Presidential Address to the Federal Assembly

Russian President Vladimir Putin delivered his annual address to the Federal Assembly on Thursday, covering key issues from foreign policy to education.

President of the Russian Federation Vladimir Putin: Citizens of Russia, members of the Council of Federation and the State Duma,

The President’s state-of-the-nation annual address to the Federal Assembly is a requirement set forth in the Russian Constitution, which is exactly 20 years old today. I congratulate you on this important date for our state and our society. And of course, I also congratulate you on the 20th anniversary of the Federal Assembly, Russia’s parliament, which was created in accordance with the provisions of our country’s basic law.

Our Constitution brings together two fundamental priorities – the supreme value of rights and freedoms of citizens and a strong state, emphasizing their mutual obligation to respect and protect each other. I am convinced that the constitutional framework must be stable, above all in what concerns its second chapter, which defines the rights and freedoms of individuals and citizens. These provisions of our fundamental law are inviolable.

But life does not stand still, and no constitutional process can ever be regarded as finally completed or dead. Targeted amendments to other constitutional chapters, deriving from law enforcement practices and from life itself, naturally are possible and sometimes necessary.

You know that we have proposed to amend the Constitution and to unite the Supreme Court and Higher Arbitration Court. Today these courts often differ, sometimes quite substantially, in their interpretation of various laws. Sometimes they take different decisions in similar cases, and sometimes they agree. This results in legal uncertainty, and at times in injustices that affect concrete people.

I believe that unifying these courts will allow us to bring judicial practice onto one track, and therefore strengthen the guarantees protecting a crucial constitutional principle, the equality of all before the law.

Colleagues, the Constitution contains crucial unifying national ideas. The meaning of its provisions on the welfare state consists in the mutual responsibility linking the state, society, the business community, and every Russian citizen. We must support the growing desire of citizens, representatives of public and professional associations, political parties, and the business class to participate in our country’s life.

Among other things we must support civic activism at the local level, in communities, so that people get a real opportunity to participate in managing their village or town, to deal with everyday issues that actually determine their quality of life.

Today quite a few problems have accumulated within our local self-government system. Unfortunately, and you know it well, the responsibilities incumbent on municipalities and their resources are not evenly balanced. This often leads to confusion regarding their authorities, which are not only blurred, but are constantly thrown from one level of government to another: from districts to regions, from towns to districts and back again. Local self-government authorities are being constantly shaken by corruption scandals.

The powers at the district level have been significantly watered down. Those that existed in education, healthcare, and social welfare have been transferred to the regional level of government.

In addition, local authority – because it is the closest power to the people – should be organized so that any citizen could reach out to it, figuratively speaking. In this connection I am addressing the All-Russian Council for Local Self-Government Development, All-Russian Congress of Municipalities, governors, and members of the Federal Assembly, of the Government of the Russian Federation – let’s comprehensively go over these issues again and finally bring the situation in line with common sense and attune it to the times.

Let me repeat: I think the most important task is to clarify the general principles of the local self-government organization, and develop strong, independent, financially sustainable local authorities. And we need to start this work and give it sound legal foundations already next year, 2014, the year of the 150th anniversary of the famous Zemstvo Reform of 1864.

Incidentally, at the time it was precisely the development of zemstvos, of local self-government that enabled Russia to make a breakthrough and find competent people capable of implementing major progressive reforms, including Pyotr Stolypin’s agrarian reform and the restructuring of industry during the First World War.

I am sure that today as well strong local self-government can become a powerful resource for enhancing and renewing our country’s human resource potential. And of course, we are all interested in ensuring that elections bring to power qualified, motivated, professional people who are ready to perform their duties responsibly. For this reason we shall continue to work on developing the political competition, improving political institutions, and creating conditions for them to be more open and efficient.

Recent elections demonstrated that today there is less officialdom, bureaucracy, and predictable results in our political life. I consider it important that many new parties have made their presence felt. By winning seats in municipal and regional bodies, they have laid a good foundation for participating in upcoming federal election campaigns. I am sure that they will act as worthy competitors to longstanding political actors.

Today’s Russia requires broad public debate that would yield practical results, when public initiatives become part of public policy, while society monitors their execution. I think that all draft bills, key government decisions, and strategic plans should pass a so-called initial public reading involving NGOs and other civil society institutions.

Both the federal and regional executive authorities must establish public councils. Of course many such councils already exist within various levels of authority, but they are not everywhere. And most importantly, these councils should not be formal or decorative structures. On the contrary, they should act as expert groups, and sometimes as the government’s constructive opponents, and be active participants in anti-corruption efforts.

I would ask the Civic Chamber, the Human Rights Council and other non-governmental and human rights organizations to be actively involved in drafting the bill On Public Oversight that would establish the legal basis for such civic participation.

Supporting the human rights movement should be a priority of joint work between the state and society. We expect that such organizations will not act in a way that is politically biased, and that they will engage as closely as possible with the interests and concerns of every citizen, every individual.

In this context, the role of the Civic Chamber is increasing. It must become a platform where various professional and social groups, associations, and unions can express their interests. More professionals should be involved in this work. I believe that members of these unions must compose at least half of the Civic Chamber’s members proposed by the President. Such an approach would balance the interests of different social and professional groups, and enable the Chamber to be more responsive to their concerns.

