The Existing Expenditures Cannot be Met Even in the Mid-Term Prospect

On 23 October 2015, the Government of the Russian Federation introduced a draft law on the 2016 Budget to the State Duma. The budget was drawn proceeding fr om the forecast of the oil price being equal to $50 a barrel and the rate of inflation and GDP growth amounting to 6.3% and 1.2%, respectively.

Budget priorities are evident from the pattern of expenditures: social policy (27%), national defense (19%), law-enforcement and security (13%) and national economy (nearly 16%). The revenues are expected to amount to Rb 13.7bn, while the expenditures and the deficit, to Rb 16bn and Rb 2.3bn (3% of GDP), respectively. The deficit is going to be covered mostly by resources of the Reserve Fund, that is, a larger portion of the above fund is to be spent. Speaking at the Federation Council of the RF, Anton Siluanov, Minister of Finance of the Russian Federation pointed out that the situation with the Reserve Fund was becoming a critical one: it decreased by Rb 2.6 trillion, that is, by two-thirds.
Looking for reserves to replenish the budget, the RF government took the entire range of unpopular measures. The moratorium on funded pensions was extended again despite the fact that as early as in spring 2015 the RF government announced that there would be no moratorium in 2016. It is planned to index pensions only by 4%, while pensions of working pensioners are not going to be indexed at all.
In the public sector, wages of officials and military servicemen and the maternity capital are not going to be indexed. However, it is expected that indexation of pensions may be higher if the economic situation is a favorable one. It is to be noted that two budget reserves with the volume of up to Rb 500bn are being formed by means of the funded pension, unutilized balances of recipients of budget funds in 2015 and a 10% decrease in subsidies to state-owned companies.
Taking into account the fact that parliamentary elections are to be held in 2016 indexation of pensions will be carried out if no dramatic collapse of the macroeconomic situation takes place. Taxes on the oil and gas sector are expected to be raised despite the fact that earlier the RF government declared that it was not going to do that during the crisis. Evaluating the draft budget, Alexei Kudrin, Head of the Committee of Civil Initiatives reasonably stated that in a situation wh ere no institutional reforms were carried out there was no alternative, but to raise taxes.
Generally, the 2015 budget process showed the following: actually in H1 2015 the Russian authorities hoped to avoid taking painful decisions expecting the market situation with prices on energy carriers to change for the better; it is to be noted that such a trend did exist in spring. However, prices stabilized then around $50 a barrel and it became clear that there was no magic solution of the problem. The authorities are not going to reduce huge expenditures on defense and security which aggregately exceed expenditures on social policy and amount to nearly one-third of the budget.
The above is justified by existence of foreign threats and the need to ensure military parity with the NATO countries, though it is evident that such a parity cannot be achieved due to the economic potential of Russia whose economy accounts for 2%-3% of global GDP, while the entire Russian budget is smaller than the defense budget of the US alone.
In addition to the above, the authorities postpone a decision on raising of the pension age though it is quite pending. Once again, in October the idea of raising of the pension age (up to 63 years) was expressed by Alexei Ulyukaev, RF Minister of Economy; earlier Vladimir Putin, President of the Russian Federation said that that idea was to be elaborated on, but in taking of political decisions it was repeatedly excluded.
However, for example, refusal to index wages of public sector employees affects far more people right now, while raising of the pension age – depending on different schemes – does so only in many years.
The practice of budget subsidies to state-owned companies is still preserved. Actually, the existing expenditures cannot be met even in the mid-term prospect with a conservative scenario of the dynamics of oil prices and preservation of the current ratios of the budget.
Sergei Zhavoronkov, Senior Researcher