PRESIDENT OF RUSSIA DMITRY MEDVEDEV: Deputies of the State Duma, today I present to you the candidacy of Vladimir Vladimirovich Putin for the post of prime minister of the Russian Federation Government.

Your applause makes it clear that Vladimir Vladimirovich is in no need of any particular recommendation: he already has two presidential terms behind him. You all know these years, what a turning point they were in our country’s life and what results were achieved. And you know that this period created the opportunities for genuine progress in our society. Most importantly of all, life overall in our country has begun to change for the better.

We know how much President Putin did to strengthen Russia’s statehood and bolster our security. We also know how dramatically Russia’s international standing has changed ­ to put it simply, the world once again has started to respect our country.

Our most important task today is to continue this course and take all necessary steps to put the powerful resources we have built up to work on continued development of our country based on innovation, economic modernisation and an improved social sector.

There is still much work to be done: we need to improve our infrastructure, put in place good conditions for business development, be more active in integrating Russia’s economy into the world economy and make major progress in education, healthcare, agriculture and the housing sector. And of course there is our main goal ­ to give our people a secure and comfortable life.

I want to emphasise that these objectives were drawn up under the leadership of Vladimir Vladimirovich Putin and are now part of Russia’s Development Strategy for the period to 2020. I am sure that Vladimir Vladimirovich not only has a clear vision of how to reach these goals, but that as prime minister he will play a key part in implementing the policies that will make them reality.

I want to add that I have worked together with him over all these years and we will continue working together now. I think that there is no doubt in anyone’s mind that our tandem, our cooperation, will only grow stronger, and in so doing will ensure the continuation and development of the current course, for which the Russian public has given its support.

Deputies of the State Duma, in accordance with the Constitution of the Russian Federation, I ask you to give your approval to the appointment of Vladimir Vladimirovich Putin to the post of prime minister of the Russian Federation Government.

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VLADIMIR PUTIN: Good afternoon, deputies of the State Duma.

First of all, I want to thank Dmitry Anatolyevich [Medvedev] for his kind words and for putting forward my candidacy for the post of prime minister of the Russian Federation Government.

We have accomplished much indeed over these last years, but we have enormous tasks, immense work ahead of us. And what is going right now is not just about the legal procedures set out by the Constitution and the laws of our country. This is about the fact the each one of us, each one of us present in this hall today or sitting here in the Presidium, must consider not only what has been accomplished so far, but must also look to the future. I think it therefore my duty to explain in detail my vision of the Government’s work over the coming period.

I already spoke from this tribune as a candidate for the post of prime minister in August 1999.

The country faced a very difficult situation at that time. In the interests of our country, its integrity and the welfare of its people, we needed to lay party disputes and idle chatter aside and, aware of the seriousness of the situation and our responsibility for the events then taking place, take decisive action.

That was the position I took in the words I addressed to the deputies on that occasion. I counted on us being able to unite around common goals, and I was not wrong.

Russia has not simply changed since then. It would be no exaggeration to say that it has become a different country. But today, as before, I believe that we need the consolidation of our political forces and the public’s solidarity. All the branches of power need to work smoothly together. The closest partnership between them is in the interests of all our citizens and essential for successful national development.

It is clear to me that the Government can be truly strong and effective only if it has the full support of the legislative branch of power.

This means that we need to build up cooperation with the State Duma. I hope for the same attitude and the same approach from you, colleagues.

I want to add that in the run-up to this meeting today, consultations took place, as you know, with the leaders of the parliamentary factions. These were interesting, constructive and useful discussions. Most importantly, they gave us a sense of the common commitment to cooperation and the readiness to work together for the good of Russia and its interests.

I want to apologise from the outset for not holding consultations with the factions themselves. Such consultations will definitely take place. The reason for this situation is that we are about to celebrate an important holiday tomorrow and the President thought it best that we complete all the formal procedures today, so that all the state officials would be able to take part in the Victory Day celebrations.

But I want to repeat what I said yesterday to the faction leaders and assure you now that we will work in close cooperation with the entire State Duma, with the factions, with individual deputies and with groups of deputies.

At the February meeting of the State Council I presented in detail my vision of Russia’s main development priorities. They have now been drawn up as specific work plans and will, without any doubt, become the basis for the Government Cabinet’s work.

I am certain that we have all the possibilities we need for making our economy more competitive and changing its structure by developing ultra-modern production.

Furthermore, it is entirely realistic and within our ability to join the ranks of the leading countries in terms of the quality of life we offer our citizens over the coming 10-15 years. This quality of life is measured by indicators such as income levels and social welfare provision, the quality of education and healthcare, the environmental situation and housing provision.

Russia has become used to high economic growth, and our people’s real incomes have also been rising fast. Our GDP, calculated on the purchasing power parity basis of our currencies, now exceeds $2 trillion, putting Russia in seventh place in the world. International experts predict that Russia will move up a rung this year and that its GDP will overtake that of Britain, one of the G8 countries.

But we must remember that Russia’s economy is an integral part of the world economy and is therefore developing in a climate of growing and increasingly fierce competition. There are many areas in which we still have a long way to go to catch up to the key economic players, and they are by no means standing still but are also moving forward.

A difficult situation has emerged on the world financial markets and on the global food market, in which Russia is both a major importer and a big exporter, an exporter of grain, for example. I imagine there will certainly be questions on this subject today. I want to say in this respect that we all know very well that we only imported grain during the Soviet years, buying them from Canada and the United States. Now we are in second or third place in terms of grain exports, practically equal with Canada. This is a subject that we will address separately.