The most important topic requiring frank discussion in our society today is interethnic relations. This one topic concentrates many of our problems: challenges relating to socio-economic and regional development, corruption, shortcomings in the work of public institutions, and of course failures in educational and cultural policies, which often produce a distorted understanding of the true causes of interethnic tensions.

Such tensions are not provoked by representatives of particular nationalities, but by people devoid of culture and respect for traditions, both their own and those of others. They represent a kind of Amoral International, which comprises rowdy, insolent people from certain southern Russian regions, corrupt law enforcement officials who cover for ethnic mafias, so-called Russian nationalists, various kinds of separatists who are ready to turn any common tragedy into an excuse for vandalism and bloody rampage.

Together we must rise to the challenge; we must safeguard interethnic peace and thus the unity of our society, the unity and integrity of the Russian state.

Colleagues, the May 2012 executive orders contain specific measures designed to ensure the country’s dynamic development in all fields. In fact, the orders amounted to a unified action program, reflecting the will of millions of people, the desire of all Russian people for a better life. Sometimes we hear that there are insufficient funds to realize all stated plans and goals,that we need to lower our standards and simplify our tasks.

Colleagues, let me turn to a very important subject with profound implications. I think that it is impossible to elaborate policies following a formal approach. Yes, of course we all know that economic trends may and do change. But that is no reason to talk about revising our goals. We need to do real work, seek solutions, and clearly lay out budgetary and other priorities. I would ask you to update all state programs accordingly.

Already within the next two years, all budgets should be changed to conform to our budget plan. This does not mean rewriting everything mechanically. It means increasing the personal responsibility of each manager for the achievement of results. What we need to do is to focus resources on achieving substantial changes in specific sectors.

For this reason we are raising salaries in education and healthcare so that the work of teachers, professors, and doctors becomes prestigious once again, and attracts strong university graduates. But as we agreed, decent wages must not only reflect budgetary transfers, but rather reforms designed to improve spending efficiency and, most importantly, the quality of social services. We need people to see how our schools, universities, clinics and hospitals are changing for the better.

Apart from pay rises, which is what we need and will do, we must bring into life a number of other measures. In particular, we need to switch to the contract-based system, to certify the staff and provide more financing to those institutions, both public and private that deliver the highest quality of service. This is critical if we are to see genuine competition, it will provide access to budget funds for nonprofit organizations and social enterprises. Furthermore, it means we would be able to streamline our public institutions by getting rid of inefficient expenditures and structures, by eliminating hurdles for public institutions to become more independent.

Where are these measures? It’s been 18 months since the decrees were issued. From what I can see it’s either done in a way that prompts a negative response in our society or nothing is done at all. Of course, with an approach like this we will hardly achieve the target.

The reforms have been delayed, and this delay is unacceptable. As a result, the people, who are the end consumers of these services, have not seen any drastic changes. We spend a lot of money but without reforms we will only get inefficient spending instead of better quality. We will get more managers instead, and that’s what is happening. That’s a point for the federal and regional authorities.

Another important job is to set up an independent quality assessment system for public sector institutions. This would allow us to provide financing based on their performance, and therefore help to effectively streamline the network of these institutions.

We need laws with direct effect that would define the standards and benchmarks as well as obligations for authorities of all levels in terms of creating the quality assessment system for public sector institutions. I urge you to adopt such a law within the spring session, colleagues.

We have made significant progress in healthcare over the past couple of years. Life expectancy is on the rise. The mortality rate from heart and other types of diseases is going down. But we are still far from reaching the targets.

We need to move towards insurance as the underlying principle that underpins the healthcare system. Today, the role of mandatory medical insurance boils down to sending the cash to the recipient through the extrabudgetary fund, and not through the budget. Our goal is completely different. People need to realize that they are responsible for their own health, so that they get a financial incentive to lead a healthy lifestyle, while insurance companies should encourage medical institutions to provide high quality service. Insurance companies need to assess the clinics’ performance to make sure that patients have a chance to pick the clinics which they think are best.

The mandatory insurance system shall cover free medical services in full. There must be enough money and these funds need to get to the specific hospital or clinic. The patient needs to be aware of what services are free of charge, while the doctor should understand how his work is paid.

Preventive care needs a stronger focus. Starting from 2015, all children and teenagers would have to pass a medical examination free of charge once a year. Adults - once every three years.

Of course, these regular checkups will reveal more diseases and require more high tech medical aid to treat them. Over the past years, we have set up a whole chain of federal centers that have the capability to render the most advanced medical aid. We need to build on this potential. Their services must be available not only to the residents of the cities where they are located, but also to the people from other regions. We need to provide for the sources of financing for this.

Within the next three years we need to create conditions to conduct 50 percent more high tech surgeries than we do today. This is a feasible goal. We should not lose sight of the world trends. The world’s leading countries are about to introduce new medical technologies based on bio and genetic engineering. This would revolutionize medicine. The Healthcare Ministry and the Russian Academy of Sciences must give priority to fundamental and applied research in medicine.

