There is much for advanced readers to read about the state's domestic and foreign policy priorities in the Draft budget for 2015-2017 submitted to the State Duma and already approved by the budget committee.

It is notable that some of the federal budget spending items have traditionally been "classified" (the new draft budget contains even more of such items). The projected figures showing the market trends that will allow it to be met are very important for the country's principal financial law. And the overall impression of the figures is that we can hope instead of being absolutely certain that the budget will be executed.

Let's start with the figures which are vital for analysis. In 2015, total federal budget revenues are planned to be retained at the level of 2014, 19.5% of GDP. At the same time, total budget spending is to increase to 20.0% of GDP in 2015 fr om 19.2% in 2014, resulting in a deficit of 0.6% of GDP in 2015 vs. a surplus of 0.2% of GDP in 2014. In this case, compared to the existing Federal Budget Law for 2014-2016, the total projected volume of federal budget revenues in 2015 have been increased from 18.3 to 19.5% of GDP by downgrading both the GDP projection itself and the nominal growth in oil and gas revenues. In doing so, non-oil and gas deficit growth in volume to 10.5% of GDP in 2015 takes place both against the level of 2014 (9.9% of GDP) and the parameters of the Federal Law No. 349-FZ (9.6%). Therefore, there is no previously planned decline in non-oil and gas deficit. In 2016-2017, total volume of revenues is anticipated to decrease to 19.0 and 18.4% of GDP respectively, mainly because of reduced oil and gas revenues. At the same time, total volume of spending is projected to fall to 19.6% of GDP in 2016 and 19.0% of GDP in 2017, which allows a projected deficit of 0.6% of GDP to be maintained throughout the entire period under review. Furthermore, non-oil and gas deficit is anticipated to decline a bit: to 10.2% of GDP in 2016 and 9.7% of GDP in 2017 .

All federal budget extra oil and gas revenues resulting from a projected crude oil price exceeding by 100 dollars per barrel the baseline price of $96 per barrel (Rb 344,3bn in 2015, Rb 355,8bn in 2016 , Rb 359,7bn in 2017 ) are planned to be used as replacement for state borrowing in 2015-2017. It has become possible as a result of further modification of the "budget rule", a new version of which allows extra oil and gas revenues to be used as replacement for a shortfall of oil and gas revenues and borrowings not only during the execution of the federal budget, but also at the stage of budget planning. Therefore, the amendments made to the "budget rule" in the spring of 2013 and in the fall of 2014 made the respective budget code standards virtually work only for defining maximum limits of government spending, but they cannot decrease the reliance of the federal budget on global oil market trends. The best way to see it is that the federal budget was basically designed on a projected crude oil price of 100 dollars per barrel rather than a baseline price of $96 per barrel. What is important here is not just the difference in the presented figures, but the fact that the baseline price is not the estimated price based on the average crude oil price during the previous 7-10 years. А the projected price is an extremely notional value given highly volatile global prices of energy resources. As a result, the "budget rule" modification scales up the risks of failure to execute the budget within the preset parameters in case of a drastic fall in crude oil prices. The Reserve Fund's resources may be needed in 2015 to cover a federal budget deficit.

Overall, the dynamics and the federal budget spending structure for 2015-2017 reflects the current budget priorities towards spending on national defense and social policy at the expense of education and health care. National defense spending will increase to 4.2% of GDP in 2015 from 3.4% in 2014, subsequently declining to 3.6-3.7% of GDP in 2016-2017 . Social policy spending will increase to 5.2% of GDP in 2015 and 5.5% in 2016 from 4.8% in 2014. A certain decline to 5.2% of GDP is anticipated in 2016. At the same time, education spending will contract to 0.8% of GDP in 2015-2016 and 0.7% in 2017 from 0.9% in 2014 . Healthcare spending will contract to 0.5% of GDP in 2015-2017 from 0.7% in 2014.

Substantial growth in defense spending scheduled in the draft federal budget for 2015 can be explained by the government's endeavor to fulfill by all means the plan of the final year of the state arms program for 2011-2020, which will cease to be effective beginning 2016 due to the adoption of a subsequent program. However, this may come to cost unacceptably high amid impending economic crisis – the federal budget imbalance towards military spending would just worsen the crisis, while the objectives of the state arms program for 2011-2020 would not be fulfilled.

Healthcare spending cuts are above all related to the transfer of payment functions for high-tech medical assistance to the compulsory medical insurance (CMI) system. It should be taken into account that the cuts were previously planned for 2014 . However, the volume of healthcare spending increased in 2014. This implies that CMI resources (including regional budgets' contributions for the non-working population) may not be sufficient to cover the required volumes of medical assistance and the budget network is not yet ready to a complete transition to a single-channel financing.
Higher education spending cuts in real terms are conditioned to the contraction of the higher education institutions network due to a substantial decrease in the student-age population for demographic reasons. At the same time, this policy fails to meet the higher education system's objectives to enhance the quality of education and international competitiveness of Russian higher education establishments. According to our estimates, 1% of GDP is the required minimum of federal budget spending on education to fulfill the objectives of the education sector in the short run.

Overall, it's important to consider changes in spending in terms of "productive spending" (education, healthcare, production infrastructure) promoting economic growth, and "nonproductive spending" (national defense, law enforcement, public administration), which promote no or little growth (beyond a defined lim it). From this point of view, the proposed federal budget spending structure lacks efficiency and fails to meet the objective to boost Russia's economic growth rates in the mid- and long-term perspectives.

As noted above, transparency and openness of the draft federal budget in 2015 and for the planning period of 2016 and 2017 keep deteriorating. The share of classified spending items in Russia's budget is still an order of magnitude larger than the figure of public finances in developed countries, and it will keep growing to 21% in 2015 and 24.6% in 2017 from 16.7% in 2014. This is another draft budget which is difficult to understand without reading the explanation note thereto, which is direct violation of the Budget Code's basic principles: full representation of revenues, spending and sources of financing (with regard to spending), as well as transparency (openness). The documents and materials attached thereto lack the representation of budget spending in accordance with the classification of operations in the public administration sector (economic classification of expenses), being inconsistent with the recommendations of international financial institutions on financial accounting in the public sector, and apparently making the budget less transparent, interfering with the measurement of its effect on the national economy.

All in all, it's important to note that the draft federal budget for 2015-2017 relies upon fairly optimistic parameters of macroeconomic projection, and heavier reliance of the federal budget on global oil market trends was already allowed for at the stage of budget planning. Furthermore, budget revenues are even more constrained by a suboptimal federal budget spending structure.

Arseniy Mamedov, Head of the Budget Policy Department, Gaidar Institute