I want to say too that prices for Russia’s traditional export goods are subject to considerable fluctuations depending on the situation. And at the same time, our country has yet to establish a solid presence on the fast-growing markets for science-intensive advanced technology goods. This is the case not only on the export market but even on our own home market.

If we do not achieve real progress in establishing ourselves on the markets for high value-added goods and services, Russia will be doomed to see its role in world economic development diminish. This would pose serious risks for our statehood, for our national security and defence capability.

As I have said on past occasions, it is therefore extremely important that we make our national economy a lot more efficient and sustainable. As you know, we have big problems with labour productivity. We need to develop by encouraging the use of innovation in all areas. We need to develop our infrastructure, modernise our social sector and put in place a good climate for business activity.

I would like to speak in more detail about what we need to do now, over these coming years.

Above all, we need macroeconomic stability. In this respect we will continue to pay the closest attention to all aspects of financial policy, especially measures to bring down inflation.

We have all felt the effects of inflation. It is the most vulnerable groups in society who feel its effects most strongly. Last year, inflation ran at an average 11.9 percent, but for people in the lower income bracket the figure was 14.5 percent, a calculation based on the goods that they buy. We must achieve single-digit inflation over these next few years.

Russia’s growing economic potential and the substantial financial reserves we have accumulated form the solid foundation we need to traverse confidently this period of instability in the world economy.

Moreover, there is a whole number of new opportunities that we can turn to our benefit. They include expansion of our national capital abroad (I mean expansion in a positive sense), opportunities for increasing the returns earned by investing state financial reserves, and an expansion of the rouble’s role in international transactions.

I am confident that Russia can and must become a major regional financial centre. This is important for broadening the sources of financing for our private sector and for the state.

It is in our interests that such a centre contribute to the stability of the global economy and global finances. In this aim, we need to take the following measures to develop our national financial market and banking system.

First, we need to optimise the existing infrastructure and put the state financial market regulation system into order.

At the moment, one and the same operations by various players on the financial market are regulated in different ways, and this does not make for a level playing field. We need to encourage consolidation of financial institutions and the introduction of modern settlements systems.

Second, we need to improve our legislation in the financial sector, including through provisions regulating transactions involving derivative financial instruments.

You all know about futures, options, forward contracts and credit notes. Strange though it may seem, our market participants are still forced to use foreign legal provisions, international provisions, including from English law.

Third, we need to develop a truly mass-scale class of investors. People, even those with only modest savings, must have the opportunity to help their savings grow by investing them in various sectors of the national economy. For this, we need to work in particular on encouraging the emergence of large public companies that will successfully issue shares on the domestic market.

Finally, we need to establish a comfortable tax environment on the securities market.

The first legislative decisions should be passed in all these areas by the end of the year and clear action plans drawn up. This is work that we must do together.

I think that we have already come close today to building one of the world’s best tax systems. True, the Finance Ministry thinks it is probably the best already, but I still have my doubts. I think that there are areas where we still have work to do. We need to do more to ensure that our tax system encourages economic modernisation, increased investment in infrastructure and new technology, in education, healthcare, and improving our citizens’ housing conditions.

I want to explain what specific steps this will require.

First, we need to exempt as much as possible from taxation spending by individuals and organisations on education, healthcare, pension provisions and the payment of interest on mortgage loans.

Second, all organisations providing important social sector services (whether state, municipal or private) should be treated according to the same taxation rules after the transition to new financing mechanisms. This would constitute a big step towards developing competition and attracting private investment. Above all, as I have already said, this is essential in areas such as healthcare, education and culture.

Third, in order to modernise our industrial production, we need to liberalise our policy regarding depreciation. Starting from next year, additional mechanisms should be introduced for accelerated depreciation of certain categories of capital goods, above all technical equipment.

We also need to enlarge the range of tax incentives for research and development work, especially in what the state sees as priority areas.

We are all aware of the high energy prices on world markets at the moment. The oil companies are indeed making good profits. But a substantial share of these profits goes to the budget. I discussed this with the faction leaders yesterday and they were surprised and asked me to clarify the figure. I can tell you today that through various means such as the subsoil tax and customs export duties, the budget receives 75-80 percent of the oil companies’ profits. This is one of the main reasons for the growing number of low-debit wells taken off-line, and for the not very active efforts to explore and develop new fields.

In this context, if we want to encourage growth in producing and refining oil, the time has come to decide on reducing the tax burden on this sector of the economy. We need to ensure efficient administration of earlier decisions on the tax regime applying to worked-out deposits.

Serious discussion is underway on bringing down VAT, something I spoke about at the expanded session of the State Council. I think that we need to reach a final decision no later than this August on the strategy and tactics for reducing the tax burden and on when and by what amount we should reduce taxes in order to create new incentives for economic growth in the country.

Finally, we need to free our citizens and organisations from the time wasted on drawing up and putting together forms and documents with information that no one needs. Compliance with the state’s demands for payment of all taxes set by law should go hand in hand with the removal of red tape in this area.

All legislative initiatives in the taxation area should be submitted by the Government during the current and autumn sessions of the State Duma.

These steps would give our economy, our business and our social sector significant new resources for development. The experts calculate that this could represent hundreds of billions of roubles a year. Furthermore, reducing the tax burden is a substantial incentive for creating a favourable business environment in the country. In this respect, we hope that business will reply in kind by coming out of the shadows and working openly and above board.