Professionals need to play a stronger role in managing the healthcare system. I have heard of new ideas that have been floated. They must be supported. I instruct the Healthcare Ministry, together with the leading association of medical professionals, to submit specific proposals to make this happen.

We need to revive the traditions of charity. My proposal is to organize a broad movement of volunteers in Russia, those who are prepared to work in the healthcare system, to offer their help. Those volunteers who have experience of working in medical institutions for several years need to get privileges when applying to medical educational institutions.

Colleagues, the upcoming year of 2014 has been declared as the Year of Culture. It must become the year of genuine enlightenment, getting back to our cultural roots, to patriotism and morality.

We all know the encompassing, unifying role that Russian culture and language have played in the history of our multi-ethnical nation. We need to build on this when shaping our policy, including in education.

We need schools that don’t just teach, which is crucially important of course. We need schools that can bring up a personality which has absorbed the values of the country, its history and traditions, a personality with a vision, a rich inner culture, which are capable of creative and independent thinking.

We have issued an instruction to consider introducing an essay as part of the standardized exam and the marks for it will be taken into account during enrolment.

Professional growth of teachers comes to the forefront today. They must be ready to use modern technologies and work with children with disabilities. I urge you to come up with a comprehensive re-training program for school staff. I know that the Ministry of Education is doing it. We need to finalize the drafting of this program.

There is another urgent issue. A quarter of Russians schools work in two shifts. In many cities, almost half of schools work in this way. In the next five to six years, given the positive demographic changes, the number of schoolchildren will increase by a million.

I am addressing the government, the Federal Assembly, the regional authorities to assess the scope of this issue. We need to come up with effective solutions. One of them is to construct pre-schools so that they could be later used for primary education. This should not increase the cost of construction of pre-schools. Another option is to build the school and the pre-school as part of one building, under the same roof.

Of course, it should not be within scope of the federal authorities, it’s the task for the regional or even municipal authorities. But we need to assess the scope of the problem. We can’t ignore it. If the issue is so important for the nation and is taking such a grand scope, the federal authorities would need to offer some assistance of course.

We also need to continue to build infrastructure for youth sports, to make a healthy lifestyle fashionable. This was the main idea behind hosting the Universiade in Kazan in 2013, which turned out to be very successful, and that’s the main idea behind the Olympics in Sochi that are about to begin.

I am convinced that we will organize the Sochi Olympics, the Football World Cup and the Winter Universiade in Krasnoyarsk at a very high level.

Colleagues, according to the latest statistics for a period between January and October of this year, Russia has seen a natural increase in its population for the first time since 1991. That is a very good indicator.

The birth rate has been higher than the death rate in almost half of Russian regions. What’s interesting is that in all the Urals regions, in Siberia and in the majority of the regions of the Volga District and the Far East, it’s higher than the average Russian figures.

But we also need to realize one thing. Right now, it is the generation of the 1990s who has taken to creating families. Those people spring from a period that was marked by an unprecedented, catastrophic decline in fertility. That is why extraordinary efforts are necessary if we want to ensure that the positive demographic shift in Russia is irreversible.

I would like to remind you that our country showed some of its best demographic results in late 1980s. That same period was also marked by a peak in housing construction. Today, housing policies must once again serve as one of the government’s key instruments for improving the demographic situation.

The government has already formulated its guidelines for implementing the Affordable Housing program. According to this program, a total of no less than 25 million square meters of housing space are to be completed by the end of 2017, complete with the necessary social infrastructure, so that middle-class families could improve their living conditions. I suggest that we name this program ‘Housing for Russian Families’ in order to emphasize this task.

By 2016, we need to construct 75 million square meters, which is higher than the record figures of 1987 when 72.8 million square meters were built. Thanks to modern technologies, we can now build a lot, relatively inexpensive and of good quality. But to ensure that, we need to solve a number of tasks.

We need to amend our legislation to make it easier to provide land for development, and this needs to be done within the next several months. We have been discussing this issue a number of times, including in the past weeks.

Self-government bodies would have to put all of the free land plots on sale according to transparent and clear procedures. The developer’s responsibility would grow, too. Once they get a permit, they need to start construction. If there’s a delay, they would need to return the land.

The next hurdle is the lack of money to provide engineering infrastructure for the land. We need to create dedicated instruments to resolve this issue, to find the finances for it and the right way to organize it.

I know that the government is drafting proposals on regulating e-commerce on behalf on the fiscal authorities. This could become one of the sources of financing for the development of engineering infrastructure. I ask you to submit proposals on this issue.

Finally, we must straighten out licensing procedures which have not been harmonized to this day. I request the government to establish a single, comprehensive list of mandatory permits and licenses for construction activities, and reduce the time frames for the necessary procedures as much as possible. This should be done by the end of March 2014.

My colleagues are perfectly aware of why this issue lingers to this day. This area is highly prone to corruption – that is the core of the problem.

Dear colleagues, we are aware that resuming sustained economic growth is a fundamental prerequisite for ensuring social development. I am essentially referring to the very core of our activities.

Granted, we still sense the post-effects of the global economic crisis. But we must acknowledge that the main reasons for this slowdown in development are driven by internal rather than external factors.

