The Anti-Crisis Amendments to the 2009 Budget

On its meeting on March 19, 2009, the RF Government considered amendments to the 2009 budget law. New parameters of the budget have been calculated proceeding from the projected volume of GDP of Rb. 40.42trln, inflation rate of 13% and the average annual price for Urals of USD 41/barrel.

When compared with the effective version of the 2009 federal budget law, the projected revenue volume would decrease from Rb. 10.93trln (21.23% of GDP) to 6.71trln (16.6% of GDP). More than 60% of the decrease falls on contraction of revenues from the mineral tax and export customs duties that form the oil and gas revenues to the budget. Despite a nearly double contraction in the oil and gas revenues (from Rb. 4.69trln to 2.57trln), the volume of the oil and gas transfer and the specified value of the Reserve Fund have remained unchanged (Rb. 2.53trln and 5.15trln, respectively). With the current rates of oil and gas revenues (they accounted for Rb. 422.74bn over the period between January and February 2009), it is unlikely they would secure the oil and gas transfer. Hence, no hopes for any additional revenues to the Reserve Fund. But because of an intense depreciation of the national currency over the last two months, as of March 1, 2009, the volume of the Reserve Fund already accounted for Rb. 4.87trln, i.e. 94.5% of the planned volume.

Apart from the fall in oil and gas revenues, the greatest fall in revenues this year should be expected in terms of the corporate profit tax, VAT, personal income tax and the uniform social tax. This can be explained by deterioration of the Russian corporations’ financial standing, lower business activity, growing unemployment, and fall in incomes from labor and entrepreneurial activities. It is taxes on property (the corporate property tax, the land tax, the transport tax) that should maintain the greatest stability in the crisis conditions; however, the respective revenues should be plummeting, too, if the crisis developments persist.

The anti-crisis nature of the budget manifests itself in the reallocation of expenditures (it is proposed to axe the earlier approved budget appropriations by Rb. 943.3bn) in favor of priority directions of the approved by the RF Government anti-crisis program. More specifically, it is planned to allocate a. Rb. 1.61trln to finance measures on stabilization of the financial market, support of certain sectors of the economy and provision of social support to the population. The banking system should receive Rb. 300bn in additional support; the agrarian sector – by means of financing Rosselkhozbank - should be granted Rb.45bn; JSC Rosagrolizing should receive Rb. 25bn; another Rb. 17bn. should be allocated to regional budgets to recover interest payments by agrarian producers’ credits; small businesses are to be given Rb. 6.2bn; JSC “Russian Railroads” should be granted Rb. 50bn; automakers - 39bn; military-industrial complex – 70bn.

The measures have not come out of the blue – they have been implemented to some degree over the past years. It is another matter that under the present circumstances they have formed the schwerpunkt of an attempt to ensure a comprehensive remedy of the current problems in the noted areas. But these measures appear somewhat belated and they are not preventive, as the production slump and the fall in the business activity have already started. It is unlikely that the government would succeed in reversing the trend even by pouring in more funds, especially when there are no guarantees of their efficient use,; however, it is quite real they would alleviate the situation.

As concerns the social component of the anti-crisis package, it is planned to pursue a pro-active employment policy – as much as Rb. 43.7bn. is allocated to this effect; unemployment benefits will be raised thanks to the Rb. 33.9bn.-worth appropriation; Rb. 26.3bn. is supposed to help use the so-called “mother capital” to pay off mortgage credits. To compensate for their withdrawn revenues, the government extrabudgetary funds should receive Rb. 388.5bn in interbudgetary transfers, while the RF Subjects – Rb. 150bn.

The overall volume of expenditures ultimately grew at Rb. 667.3bn. vis-à-vis the earlier approved volume. It is now planned to account for Rb. 9.69trln. (24% of GDP). For the first time over the 2000s the federal budget will suffer a Rb. 2.98trln (7.4% of GDP) deficit. As it will be financed by using the Reserve Fund’s resources, the inflationary pressure on the Rb. from the increase in expenditures is unlikely to be a significant one, as injections of additional resources will be made against the backdrop of the crisis in demand when the value of money grows substantially. The retail and producer prices have already now fallen or stabilized across a number of commodity sections. So, a uniform budgetary spending should not have an explicitly inflationary effect.

The Government’s forbearance from the practice of drafting a three-year budget is worth a particular notice. Objectively, with the current uncertainty with regard to medium-term prospects it is impossible to ensure a high quality of the three-year budgetary planning. But it should be noticed that the comeback to the one-year budget is a step back on the path towards development of strategic planning, as it worsens the general public’s understanding of the governmental long-term budgetary and fiscal policy, blocks the transition to medium-term public contracts, and fails to establish fundamentals of a greater transparency of the financial provision of public investment expenditures.

I. Sokolov, Head of the Department of Budgetary Policy