We also need to continue expanding overall business freedom. In this respect the Government is launching a major campaign to remove administrative barriers in the economy. This includes cutting back the control powers of the inspection bodies and replacing permission-based procedures for opening and conducting business with notification-based procedures. We need to cut back sharply the number of activities requiring a license and the number of goods and services that require compulsory certification.

At the same time, we need to expand the application of compulsory liability insurance. No matter how unpleasant this might be for business, we need to do this if we want to move over to normal and civilised procedures and guarantee the interests of all participants in this process.

A new competition law was passed back in 2006, and we need to work on its effective implementation now and on carrying out an effective anti-monopoly policy. We must be tough in preventing monopolists from dipping their hands into others’ pockets.

We have already done much to improve corporate governance culture and develop the relevant legal provisions. The market capitalisation of Russian companies speaks for itself, and you know this well. But there are still loopholes in the law that make it possible to unlawfully appropriate others’ property.

I call on you, colleagues, to support the package of anti-raider laws the Government has drafted, so that we can finally do away with this relic of the 1990s.

Colleagues,

Aside from the general and universal measures aimed at developing the economy and creating a favourable business environment, we also need special instruments for supporting specific sectors, especially the sectors that play a key part in national development and therefore require the deputies’ and Government’s direct attention.

I want to look at some of these sectors today, primarily, infrastructure, agriculture, and the high-technology sectors, including shipbuilding and aviation.

Our key task is to eliminate as much as possible the economic growth bottlenecks caused by the lag in infrastructure development.

The Government has drafted the Transport Development Strategy for the period to 2030. This is an ambitious document in the good sense of the word. Specific projects will be set out in the new federal targeted programme for transport system development through to 2015. Total financing for this programme will come to more than 13 trillion roubles, including 4.7 trillion roubles from the federal budget. This means that financing from federal sources will double by 2010 compared to 2008.

We need to get private investors increasingly involved in infrastructure development, and to do this we need to ensure competitive conditions for business participation in infrastructure projects over the long term, including through new tariff policies.

I think that tariff regulation of infrastructure should be based on the following principles. First, long-term tariffs should guarantee returns for investors and creditors and market revenue from the funds invested. Second, the level of tariffs should be pegged to the quality of the services provided and there should be economic incentives to keep costs down.

Pilot projects in electricity distribution networks using this new scheme are set to begin in July this year. By 2011, long-term tariff regulation will be in place in energy networks in every region in the country. Ultimately, this practice of long-term tariffs will extend to all infrastructure. We need to realise that if we do not ensure this kind of stability we will not achieve development in this sector of the economy.

But we need to do more than simply raise tariffs in the electricity, gas and transport sectors. We need to make our economy more energy efficient in general.

No one in the world wastes resources the way we do. The state must encourage economic actors to introduce energy-efficient technology, and at the same time expand the system of targeted social support for citizens, providing sufficient levels of support according to rules and procedures that are neither burdensome nor humiliating for people.

We have already begun restructuring the country’s shipbuilding and aircraft manufacturing sectors. Support for these sectors’ development is one of the Government’s priorities. We have already established the United Shipbuilding Corporation. In 2009, the Government will complete the process of reorganising the state unitary enterprises that comprise the corporation as joint-stock companies.

The United Aircraft Corporation also has important work ahead and its goal is to become one of the world’s leading aircraft manufacturers by 2025.

Finally, we need to intensify our work to develop the country’s agriculture sector.

The sharp rise in food prices on the world markets that we have observed since the middle of last year is having a real impact on our domestic market and on our people’s welfare. We need to be up front about this and recognise this fact. It is therefore a crucial economic, social and political priority to ensure the stable functioning of our domestic food market and protect it from sharp price fluctuations in the world. This is one of the biggest priorities for the Government at the moment.

Colleagues,

As we have said before, there can be no building an innovative economy without constantly developing the human factor, building human capital and giving individuals the opportunities for full personal development. This requires major investment in health and education and in ensuring secure and comfortable conditions for life.

The Government will carry out this work in close partnership with the state bodies of power, the municipal authorities, civil society institutions and the business community.

Our work on the priority national projects calls for us to continue carrying out far-reaching systemic transformation in the relevant areas. These transformations will be backed by substantial resources.

Consolidated budget spending on education development should reach almost 2 trillion roubles in 2010, and the same amount will be spent on healthcare. This is many times more than what was spent a few years ago. Compared to 2004, for example, this represents a four-fold increase in spending on education and a 4.5-fold increase in healthcare spending.

New generation basic education standards will be adopted soon and work will begin on developing a national education quality evaluation system.

The regional and municipal authorities must undertake serious work on primary and secondary vocational education, which comes under their responsibilities. Many of our vocational colleges are trapped in the past, locked into a bygone era, and we need now to reorient them towards modern economic and production demands, towards the needs of the job market today. This means that we must work together with employers to modernise the teaching and learning process in these establishments.

The experience of establishing the Southern and Siberian Federal Universities has helped us to develop new organisational and legal methods for developing tertiary education. It has also helped us develop modern financing mechanisms and mechanisms for integrating education, science and industry.

At the federal level, we will support and carry out programmes to establish a whole network of modern science and education centres in Russia. We are looking at organising 16-20 such centres, some to be developed from scratch and others opened at existing universities.

Aside from the universities themselves, these centres will include academic and sector-based research and development institutes. This kind of integration will help these centres achieve a place among the world leaders more rapidly and make their mark as major national and international research facilities. We will definitely establish one such centre in the Russian Far East, where it will play a key role in developing the entire region.