Today, Russia is one of the world’s five biggest economies by GDP, and that certainly is a good thing. However, we are still halfway behind the advanced economies in terms of a crucial economic indicator such as labor efficiency. We need to close this gap promptly.

To that end, we need to make full use of new growth factors. What factors am I talking about? Those are well known. I am referring to good-quality vocational training, a flexible labor market, a favorable investment climate, and advanced technologies.

I am tasking the government with updating the list of priority areas of research and development, in collaboration with the Russian Academy of Science. The recently established Russian Scientific Fund must plan its activities in accordance with those priorities. It must focus on financing fundamental research and long-term programs. I consider this to be a task of national importance. Just recently, leaders of all parliamentary factions met to prepare for this address, and they all explained how they could participate in the innovative development of the country. You all voted for the law that established the Russian Science Foundation. I am asking all parliamentary factions to send their representatives to the Russian Science Foundation’s Board of Trustees.

As for application research, this work has to be done based on technological platforms. I propose that we redirect funds to support this research from certain target programs, mostly from the ‘Research and development in strategic areas of science and technology.’ It is important for the state and business to co-finance such projects. Today only one out of 265 scientific products gets protected as intellectual property. The added value of intellectual property makes less than one percent of Russia’s GDP. It’s an extremely low number. In the US, its 12 percent, 7-8 percent in Germany, and 20 percent in our neighboring Finland. So high tech institutions must aim at specific results, i.e. getting patents and licenses, as well as practical implementation of scientific research.

We need to boost domestic demand for high technology. This is a crucial factor; we need domestic demand for these technologies. To achieve that we have to use the public procurement system and investment programs of state-owned companies. The sums are huge – trillions of rubles.

We also have to carry out a large-scale review of development institutions, whose activity has lately split into numerous uncoordinated projects that are sometimes not directly related with innovations. But this is not what we created these development institutions for. The projects may be good, but these institutions have been established for boosting innovations in economic development in the first place. So a technological breakthrough should become the focus of their activity again.

In order to purge our economy of outdated, inefficient, and harmful technologies, it is high time we developed a modern system of technical and environmental control. This is a very complicated and delicate issue for our economy. I hope that the government, in cooperation with the private sector and our colleagues within the Customs Union, will carry out this work actively.

Apart from that, I suggest we should establish a statistical appraisal system to assess the level of technology for specific industries, in order to have an objective image of our competitiveness. We had such a system in the Soviet Union, but it was scrapped. Nothing has been established to replace this system, so we need to reconstruct it.

Our next task is to support the non-commodity exports. So far, this system hasn’t been fully functional. There are still many red tape barriers. It takes over 20 days to get an export permit. Compare this to six days in the United States or eight days in Canada and South Korea, for example. We have to take all these issues into account when we develop the new “road map” for supporting export. I am asking the government, along with the Agency for Strategic Initiatives, to finish this work by March 1, 2014.

Colleagues, new professional standards will play a key role in a healthy economic development. But they will only work if the business community itself sees them as important. Therefore, we have to involve professional communities in this process. My proposal is to establish the National Council for Professional Qualifications. And it should not be under any agency, but must be an independent body. The most prominent business unions and professional associations must be involved in its work. The council will have to develop the whole package of new professional standards in two years.

I am asking our colleagues from the business sector, from the unions that I just mentioned, not to avoid this work. After all, this will benefit you as well. After we develop the standards, we will have to reset the whole system of professional education. We can draw from our own experience, but do it at a new level. What am I talking about here? I am talking about bringing professional orientation programs back to our schools, as well as technical universities affiliated with major industries and manufacturers. The important principle here is to teach in immediate proximity to the actual manufacturing, when practical skills can be supported by theoretical knowledge.

I would also like to say a few words about higher education. Most young men and women seek university degrees. The quality of our universities has to meet this demand. In that case this “education drive” of our young people will become a major factor in the development of our country. But today we have many universities, both in Moscow and other cities, that don’t meet modern standards.

I think that we need to renew the whole system of higher education and involve the best universities in this process, commissioning them to assess quality of education in other schools. This will help us make sure that university graduates are hired by companies, thus investing back into the economy and society.

We shouldn’t create any barriers for the educational mobility of our people. This has to do with dormitory fees, for example. Prices should not just appear out of thin air, but have to be based on living conditions and services provided to the student. I am asking the Ministry of Education and student government organizations to monitor the situation closely. Living in a dormitory should not be extremely expensive.

I also want to say something to university presidents. You know what’s going to happen soon? The Ministry of Finance will audit your revenues and lower the subsidies quotas. You are asking for it. As a result, education, students and universities will suffer.

We should also make high-quality Russian tertiary education broadly available to foreigners and our compatriots, primarily those who live in the CIS. That is an effective way to strengthen Russia’s cultural and intellectual influence in the world.

We should provide for mutual recognition of school certificates with all the CIS countries and consider the option of organizing simultaneous school exams under the Russian standards at Russian language centers. These could be synchronized with exams in Russian schools. All these measures are designed to enable gifted young people from the CIS to enter Russian universities.

Finally, we should speed up the approval of regulation that would allow Russian universities to offer distance learning courses. This is mostly focused on our compatriots and citizens of the CIS.

