The Kremlin decreed that all public sector workers should receive wage arrears by the end of 1997. Private enterprises are not covered by the announcement. The remaining eighty per cent of unpaid wages are owed by enterprises and organisations.
Government is faced with failure to receive budgeted tax receipts.
However at the same time as their profits are collapsing, productive enterprises face a disproportionate burden of taxation. Despite the collapse of the productive sector, the Russian government takes more than twice as high a proportion of GDP in taxes on profits in Russia as government takes in the European Union, and this burden falls almost entirely on the productive sector, with the new private sector of services and finance paying very little tax. Taxes and wages are the main competitors for the limited cash resources of enterprises and organisations. If enterprises pay their wages, then they cannot pay their taxes and social fund payments. If they pay their taxes, they cannot pay their wages.