As you know, we are preparing for the APEC summit in the Far East. We are always being asked what we intend to do with the buildings, installations and resources that will be invested in this big event. Dmitry Anatolyevich Medvedev proposed handing the whole complex over to science and education, and I think that this is an excellent initiative.

We will soon adopt the federal targeted programme, Academics for an Innovative Russia in 2009-2013. This programme will help us to address the important issue of training new researchers and educators.

Now, turning to healthcare development, we cannot be satisfied with the level of affordability and quality of medical care we have today, or with the continued neglect of patients’ rights. In this respect we need to establish a genuinely effective system of medical insurance and ensure a transition to modern financing mechanisms. We need to complete work on developing medical care standards.

Money for medical establishments should be allocated on the basis of actual medical services provided. Individuals should be able to choose their own doctor, medical organisation and medical insurance company. At the same time, we need to make our citizens more responsible for their own health and ensure they make rational use of public goods such as the healthcare system. But we also must not forget the responsibility medical personnel have towards their patients.

To achieve our objectives in this area we need to pass all the necessary laws and regulations over the course of 2008-2009. The federal budget law for 2010-2011 should make provision for allocating the funds required for improving the healthcare system overall. I’d like to stress: all of this organisational and preparation work should start already in 2008.

I cannot but mention another issue that is directly related to healthcare and our nation’s survival. Smoking and drunkenness have become real catastrophes for our country. People in Russia smoke and drink twice as much as people in the majority of developed countries. We need to combat this scourge, but not through bans or price rises.

What we need to do in this area is make the money available for developing sports and creating good conditions for recreation and leisure. We also need to carry out effective information and propaganda campaigns promoting a healthy lifestyle. A public procurement effort from the state is needed here. Of course, admonitions and appeals alone will not be enough to solve this problem.

Housing is the next big priority on our agenda. The priorities here are to steadily increase the amount of housing being built and make it more affordable for families with various income levels.

Housing construction has doubled over the last seven years, but even this kind of growth rate is clearly not enough to satisfy current and increasing future demand from our citizens, and this is perfectly natural.

We need not only to build more housing but to make it of better quality by using energy-saving technology and environmentally friendly materials. We also need to organise as swiftly as possible an industry for rapid construction of individual housing. We will commence major projects to build new low-rise housing districts this year. Such projects will take place in all the country’s regions. We need to speed up procedures for bringing new land onto the market and equipping sites with the necessary engineering infrastructure.

A presidential decree has been signed for this purpose, establishing the Federal Housing Construction Development Facilitation Fund. Land that is in federal ownership and is not being used at present for its designated purpose will be transferred to the Fund.

Finally, we need to continue work on improving lending conditions on the housing market and develop housing mortgage loans. We must not overlook, either, construction of social housing. The faction leaders reminded me of the importance of this issue when I met with them, and I fully share their view.

Dear friends,

Tomorrow we will celebrate our main national holiday ­ Victory Day. We will honour the soldiers of the Great Patriotic War. It is our sacred moral duty to look after our veterans.

It has already been decided that the issue of providing housing for veterans should be fully resolved by May 9, 2010. This problem should be completely settled by then. Furthermore, war invalids should be provided for fully this year with motor vehicles suited to their needs, or, if they wish, with suitable monetary compensation. The issue of transport for war veterans should be fully resolved this year and the housing issue fully dealt with by May 2010.

We must never forget the lessons of that war. Only combat-ready and well-manned armed forces with high moral spirit can protect our country’s sovereignty and integrity.

More than 300 new models of military hardware have been commissioned by the armed forces since 2001. This is not enough. It is not a bad figure, but it is still not enough. The main problem is that series production of many of these models has still not begun. The armed forces are not buying them in the necessary quantities. These are all issues we need to address. Support for the armed forces remains without question one of our priorities.

The budget makes full provision for the money needed to provide for military and civilian personnel dismissed from the armed forces, and to provide for permanent housing for servicemen by 2010. By the end of 2012, we should have finally completed the construction of service housing.

Colleagues, we must also recognise that the current wage system in the armed forces, despite regular indexation, does not make it possible to pay decent wages to those working for our country’s security, and in the most important areas: those on patrol on board submarines and strategic bombers, those in the air defence and strategic nuclear forces, those in units that play a key part in ensuring Russia’s defence capability.

I therefore propose that we establish a system of special material incentives for this category of armed forces personnel. And I propose that we immediately allocate not less than 25 billion roubles for this purpose in 2009. This amount will increase steadily over subsequent years until it reaches the level needed to ensure fundamental improvement in wages for all armed services personnel who come under this category.

We will, of course, also continue our active work to increase wages in general in the country and improve the pension system.

I think that we will need very soon to make a decision of great importance, a decision of great importance for the economy and the social sector. This is a decision that has aroused heated debate for some time now. But we can longer put it off, and there is no need to delay any longer. I will explain what I am referring to.

You know about the agreement the United Russia party reached with the Federation of Trade Unions on ensuring that the minimum wage is not lower than the subsistence minimum.

I share this view. But at the same time, we must remember ­ and this is something I discussed yesterday with your colleagues - that the subsistence minimum varies greatly from one region to another and that wage conditions also vary greatly from sector to sector. This is something we simply must keep in mind and take into account. Evening out the subsistence minimum and the minimum wage is above all about fighting poverty, but if we want to fight poverty effectively, we also need other measures. Going by the opinions of experts and the experience of other countries, these measures could be more targeted in approach and produce better results.