As we work on improving professional education, it is important to bear in mind that the labor market is becoming increasingly flexible. And people should be able to get additional training, to get a new profession. We should set the right conditions for those who are ready to move for work to another city or another region, considering the objectives of territorial development and engaging the business community.

There is a need to provide information support to the people and set up a nationwide vacancy database so that any person looking for a good job could see exactly where he or she can find one. And this won’t come into being without a whole package of solutions. Please work on this. It will include accommodation for rent and more. You know what I’m talking about. There’s a whole range of solutions, and we must put a list of them together as soon as possible.

Another important goal is to increase the appeal of rural areas for life and work. We have already invested quite heavily into developing the Russian agriculture sector. The industry has been growing quite well. As a result, the output has been enough to satisfy our national demand. Many thanks to the farmers for doing this job very well.

The new priority is to make sure that people stay in rural areas, and to build a modern, comfortable infrastructure. Please focus on this while amending the government agriculture development program.

Now, a couple of words on the single-industry towns - or ‘monotowns,’ as they are known - with a total population of 15 million people. They are part of the legacy of the Soviet economy. True, a lot of these towns are in dire straits. But they do have an established social infrastructure, housing, professionals. We just need to understand what’s missing there for businesses, what preferences need to be introduced for investors so that they start working in these towns - not because we force them but because it is profitable for them. Believe me, this would be a better way than to spend dozens of billions of budget money into employment programs later. And we would be forced to do it if the situation develops along a negative scenario.

I would like you to introduce proposals on the comprehensive development of these types of towns, with a list of investment projects and ideas of the sources of financing them, proposals on easing the tension on the labor market and direct assistance to the SMEs.

In this regard, I would like to address the governors of all Russian regions. We are well aware of the problems that the regional budgets are facing. But you should think beyond the day-to-day concerns.

I support the idea that has been repeatedly floated that new small businesses operating in the production, social or scientific areas can be offered two-year tax holidays. (Applause).

I don’t think that all the governors joined the applause but I would like to assure you that in the future, this step will pay off with additional taxes generated for the regional and municipal budgets. Mind you, we are talking about newly-founded businesses; you can’t lose any taxes because they didn’t exist previously. But if we create conditions for these businesses, you are going to get these revenues.

To make it more convenient for small businesses and individual entrepreneurs, we need to arrange for a ‘one stop shop’ where they could pay all the taxes, including the payroll tax. These are different payments, but it would be more convenient to receive them in one place so that they could do the payments at the same time.

Another challenge on the labor market is related to migrants. Without the proper rules, we see imbalances in the employment structure and ethnic conflicts emerging which exacerbates the criminal situation.

We must tighten the rules for the employment of migrants that don’t require visas to come to Russia. We must make employers more responsible for using foreign workers. And, of course, if they live and work in Russia, if they use the benefits of our education and healthcare systems, they need to pay taxes and other payments.

We have a difficult task here. We can’t sever our special ties with former Soviet republics, but at the same time we have to clear up the mess. In this regard we need to improve our current patent system, according to which a migrant worker needs to have a license when hired by an individual. I suggest that all legal entities, as well as private entrepreneurs, could hire migrant workers based on the license system. The cost of the license will be set by the authorities of Russia’s constituent entities, depending on the labor market situation and average per capita income level in the given region. The patent system must be differentiated and should boost the inflow of, first of all, qualified, educated specialists to Russia, who have a command of the Russian language and are familiar with Russian culture. Let me highlight that the license is only to be valid within the region where it has been acquired.

Provided this work is organized efficiently, I expect it to become an economic leverage in regulating migration flow. I am talking about the cost of this patent in different regions of Russia – that is why I say “economic.”

Finally, we need to toughen control over foreign citizens’ purposes for entering the country; all civilized countries do that. The country has to know what a foreigner comes to Russia for and how long he plans to stay here for. Apart from that, we have to address the problem with those foreigners who have entered the country visa-free and are staying here for a long time without certain purpose. They claim to have no certain purposes but apparently they do have some – it is just that the government remains unaware.

The period of their stay must be limited. Those who violate the rules of stay will be prohibited from entering Russia for the period from three to 10 years, depending on the severity of the violation.

These measures will set up an additional barrier for foreign citizens who, to put it frankly, are either involved in shady and even criminal activities, or work illegally - often in indecent conditions - and unfortunately become victims of crimes themselves.

Colleagues, Two years ago, together with the business community, we embarked on a comprehensive project to improve the business climate in Russia. By now, we have made some good progress, surprising for many. But we need to move forward. The regulatory framework ensuring a comfortable business climate must be largely put in place by 2015. Starting from next year, we will launch the national ranking of the investment climate across the Russian regions. In a nutshell, it will gauge the share of the private sector in the economy of each region of the Russian Federation.

At the same time, we must provide incentives for those regions that work hard to improve their economies, for those who focus heavily on supporting the private sector initiative and creating new businesses and jobs.

And now a good piece of news for governors. If a region invests its own funds into building new production sites and technoparks, business incubators, the additional federal taxes that these facilities will generate over the next three years of their performance should be passed back to the region in the form of inter-budget transfers. But that total of the funds returned should match the costs of the infrastructure. You laugh, but it’s a good proposal. It has been born out of arduous discussions with the Finance Ministry, and I would like the Finance Ministry to stick to its word and deliver on the commitment.

