Alexander Deryugin: “Moscow Budget Deficit Will Not Be as Huge as Laid Down in the Document”

The “Davydov.Index” cites the views of Alexander Deryugin, Associate Researcher of the Budget Policy Department, Gaidar Institute, on the 2022-2024 Moscow City Budget approved by the Moscow City Duma.

“When they say that the Moscow budget receives revenues from numerous regional businesses, it is true because lots of companies are registered in Moscow and pay taxes there. However, Moscow will be running its planned budget at a deficit for a very simple reason: if it shows surplus, money will be taken away. It really was the case a few years ago when 1 percentage point of the corporate profit tax was reallocated from regional budgets to the federal budget with a subsequent redistribution through budget transfers. At first, this practice was introduced for a limited period of time, but then they kept extending it all the time. I am absolutely sure that this practice will be either put on a permanent basis or continue this way. Moscow will never receive happily again these funds upon the expiry of any such period.

Moscow has drawn conclusions: it started in due time its renovation program requiring considerable expenditures, so now its planned budget will always be run at a deficit.

It is clear that the inflation parameters will be much higher next year than provided for in the federal budget and I believe that from the results of implementation of the 2022 budget we shall be able to see a non-deficit budget on the back of faster-than-anticipated revenues growth with expenditures remaining the same as expected. Later, indexation for the next period is likely to be increased and the 2023-2024 budget adjusted. In short, the Moscow city budget is not going to be run at such a huge deficit as laid down in the document.

As regards expected growth in expenditures on social services, expenditures on education and healthcare are normally singled out for the sake of analysis from the overall list of expenditures because coupled with infrastructure development expenditures they may produce a special effect on the economy. These include expenditures on human capital because they facilitate fast economic growth, while expenses on all kinds of social payments cannot be attributed to this category. It does not mean that they are bad or not needed at all; they simply make no contribution to GDP growth.

The extent of the planned increase in expenditures on healthcare and education can be assessed in terms of comparison of overall expenditure growth with this indicator in 2021. This ratio shows whether the rate of change of expenditures in general is comparable with that of expenditures across specific sectors. If my memory serves me correctly, overall expenditure growth is expected at the level of above 10%, so, expenditures on healthcare and education are not to be growing fast. I would say that these two sectors should be developed more actively. However, it is also important to analyze expenditures in absolute terms: it may turn out that Moscow spends too much on these sectors. To draw a sound conclusion whether this budget can be regarded as a development budget it is necessary to understand how investments grow.

Overall, the shifting of expenditures from productive to non-productive ones can be observed in the 2022 federal budget, too. Here, Moscow does not stand out from the trend; in fact, I think that on the regional level the situation is almost the same. Well, with the outbreak of the pandemic the pattern of expenditures has changed considerably by contrast with 2019. It seems

the former patter will never return; in 2020 it altered irreversibly and has kept changing since then. Healthcare expenditures make a probable exception: after a sharp upsurge in 2020 they started to grow at a slower rate. Overall, the pattern of expenditures continues to deviate from the pre-pandemic level.