But I think that during this parliamentary session we must nevertheless fulfil the promises made and pass the law stipulating that as from January 1, 2009, the minimum wage in the country will be set at 4,330 roubles. This figure was chosen because it represented the subsistence minimum in the country during the fourth quarter of 2007, and was the confirmed figure calculated at the time the legislative decision was made. We cannot pass such laws based on forecasts. We calculate them in hindsight, based on the results of past years, and the latest figure confirmed by the Government was for the fourth quarter of 2007, and I therefore propose that we use this figure as the basis for establishing the minimum wage.

I would also like to say a few words on inflation.

Our plans for the coming years include indexing wages in such a way as to exceed forecast inflation.

In order to ensure that the public sector functions in the new conditions, we need to carry out a full transition to a new wage payment system. Provisions for financing this transition should be made in the budget. Colleagues, this involves substantial expenditure. I will not name the figure now. But if we want to introduce this new wage payment system and do it with as little pain as possible for people and with as much benefit as possible for the development of our economy and our social sector, we need to make the necessary funds available. We will be turning to you in this respect.

Together with the regional authorities and the trade unions, the Government will draw up specific plans for combating poverty by the end of this year. The deputies, of course, will also be involved in this work. As the tripartite agreement makes clear, this work will take into account the possibilities of the individual regions and the interests of the different economic sectors, as I mentioned above.

We need to establish a sustainable pension system for the long term. We need to substantially increase the real size of old-age pensions, and we must make it our particular priority to increase the income of older pensioners, that is to say, those now unable to supplement their pensions by taking on work, but who face big health costs and urgently need more money in order to look after their health.

In setting the minimum pension we cannot continue to use an ‘average level’ as a reference, but need to ensure that pensioners’ incomes (taking into account their pensions and other forms of social support) are not lower than the subsistence minimum in the region in which they live. Targeted supplementary payments and other social support measures decided by the individual regions should be the main instruments here. This will require financial support from the federal budget, of course, and this is also something we will have to provide for.

We need to expand voluntary pension savings programmes for people currently in the labour force. The federal law on additional insurance payments to the individual savings component of the pension and state support for pension savings has already been passed, for which I thank you. The expenditure required for this law must be taken into account when drafting the federal budget starting from 2010. We cannot yet put an exact figure on this expenditure, for we do not yet know how many people will decide to take part in the programme, but we have forecasts, and they suggest a large figure that will call for the provision of very substantial funds for pension reform.

Overall, to give you a glimpse of the workings behind the scenes, we have been discussing all of these issues practically every week and we think that we do have the resources needed for this work.

I think that practical implementation of all of these measures will make it possible to provide decent pensions for those who have already retired and for those who will retire in the future.

Pension payments and the calculation of public sector wages will all take inflation fully into account. We also plan to carry out regular indexation of child benefits and the maternity capital. Given that the birth rate is increasing, demand for these funds will also increase. But this is simply yet further confirmation that the demographic policy measures we are implementing are the right ones and are producing results.

To remind you once again, 34,000 more children were born over the first quarter of this year than over the same period last year. This represents an increase of 9 percent.

Deputies,

Reaching these goals requires us to make serious improvement to the whole system of public administration. This includes work at all levels of the executive branch and local self-government, and issues that require serious legal regulation.

I think that we have additional possibilities for the further transfer of part of the federal powers to the regions. Of course, this needs to be accompanied by the introduction of a system for objective evaluation of the executive authorities’ performance in the regions.

Furthermore, it would be an expedient step to transfer a considerable part of the functions currently carried out by state bodies to the non-state sector, making continued use of the public procurement mechanism and the possibilities for self-regulating organisations.

Overall, we need to decide on the size, structure and aims of the state sector. Dozens of fully state-owned enterprises are not making any modernisation effort, depend exclusively on budget money and, unfortunately, sometimes operate at a loss. They have no motivation to optimise costs, try to make a profit and put the necessary quality into fulfilling their orders.

It is high time to introduce modern principles for state investment and budget spending. These funds should not just disappear like water into sand, but should produce real and tangible results.

There is simply no excuse for the kind of situation we see today in the area of state spending. Construction projects often cost several times more than similar projects abroad. We have begun examining implementation plans for the major projects you are aware of. It is quite simply amazing that one and the same type of facility costs us several times more than in Western Europe. Our energy costs are lower, our labour force is cheaper, everything is cheaper in fact, but the project cost comes out more expensive. And it is not that the calculations are wrong, no, the experts arrive at these calculations and they all go through an expert evaluation process. Nor is it a case of thievery, though theft is of course a huge problem, and is something the prosecutors and law enforcement agencies need to help us combat. The problem is that we have outdated systems for evaluating what needs to be done. Everything is calculated according to construction regulations dating from the 1960s, and the costs are constantly revised upwards and upwards, and this is all done correctly.

We have just as great a problem with current costs. They increase from year to year, and at the same time the number of staff in the executive bodies and institutions also swells, which all goes to produce a dubious outcome to say the least.

As I said, state and municipal institutions have practically no incentive to improve the quality of the services they provide. The budget pays them for the fact that they exist rather than for the provision of services of a decent standard. But it suffices for a customer to turn up with actual money and everything changes in an instant: they fuss over him and run around for him. The conclusion is obvious: budget money needs to be just as actual and real.

Where possible, we need to introduce financing for state services based on specific public procurement orders. State bodies and organisations should receive budget payments for the provision of the necessary volume and quality of services. Experiments in this area are already underway and the results are positive.

Coming to the end of my speech, I want to go over the future Government’s priorities once again. These priorities are set by life itself and the need to ensure a future of lasting prosperity for our country and people.