Another sensitive issue for entrepreneurs is excessive attention on the part of different supervising agencies. Oversight is necessary, but we also need to continue changing the way these supervisory agencies operate.

This work is underway and will go on. For more transparency in this area, I suggest setting up one federal website where each inspection would be assigned an individual number. Everyone would be able to see who initiated the inspection, who is being checked, what the reasons are, and - most importantly - what the results of the inspection are.

There’s one more issue: the rules to resolve commercial disputes are still lagging behind the world’s best practices. In particular, we must boost the authority of arbitration courts.

I would like to ask the government, the Russian Union of Industrialists and Entrepreneurs and the Chamber of Commerce and Industry of Russia to speedily draft and submit to the State Duma a bill that would overhaul the arbitration proceedings.

In my last year’s address to the Assembly, I spoke about the ‘de-offshorization’ of the Russian economy. I would like to bring this topic up again today.

I will be frank in saying that the results have been very scanty. Earlier this year the purchase of TNK-BP, a major deal worth over 50 billion dollars, was concluded outside Russian jurisdiction, though it is known for a fact that it was sold by Russian citizens to one of the biggest Russian companies. According to experts, last year Russian exports via offshores and semi-offshores amounted to 111 billion dollars, which equals twenty percent of our exports. Half of the 50-billion-dollar Russian investment abroad went to offshores as well. These numbers stand for the drain of capital that should be working in Russia and direct losses for the national budget.

Now, since over the last year there’s been little progress in this area, I have some ideas to share with you. Here they are.

The companies registered in an offshore jurisdiction but legally owned by a Russian citizen as the ultimate beneficiary should pay taxes in line with the Russian regulations, with the tax amounts payable to the Russian budget. And we should think of a way to collect this money.

This idea is nothing new, by the way. Some countries are already introducing such mechanisms: you are welcome to register your company in an offshore, but you will have to pay your taxes here. These mechanisms are being used by developed market economies. They have proven their efficiency.

Next, companies registered in a foreign jurisdiction should not be entitled to state support, including loans from the Vnesheconombank and state guarantees.

These companies should also be denied access to government procurement contracts.

In other words, those who want to use all the benefits and government support and at the same time get their profits while working in Russia should get registered in the Russian jurisdiction.

We should make our economy more transparent and criminalize the management of banks, insurance companies, pension funds, and other financial institutions for deliberately providing incomplete information about their financials.

We need to maintain a consistent policy to purge our banking and financial system of various money-laundering structures, all the while protecting the interests of reliable clients and depositors of troubled banks in the best possible way.

It is a worldwide trend today to combat tax evasion schemes, including offshore schemes. These issues are widely discussed by the G8 and the G20. Russia will follow this policy both nationally and internationally.

Transparency and responsibility are a must, not only for businesses, but also for the management of state-run companies and development institutions. I suggest that the government should transform their modus operandi. The management should not treat their jobs as a sort of comfort zone. Their pay is quite high. The economy won’t improve much if we cut them down; we would simply lose the qualified staff. But there is a need to exercise control over what these managers do, and that should be done in a proper way.

These institutions must work out their long-term strategies, pinpointing their goals and specifying the management’s personal responsibility. The management’s employment contracts should spell out the responsibility for failing to fulfill these objectives, including liability for damages.

The plans and policies of companies listed as strategic enterprises must be approved by the Russian government, their implementation subjected to external audit. I looked it up yesterday; the list comprises of a few dozen companies. We have a couple of lists according to different criteria, but there are only a few dozen strategic enterprises. Of course this means some additional workload, but the government will certainly deal with it.

I would like to emphasize once again that public funds and private money alike should be used for purposes of development, with a view to accomplishing strategic tasks – such as the task of developing Siberia and the Far East. That should be our national priority for the rest of the 21st Century. We are faced with tasks of an unprecedented scale, and that means we have to come up with unorthodox solutions as well.

We have already agreed to provide income tax deductions and some other tax breaks for new investment projects in the Far East. I believe it would be advisable to expand this special tax regime to cover all of Eastern Siberia, including the Krasnoyarsk Region and the Republic of Khakassia.

In addition, I suggest setting up a network of areas for advanced economic growth across Eastern Siberia and the Far East, where special conditions would be provided for the establishment of non-resource based industrial enterprises, including export-oriented companies. The essence of the proposal is that newly-established companies based in these kind of areas should enjoy exemptions for a five-year term from income tax, mineral extraction tax (except for oil and gas companies, since this is a high-profit industry), land tax, property tax, etc. What is especially important for hi-tech companies is that they should also be entitled to business insurance at discounted rates.

What is also important, such areas should provide an enabling business environment capable of competing against the Asia-Pacific’s leading business hubs, complete with fast-track procedures for obtaining construction permits or customs clearance, tapping into electrical grids, etc. In order to address those territories’ need for infrastructure, we plan to rely extensively on the Far East Development Fund.

We need to designate specific territories to accommodate such areas by July 1st, 2014, as well as issue all the necessary legal acts regulating their operations. In doing so, we should keep in mind the scale and importance of this task. I bid the prime minister to personally supervise these activities.

