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Russian president urges to make budget expenditure more effective

June 14, 2013, 17:12 UTC+3 Alexandrova Lyudmila

MOSCOW, June 14 (Itar-Tass) - Russia's budget expenditure cannot increase any longer, as it has already exceeded the real economic growth rate. The expenditure should become more effective, because the welfare promises made during the election campaign should be fulfilled by all means, according to the key idea of the message on budge policy delivered by Russian President Vladimir Putin on Thursday.

Analysts note that the issue of a deficit-free budget is not on the agenda any more. Nor did the government unveil an anti-crisis plan, although the head of state had acknowledged such a possibility.

"The opportunities for constant rapid increase in budget expenditure are exhausted or close to these indicators," the president said presenting the budget message which will make groundwork for the country's key financial document for 2014-2016, "we need more effective, quality solutions."

The latest message on budget policy was largely devoted to the implementation of "the May 2012 decrees" by the president, which set the reference points for Russia's socio-economic development in the near future. The president ordered the government to find, through optimization of budget expenditure, the funds for meeting his pre-election social promises that materialized as May 2012 decrees at the expense of cutting other budget items.

Speaking about implementation of the decrees, Vladimir Putin noted the imperfection of many state programs, which caused an increase in budget expenditure exceeding the real economic growth rates amid the general unfavourable economic situation. "If there is not enough money, we should determine priorities. It is necessary to considerably optimize the budget structure, identify reserves and redistribute them in the interests of the strategic tasks designated in the May 7 decrees. The share of the spending which yields the maximum effect for economic growth and social development must increase. The system should be so stable that even in case of a downfall of oil prices, the government could continue to meet its social commitments," he added.

Further increase in social expenditure is only possible with simultaneous growth of the Gross Domestic Product. "The outrunning growth of social expenditure, unsupported by economic growth, will bring us to a deadlock," Putin warned, "I ask not to forget about it."

Vladimir Putin indicated what he was expecting from the government in the next three years: "The main requirement of the budget policy is to maintain economic growth."

Patching the budget with higher taxes would be wrong, the head of state said. "The insurance fees for business should remain at the current level (in 2012-2013, the rate was decreased from 34 percent to 30 percent, but it will be brought back to the old level in 2014). We have to keep the basic tariff of insurance fees for business at the current level. We cannot solve the pension system problem at the expense of increasing fiscal load on business and suppressing entrepreneurial activity and economic growth," he stated.

To solve the emerging problems, Putin suggested tapping the National Welfare Fund /FNB/, which had been practically intact up to date. These funds will foremost be used to offset the Pension Fund deficit. The amount will depend on the parameters of the pension formula which the government is drawing now. Vladimir Putin said the pension formula was the government's priority in 2013. It should secure differentiated approach to each citizen: the more the employment record and wages are, the higher the pension should be."

On the other hand, the president suggested using FNB money in infrastructure projects. Analysts believe that this instruction to the government implies that the position of the Ministry of Economic Development prevailed in the dispute over the future of FNB funds. Earlier, the Ministry repeatedly questioned the necessity of further accumulation of petro/gas revenue and proposed to allocate some 200 to 400 billion roubles from the FNB for infrastructure projects every year.

The message notes that part of the revenue envisioned by the program to develop armaments (worth 20 trillion roubles will be postponed to a later date - 2017-2020).

An important requirement stated in the message is to complete the development of budget strategy in the period until 2030, and, if need be, amend the long-term prognosis of socio-economic development. According to Putin, the strategy should evaluate the possible risks and "clearly indicate our actions under any scenario, including unfavourable one."

The tough requirement for the country's budget to be deficit-free by 2012 is no longer viewed as the cornerstone of all budget policy. A year ago, Putin demanded that target for the budget by 2015. On Thursday, this target, it is original wording, was not even mentioned.

Director of the institute for strategic analysis Igor Nikolayev, cited by the Nezavisimaya Gazeta says it is far from being accidental. "It is impossible to achieve a deficit-free budget in a foreseeable future," the expert said, "even the authorities recognize it, but they try not to emphasize it."

Yesterday's message was a clear turnabout from "the extensive concept of budget policy to intensive," the RBK Daily cited head of the economic expert group Yevsei Gurvich as saying. Another important novelty is the orientation toward goal-oriented social expenditure and its distribution according to "requirement criteria."

Many ideas brought forward in the message have been voiced before, but now they "transfer to the practical plane," Gurvich went on to say. Vladimir Putin urged officials to identify reserves and redistribute them to strategic tasks.

Many expected the head of state to announce moves to support the Russian economy in the conditions of approaching recession, the Lenta.ru network publication noted. However, it did not happen; the document did not indicate how the authorities intended to combat a possible crisis.

That the government should take measures to support economic growth, economists and experts said in the beginning of this year, while the Economic Development Ministry broached the issue in April. Vladimir Putin convened a government meeting involving experts in late April, but no concrete decisions were made. According to Kommersant sources, the Cabinet has already prepared an anti-crisis plan. Perhaps, the authorities are in no hurry to make public the list of anti-crisis measures, as recession has not yet hit the country, Lenta.ru said.