We need above all to establish the conditions for full development of the individual through the improvement of education, healthcare, science, culture and an effective social policy.

We need to set our economy on an innovative development track.

We need to develop our infrastructure: transport, housing, utilities and energy, social, financial and information infrastructure.

Finally, we need to improve the work of state and public organisations. This includes the Government, the ministries and agencies, the regional authorities, local self-government and non-commercial organisations.

All of these areas of work are clearly interlinked and cannot develop separately from each other. Coordinated and simultaneous work to achieve the objectives we have set calls for highly professional and responsible work in the Government, and this is just what I intend to achieve.

In conclusion, I want to thank once more the current members of the State Duma for their constructive cooperation and for supporting all of the initiatives put forward over these last months.

I hope that the legislative authorities will continue to work with the federal Government in this spirit of cooperation and mutual support.

Russia has grown considerably stronger over these last years. We have sufficient resources to be able to achieve even more ambitious goals and resolve even more complex problems. The important thing is to make competent, appropriate and effective use of the resources we have built up.

For my part, I am ready to spare no effort in achieving these goals and obtaining new and important results in the interests of a prosperous Russia and a decent life for our people.

Thank you for your attention.

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OLEG SMOLIN (COMMUNIST PARTY): Vladimir Vladimirovich, you admitted that the last Government failed to bring inflation under control. The inflation rate officially stood at 12 percent last year, and it was double that for basic goods. The official figure for price growth over the first quarter of this year was more than 5 percent, and more than 10 percent for foodstuffs. Ordinary people and independent experts think that the real figures are actually considerably higher.

Pensions, benefits and wages in the public sector and in the countryside are simply not keeping up. According to surveys conducted by VTsIOM [All-Russian Centre for Public Opinion Research], three quarters of our citizens are not satisfied with their material situation. Given its systemic character, it is clear that the growth in prices stems from monopoly control and the poorly developed state of domestic industry.

The question then is what will be the effect on prices of the old Government’s decision to drastically increase tariffs, especially for gas and electricity? And second, what systemic measures does the new Government plan to take to bring inflation under control and protect people with low and middle incomes, so that at least three quarters of our citizens will start to feel satisfied with their material situation?

Thank you.

VLADIMIR PUTIN: First of all, on the subject of inflation, this is indeed a serious problem for our country, and not just for our country but also for many other economies, even developed economies. I draw your attention to the fact that our neighbours, with whom we interact, including by importing from them a considerable amount of foodstuffs, face exactly the same problems. Indeed, in some countries inflation is even higher than in Russia. But this does not mean that we have taken all the right steps to bring inflation properly under control.

You said that the real figures are much higher than the official figures. You gave a figure for price growth of 5 percent. Yes, the official figures are lower, but not by much. I think we are looking at an actual figure of around 6 percent.

Overall then, inflation was running at 6.3 percent over the first four months of this year.

Unfortunately, food prices have indeed undergone a considerable increase in the inflation structure. They account for considerably less than half of the total, but are nonetheless creeping closer to this mark. This is a very worrying signal. As I said in my speech before, it eats into the money of people in the low income bracket above all.

Regarding the increase in tariffs that you referred to, the matter is not simply about an increase in tariffs. All economic decisions must be balanced. We cannot develop one economic sector to the detriment of another otherwise we end up like in the saying: ‘you get your nose out the mud only to get your tail stuck instead, and then you get your tail out only to find your nose again stuck in the mud’.

We need balanced decisions, and we need to support our energy sector so that it can act as the engine that will pull our entire economy forward. But at the same time, we also need to keep in mind the needs of the real sector of the economy, sectors such as agriculture.

We import up to 70 percent of foodstuffs in our big cities. This is an unacceptably high level. In order to keep food prices down we need to develop the agriculture sector. This is the first thing we should be looking at.

The Government has drawn up a whole action programme to address these issues. You no doubt know that over these last two years loans have been made, cheap loans for agriculture, primarily for developing the livestock industry, and for cereals production too. People in the countryside have probably never received such credit resources. This is producing results. But we think this is still not enough.

A new decision on mineral fertilisers has been made. You know that we have considerably increased export duties, bringing in budget revenue of around 12 billion roubles. These funds will be spent on the agriculture sector’s needs.

We plan very soon to allocate a further 5 billion roubles to a programme for mixed fodder for the poultry industry, 5 billion roubles for developing the poultry industry, and 30 billion roubles that will be added to the charter capital of the Selkhozbank to help fund the grain programme and ensure that the state has the possibility of regulating grain prices if they continue to rise on the world market.

The Government has drawn up a whole programme of measures for developing agriculture, and we will continue our work in this direction.

YELENA AFANASYEVA (LDPR): Vladimir Vladimirovich, it is absolutely clear today that Russian capital encounters great difficulties when it tries to go international. We quite simply find ourselves facing discrimination when European companies restrict the acquisition of their assets by Russian companies. We now sell oil and gas to Europe at world prices, but they are forgetting about the free competition they treasure so dearly and are setting restrictions on us. How do you plan to address this problem of double standards?

Thank you.

VLADIMIR PUTIN: This is not so much a question as a political statement, and I agree with it entirely. I fully support what you said. Indeed, our colleagues from the economically developed countries have constantly repeated to us the importance and necessity of opening up our economy and taking a liberal approach to foreign investment. We have done just that. But now that our own possibilities have increased, our companies are indeed finding the market for investment often closed to them. Moreover, independent international experts have calculated that last year, as a result of decisions they think were taken for political reasons, our companies lost opportunities to invest around $50 billion in the economies of developed countries.