In the future, we will decide on further development for such territories, based on their performance and results to date.

We shall also continue to carry out projects that are already in the works. For example, as you know, a new university has been created on Russky Island. It is tasked with developing a comprehensive evaluation procedure for assessing territorial development programs in the Far East. It is also supposed to provide the region’s labor market with qualified professionals, primarily in areas such as air and space, biotech, robotics, industrial design, engineering, marine science, and marine resource management.

I am convinced that by shifting its focus toward the Pacific and ensuring dynamic development for all of its eastern territories, Russia will not only enable itself to tap into new opportunities for economic growth, but also gain additional instruments for pursuing an active foreign policy.

Dear colleagues, global development is becoming increasingly dynamic and controversial. This means greater historic responsibility for Russia, not only as a key provider of global and regional stability, but also as a nation that consistently defends its values and principles, both domestically and internationally.

Military, political, economic and media competition is on the rise worldwide instead of receding. As Russia grows stronger, other global powerhouses are watching it closely.

We have always been proud of our country. But we don’t have superpower aspirations; we don’t want global or regional domination, we don’t interfere with anyone’s interests, trying to play a patron, we are not going to lecture others. But we will strive to be leaders by defending international law, making sure that national sovereignty, independence and identity are respected. This is a natural approach for a country like Russia with its great history and culture, its vast experience in the area of different ethnicities living in harmony, side by side, in one state. This is different from the so-called tolerance, which is gender-free and futile.

Today many countries revisit their moral standards, erasing national traditions and boundaries between different ethnicities and cultures. Society is asked to respect every person’s right to freedom of thought, political views and private life, which are good values. But now people also have to treat evil and good equally, which is strange, because these are opposite things. Not only does such destruction of traditional values have negative effects on societies, but it is also anti-democratic to the core, because these are abstract ideas applied to real life despite of what the majority of people think. Most people don’t accept such changes and suggested revisions.

And we know that more and more people in the world support our approach of protecting traditional values, which have been a spiritual and moral foundation of our civilization and every nation. We value traditional family and genuine human life, including a person’s religious life; not just material, but also spiritual values of humanism and the world’s diversity.

Of course, this is a conservative position. But as Nikolai Berdyaev said, the meaning of conservatism is not to prevent moving forward and upward, but to prevent moving backwards and downward, into chaotic darkness, back to the primitive state.

We have seen in recent years how attempts to impose a presumably more progressive model of development on other countries in reality led to regress, barbarity and massive bloodshed. This happened in a number of countries in the Middle East and North Africa. These dramatic events took place in Syria.

The international community had to make a historic choice in the case of Syria: it was either continuing to wash out the world order foundations, moving towards the rule of force, fist law, and growing chaos, or making responsible decisions together.

I think we were successful in this situation and made our choice on the basis of fundamental principles of international law, common sense, and the logic of peace. At least for now, we have been able to avoid military invasion into Syria and spilling the conflict further, across the border.

Russia played a key role in this process. Our actions were firm, well thought-out, and balanced. We didn’t jeopardize our own interests and security or global stability at any point. In my opinion, this is how a mature and responsible power should act.

As a result of our joint work with our partners, we were able to change the situation, make the transition from war towards an all-Syrian political process, and search for reconciliation. Syria’s chemical weapons are now under international control. Getting rid of these weapons is an important step for the non-proliferation of weapons of mass destruction. The Syrian incident confirmed that the UN should play the central part in international relations and politics.

As we have seen in the situation with Syria, and now also Iran, any international problem can and must be solved through political means. The use of force is pointless, and it is considered unacceptable by most countries. This year, a breakthrough has been achieved concerning Iran’s nuclear program, but this is only the first step. We need to patiently continue searching for a broader solution that will guarantee Iran’s right to peaceful nuclear technology and ensure security for, I would like to emphasize this, all countries of the region, including Israel. By the way, it is worth noting that Iran’s nuclear program once served as the key reason for deploying missile shields. And what do we have now? Iran’s nuclear problem is fading while the missile shield remains in place. Moreover, it is still developing – I will get back to that a little later. Let me emphasize that again: Russia is ready to co-work with all of its partners for ensuring common, equal and integral security.

Russia's G8 presidencyin2014 will focus on acute global problems, including strengthening non-proliferation regimes, fighting against international terrorism and drug trafficking. These will also be the guidelines for the SCOandBRICS summits that Russia is to host in 2015.

We are now finalizing the Eurasian Economic Union agreement. We expect that by May 1, 2014 the text of the agreement will be ready and submitted to the parliaments of Russia, Belarus and Kazakhstan. So I would like to ask my colleagues to consider and approve the documentin a quick manner.

There are already working groups that are drawing up roadmaps for Kyrgyzstan's and Armenia's accession to the Customs Union. I am sure that the real achievements of Eurasian integration will only make it more appealing to other neighbors, including our Ukrainian partners.

Ukraine has repeatedly expressed its willingness to join some of the Customs Union’s agreements and has participated as an observer in its meetings and discussions since May 2013, which is prior to the events we are now witnessing in Kiev. I do hope that all Ukraine’s political stakeholders will manage to come to an agreement and sort out problems that have accumulated, in the interests of the Ukrainian people. We don’t impose anything on anybody, but if our friends are willing to cooperate – we are ready to continue this work at the level of experts.

