Russia could cut, redistribute some budget expenditure in next three years

(Interfax – MOSCOW/KAZAN, September 17, 2013) Russia could cut budget expenditure by more than 1.2 trillion rubles in the next three years. Some of this as well as money saved by other means may be redistributed or used for other priorities.

Cutting and maneuvering

The Kommersant newspaper said the Russian Finance Ministry was proposing to slash budget spending by more than 1.2 trillion rubles in total in 2014-2016 in order to continue to provide small and medium businesses with social insurance tax concessions and organizations and citizens with support.

The paper said the proposals were aired at a meeting chaired by Russian Prime Minister Dmitry Medvedev on Monday to cut spending by 268 billion rubles in 2014 and nearly 500 billion rubles in each or 2015 and 2016. The proposals have not been approved by the government.

Earlier, on September 12, Finance Minister Anton Siluanov said at a meeting on budget planning chaired by the Russian president that his ministry was proposing to redistribute between 100 billion and 300 billion rubles a year in 2014-2016.

The ministry is suggesting that half of all budget spending items be cut by 5%, which would save 69.5 billion rubles in 2014, 73.3 billion rubles in 2015 and 76.4 billion rubles in 2016.

It also proposes to delay funding for the Moscow-Kazan high-speed railway until 2016, which would save 57.5 billion rubles in 2015-2016. Abandoning proposed incentives for later retirement would save an estimated 162 billion rubles over two years.

The Finance Ministry has suggested that the Defense Ministry, in return for curtailing the state armaments program in 2014-2015, receive an additional 68 billion rubles for that program in 2016. But the Defense Ministry has a different suggestion: to reject almost all additional allocations in 2016 and to cut its budget by 24.5 billion rubles in 2014 and 45.3 billion rubles in 2015.

The Finance Ministry estimates the “tax maneuver” to raise the mineral extraction tax rate and lower export duty on crude oil will generate 60 billion rubles a year in 2014-2015 and 100 billion rubles in 2016.

All the money saved will be used to extend social insurance tax concessions for SMEs, support regional budgets and top up the reserve fund in the event of emergencies. Spending on the federal program to destroy chemical weapons might be doubled in 2014.

Current expenditure, savings

Deputy Finance Minister Tatyana Nesterenko told reporters in Kazan that the Finance Ministry proposes to cut 624 billion rubles in current budget expenditure in favor other priority expenditure in 2014-2016.

“All that concerns current expenditure is a proposal to reduce budget allocations by 5% and by 2% broken down by autonomous budget institutions. Here they are: 200 billion rubles, 210 billion rubles, 214 billion rubles in 2014, 2015 and 2016,” she said.

In addition to this, money saved by freezing pay rises for public servants and altering the procedure for opting into pension schemes can be redistributed.

“If you were to ask what measures we might take to allocate funds for new priorities, the delay with indexing wages for public servants and some cut in spending would give us around 200 billion rubles, and the change in approach to funded pensions around 100 billion rubles,” she said.

This freeze on raising wages will save the federal budget 31 billion rubles in 2014, 125 billion rubles in 2015 and 127 billion rubles in 2016, the Finance Ministry estimates

She said these decisions were made within the context of efforts to reduce current budget expenditures. “They are being reduced for two reasons: in order to maintain the priority of other expenditures, but there is also another element that we see from the macroeconomic trend – continual rapid growth of costs. Costs are growing, productivity is low, wages are high, everything’s bad with energy efficiency. But one needs to understand that the economy develops synchronically, wages are raised in the public sector, this pulls after it, ramps up costs, including wages in the economy,” Nesterenko said.

She said that “if there is such a brake (on wage growth) in the public sector, indicatively the same should happen in other sectors.”

“Of course we can’t say that you in the private sector also don’t index wages. That’s their business, clearly. But it’s their business while and they make this decision while their products are still competitive in price, because it’s clear that we’re losing everything,” Nesterenko said.

The Finance Ministry also plans to slightly reduce the current expenditures of institutions.

The Finance Ministry may review its funded pension parameters, Nesterenko said.

“It’s been decided to make it not 4% or 2%, but 6% or 0%, in other words either you opt for 6% funded pensions or 0% funded pensions,” she said.

The review would save around 350 billion rubles for the economy in 2014-2016. “Given that around 44% of pensioners are choosing the funded part, the additional difference between these to percentages by year is 102 billion rubles, 116 billion rubles and 13 billion rubles,” she said.

The parameters for calculating the transfer to the Pension Fund are still being discussed, she said. “The debate is still on with the transfer to the Pension Fund from the point of view of what level of revenue for the Pension Fund and, correspondingly, what level of pension indexation should be figured into the calculations,” she said.

The priorities that the money saved might go towards include extending the federal program to train on scientific and teaching staff for innovation, improving the international rankings of Russian higher educational institutes (10-12 billion rubles additional funds per year) and building stadia for the 2018 football World Cup finals (30 billion rubles year).

Slashing provisional expenditure

Provisionally approved Russia budget expenditure could be cut by 355 billion rubles in 2014 and 400 billion rubles in 2015, Nesterenko said.

“When revenue decreases, overall expenditure does not decrease, except for provisionally approved expenditure, which is not designated by item. Correspondingly, spending might be cut by 355 billion rubles and 400 billion rubles (in 2014 and 23015, respectively),” Nesterenko said.

Nesterenko said the 2014-2015 budgets had been approved in the framework of the three-year budget for the period 2013-2015, which was based on the previous macroeconomic forecast. Now the forecast has changed considerably, resulting in changes to the budget for the last two years, in particular revenue cuts, Nesterenko said.

“The budget is reckoned on the basis of this forecast. In the budget that we have reckoned, the drop in revenue compared with what was approved in the budget for the first two years (2014 and 2015) will be 450 billion rubles in 2014 and 1.080 trillion rubles in 2015,” Nesterenko said.

So budget revenue had to be cut also. But, in keeping with the budget rule, only provisional spending can be cut, Nesterenko said. “Budget rules exist to guarantee continuity in social policy. We have reserves, which are capable of sustaining such a high level of spending in the event of such a sharp drop,” she said.

As well as cutting provisionally approved expenditure, the Finance Ministry proposes to redistribute previously approved current spending on higher priority spending that was not designated when the 2013-2015 budgets were put together.

“We have an expenditure ceiling, which is lowered by provisional expenditure, and there is spending that was not taken into consideration when budgets were formed, for example the football World Cup Finals, investment spending that supposed to alter the trajectory of economic growth, expanding the Far Eastern test-ground, Trans-Siberian Railway, BAM, boosting the transit potential. If spending decreases there are no available resources, to other spending needs to be reduced. What is reduced to ensure new priorities? Current spending,” Nesterenko said.