We encourage investment activity by our companies abroad, in accordance with the laws in force, and we will continue to do so. We do this because we think it is a further step towards Russia’s integration into the world economy. It gives us access to new technology, new management standards and so on. This is also our motivation in encouraging foreign investment.

I might not have the figures exactly right, but I do not think I am too far out in saying that foreign investment in Russia is ten times higher than Russian investment abroad. There is no justification to the cries that ‘the Russians are coming!’ We will prove to our partners that Russian investment is no worse than investment from any other country, and I am sure that our partners will come to understand this. We just need to give them time. People in some of our big companies have told me about how in some markets they have been all but met with sign-waving opponents and cries that the ‘reds are on their way’. But when it becomes clear that jobs are being saved, production developed and good relations forged with the parliamentary deputies in the countries where the investment is made, everyone begins to understand that this is a process that benefits both sides.

But when we see what is happening in some countries ­ and it is clear that laws restricting foreign investment are being passed ­ we are forced to take the appropriate response. I want to thank the deputies for passing the law that I signed as President recently on regulating foreign investment in particularly sensitive areas of the economy and mineral deposits that we consider to be of national importance. We will do everything on a parity basis.

ALEXANDER BABAKOV (A Just Russia): Vladimir Vladimirovich, you now head the biggest party, United Russia, the majority party in the parliament. This is logical, given that the Prime Minister should have the support of an effective and functioning parliament. But the ambitious tasks that you outlined require the consolidation and effort of the whole of society, something you also said. We think therefore that the opinions of other parties in the parliament should also be taken into account. Could you clarify how you plan to turn the constructive meetings and consultations with the parties in the parliament into a working system?

VLADIMIR PUTIN: Your faction’s representative at the consultations yesterday proposed setting up a permanent council composed of deputies from the State Duma and Government officials to carry out regular consultations with the Government on the most important and urgent economic and social issues. I think this is a good idea and I am ready to implement it. But aside from everything else, I myself and the Government ministers will be in constant contact not only with the faction leaders but also with the factions themselves and with groups of deputies. You can rest assured on this point. I am firmly convinced that the Government’s work can only be successful if it has constructive cooperation with the parliament.

ANATOLY LOKOT (COMMUNIST PARTY): Vladimir Vladimirovich, you rightly noted that our parliament is made up of not only United Russia but other factions too. On behalf of the Communist Party deputies I therefore express my regret that you did not have a meeting with our faction. Many deputies would have liked to speak with you and put their questions. I think this would have contributed to the kind of consolidation you just talked about. As you know, only something that resists can provide support. My question is about corruption.

All assessments indicate that corruption has become a real scourge in our society of late. Unfortunately, we are seeing it not only in some industrial sectors and in agriculture, but also in the social sector. Wherever corruption emerges, it eats away at the structure of power like rust, as can be seen by various criminal cases and scandals. What, in your view, are the causes and nature of corruption, and what methods should be used to fight it effectively?

VLADIMIR PUTIN: First of all, regarding criminal cases and scandals, there is nothing good I can say about scandals, but as for criminal cases involving corruption, the fact that criminal charges are brought against any individuals, whoever they may be, and no matter how senior their position, this is a positive sign. I hope that this will continue and that our law enforcement system will respond effectively to what is happening in this area. The issue you raised is one of the most pressing problems we face, and you know my attitude towards it.

I have already said publicly on many occasions what can and must be done.

First, as I mentioned in my speech, we need to do away with the excessive controls, excessive licensing and certification requirements and so on that create the objective basis for corruption to arise in the first place. But we need to use our common sense, of course. We cannot simply remove all controls and do away with all licenses. We need to think carefully before we act, but we must eliminate these opportunities for corruption to arise in the first place.

Second, civil servants need to be self-sufficient and their incomes need to be big enough to make them something they value and want to hold on to.

And finally, we need to improve our laws and regulations. You know that we have already taken on international legal commitments. I am also aware that the Duma has drafted legislative initiatives and draft laws in this area. The Government must be prepared to support your initiatives and to propose its own draft laws on fighting corruption. We are ready to work together in this area.

TATYANA VOLOZHINSKAYA (LDPR): Vladimir Vladimirovich, everyone is talking about innovation now, and you also mentioned it in your speech today. But innovation is above all our young people. Science is not a priority for most of our young people today because young scientists do not earn very much money. We do have many talented people, of course, but many of them leave science for other areas of work. At the same time, we are forced to import equipment and technology for our medical sector, our foodstuffs sector and our light industry. Do you not think the time has come to do more to encourage young science specialists? What is your view on this matter?

VLADIMIR PUTIN: First of all, I agree with you completely. It is not by chance that this is one of the issues I raised at the expanded session of the State Council, and I spoke about it on earlier occasions and mentioned it in my speech today. Innovative development of the economy is our number one priority. Diversification through developing innovation is our biggest economic priority. Building up the needed human resource potential is an essential part of this work. We probably have not done enough in this area, but some progress has been made. For example, for the first time in many years, a programme for developing fundamental science has been adopted and 25 billion roubles have been allocated for its implementation. Furthermore, funds equivalent to the amount previously allocated to science as a whole have been earmarked for priority areas. Finally, the Government, under Viktor Alexeyevich Zubkov’s leadership, has practically completed work on a new federal targeted programme for 2009-2010 on human resources development in the science sector. This was also something I mentioned earlier. We will continue our work in all of these areas. The proposal was made at the meeting with the State Duma faction leaders yesterday to look at ways of encouraging the return home of our specialists currently working abroad. This is a good idea, and we should indeed take steps in this direction, but the measures we take must not be at the cost of those who are working here and have never left. Overall though, the idea is a good one. We will continue our efforts in all of these different directions.