Our integration project is based on the principles of equality and genuine economic interests. We will consistently promote the Eurasian project but we will not put it into opposition to other integration projects including, naturally, such a mature integration project as that of the EU. We believe we complement each other and will continue to work with our European partners on a new basic agreement.

Now a few words regarding our plans to further enhance Russia’s Armed Forces.

I have just mentioned the issue of missile defense, and here is what I would like to tell you.

We are well aware of the fact that the missile defense system is only defensive in name, whereas in reality it is an essential element of a strategic offensive potential. We also have our concerns about some of the new weapon systems currently in the works, such as low-intensity nuclear explosives, non-nuclear strategic missiles, or non-nuclear hypersonic, high-precision systems designed to deliver long-range missile strikes within a short time span.

We have been closely following the evolution of the so-called ‘disarming nuclear strike’ concept. There is, indeed, such a concept, and it is being actively promoted in a few countries. If implemented, such plans may have a grave impact on regional and global stability.

By building up their potential for non-nuclear, high-precision strategic missile strikes, combined with a continually enhanced missile defense system, foreign powers threaten to undermine all of the existing arrangements for strategic nuclear arms control and reduction, and to upset what is known as the strategic balance of power.

We are well aware of that. And we know what we need to do about it. (Applause)

No one should entertain any illusions regarding their chances of asserting military superiority over Russia. We will never allow that to happen. Russia will come up with a response to every challenge, both political and technological. We have all the necessary potential for that.

Thanks to our military doctrine, and to the advanced weapons that are already being supplied to the Armed Forces, we are fully capable of ensuring Russia’s security.

We still have a lot to do with regard to developing state-of-the-art, high-precision weapon systems. That said, Russia’s strategic nuclear deterrence forces are making systemic progress and exploring new horizons even now by a number of performance indicators. Some of our foreign counterparts will have to catch up with us.

In order to further strengthen our nuclear triad, we are developing new strategic missile systems for its land-based, naval and airborne components. We will keep enhancing our strategic missile forces and building our fleet of nuclear submarines. We are also getting down to developing a Prospective Air Complex for Long-Range Aviation.

Another task on our agenda is the creation of a global surveillance system for purposes of early warning and target designation, which would operate in real time within a shared information environment, serving the Russian Armed Forces. It is an extremely important project, which also concerns strengthening our Space Forces.

We shall also continue to develop our conventional armed forces: the Army, the Navy and the Air Force.

As you know, we have been investing at an unprecedented scale in re-equipping the Army and the Navy, and in upgrading the defense industry. Our spending totals 23 trillion rubles. So Russian defense companies will be provided with orders for production to the utmost of their capacity for another decade. They will be able to upgrade their production facilities and create new jobs. Let’s not forget that about two million people are currently employed in the defense industry, and if we count their families, the number goes up to seven million. They will have stable and well-paid jobs, which will ensure their families’ well-being.

This year the number of contract soldiers – privates and sergeants – has risen to 220,000. However, we also need to think about creating a well-trained military reserve.

I would suggest the following – to change the way military education and training is conducted in universities without abolishing the draft deferment for students. Every student would go through the basics of military training as part of their education and acquire a military skill.

That would allow us to train the needed number of reservists with skills that are most in demand, mainly technical ones, without actually drafting them. I would like the Government and the Security Council to present specific ideas regarding the establishment of such a system.

We should start thinking about the future of the defense industry after 2020, i.e. after the arms procurement program is over. We can’t allow for these plants to become oversized and rendered useless. We need to strengthen our positions on the global market. I would like the Military and Industrial Commission to present specific proposals regarding our defense companies, so that in the future they could start making civilian goods in demand on both domestic and foreign markets.

There’s another point I would like to make. As we said, all military personnel who were put on the waiting list by January 1, 2012 would be provided with a permanent residence by the end of this year. This task should be soon completed, and I expect it to be so. I’d like to draw the defense minister’s attention to this matter, and to ask him to work on each particular case to help people find the most suitable options.

Colleagues, for the first time in our country’s history, we’re going to settle the issue of permanent residence for those who serve in the Russian Army and Navy. Now we can focus on completing the construction of modern service housing and comfortable military towns.

Colleagues, the sense of responsibility for the country is the keynote, the heart and the core of the Russian Constitution; it is a challenge for each one of us.

The strategic agenda of the country’s development is well-known; and the address specifies the key focus areas, and ways and methods of reaching the stated goals.

All these targets must be reached without any caveats, excuses, or misinterpretations. This is the main and the most substantial job of the authorities. It is our duty to build up people’s trust. This is the only way to engage the people, to encourage them to contribute to the country’s development.

I want to reiterate, once the decision is taken it has to be implemented. This is what responsibility is all about, and I suggest we make it the motto of the upcoming year for all of us – for the authorities, for the society, and for the citizens.

I am absolutely convinced that we will be able to accomplish all of our tasks and to succeed as we follow the best traditions of our people and use the most advanced ideas and efficient development methods.

Thank you for your attention.