1,500 Russians, carried out by the FOM pollster in late June, showed this week that 57 percent of respondents believed the VAT increase would have a negative impact on their well-being.

That followed another survey that showed Putin’s approval rating had slid to 69 from 75 percent in a week.

From an economic point of view, the VAT increase, which needs to be approved in further readings to become law, has all but dashed hopes of lower interest rates, a Reuters poll showed.

The central bank has warned that the VAT hike would translate into higher inflation, and is now seen keeping the key interest rate at 7.25 percent throughout 2018.

Additional reporting by Elena Fabrichnaya, Editing by Andrew Osborn and William Maclean