OLEG SHEIN (A Just Russia): Vladimir Vladimirovich, the high cost of housing is a big problem for millions of people in our country. A number of important steps have been taken over these last years, but it is clear nonetheless that we are still a long way from resolving this problem. There is a clear need to expand the legislative instruments we have at our disposal to be able to solve this problem. You mentioned this issue in your speech. Could you give us more detail now?

VLADIMIR PUTIN: Oleg Vasilyevich, I have spoken about this issue on many occasions. But this is, of course, a very important subject. It is perhaps one of Russia’s most pressing problems today. The amount of new housing coming on to the market has doubled since 2001, although it was only last year that we reached the 1990 level. This represents a figure of around 62 million square metres of housing. We will build more housing this year and the figure will probably increase to around 72 million square metres.

But as I have already said in the past, fully resolving the housing problem would require us to build one square metre per person per year. Is this something we are able to achieve? I think that for the first time in our history this is something that we can achieve. Our construction sector is growing at an unprecedented rate of 19-20 percent and in some regions housing construction has increased by 30 percent and even more. There are a number of objective economic and legal constraints on the sector. For example, the construction materials industry is not keeping up with the housing construction sector’s rapid growth. Prices are rising, there is not enough land, and the legal framework still has its problems. All these construction rules and regulations that I mentioned, for example, they are all outdated and hinder the sector’s development.

The relevant Government departments have promised to revise these rules and regulations by the end of the year. As I said before, one of the first new presidential decrees is on housing construction development and provides for the establishment of a housing construction fund to which we will transfer federally owned land not being used for its designated purpose.

All of these different measures make me cautiously optimistic. With your support, we can make real progress in resolving this issue over the next 2-3 years. I have absolutely no doubt on this point.

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VLADIMIR PUTIN: Deputies of the State Duma, colleagues,

First of all, I would like to make a couple of clarifications. Coming back to the problem of fundamental science, one of the issues raised by my colleagues here, we will allocate an additional 250 billion roubles over the next five years for fundamental science.

Second, I think that some of the colleagues who spoke were mistaken in their figures: a child benefit of 75 roubles ­ when did we have such a thing?

Together we have made completely different decisions. Women receive a benefit of 1,500 roubles to care for their first child until the age of 18 months, 3,000 roubles for the second child, and 40 percent of her wage if the woman had a job. Added to this are the maternity and child birth benefits. We are implementing a whole programme in this area.

I agree that we should develop this programme further. I agree that this is something we need to reflect on. Real, concrete and reasonable proposals will most certainly be supported. Our common goal is to change the demographic situation for the better.

Some colleagues also raised the issue of tariffs. Of course, it is never a pleasure to raise prices and tariffs, all the more so those of the natural monopolies.

But the alternative is that we go to the striking railway workers and tell them they just have to put up with their situation, or we take money earmarked for other areas and use it to support these sectors instead, including rail transport. Where would we get the money from? We would have to get it from the budget, take it from healthcare, public sector wages, education, defence. Is that what you want? Let’s do it that way, if that is what you want, but let it be your decision in that case.

We have other proposals. We propose taking a balanced approach. We need to develop all areas of the country’s economy, calculating all the consequences any of our measures in one area would have on the economy as a whole and on the social sector.

I would like to thank you now for your decision. I see it not just as a sign of your confidence but also a sign of your support for our strategic programmes and of your readiness to work hard together for our country’s strength and our people’s prosperity.

The Government’s main and defining task will be to ensure the well being of our people and establish the conditions for a decent life. This is the central focus for all of our projects and programmes, in the economy and in the social sector. We will ensure that work at every level of the executive power system produces results and focuses on the real interests and demands of our citizens.

I say once again that I hope for the very closest cooperation with the State Duma, the regional authorities and the institutions of civil society.

We have a duty to fulfil our people’s hopes for real improvement in their lives. The level and scale of the tasks ahead places the very highest demands on our work.

I think that today’s procedure is normal and perfectly natural. I think that the fact that an opposition party, the Communist Party faction, did not vote, is also perfectly normal. But I think that they did not vote not because we failed to do something over these last years, but because we accomplished much and this has dampened their political ambitions.

Finally, Nikolai Mikhailovich Kharitonov handed to me just before a letter from the workers of the Zvenigovsky state farm. This was before the vote took place. They write to me as Prime Minister of the Russian Federation. There is a whole list of their signatures at the end. It makes me very happy that the workers of the Zvenigovsky state farm share the same opinion as that of the overwhelming majority of deputies of the State Duma.

Thank you for your support.

PRESIDENT OF RUSSIA DMITRY MEDVEDEV: Colleagues,

You have already congratulated Vladimir Vladimirovich [Putin], and I would like to do so now once again on my own behalf, and to thank the deputies too for showing such support for his candidacy. Of course, this indicates your readiness to work together on the key tasks we must undertake to develop the country we all love.

I want to inform you that I will sign today the decree appointing Vladimir Vladimirovich Putin to the post of prime minister.

I am sure that the kind of constructive cooperation between the executive and legislative authorities we have seen today in the State Duma will continue in the future.

I wish you all the best and I congratulate you on the national holiday we are about to celebrate.