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Russian government cutting budget spending

September 17, 2013, 11:16 UTC+3

Citizens promised to not feel budget cuts

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MOSCOW, September 17 (Itar-Tass) -Russian Prime Minister Dmitry Medvedev has said it is necessary to reduce all budget spending by 5%. Experts note that in reality the saving figure could rise to 10%, Komsomolskaya Pravda newspaper writes.

Finance Minister Anton Siluanov said that “cuts will be applied to all entities which are engaged in public procurement and receive funding from the federal budget.”

At the same time, the publication points out that the Russian treasury has enough funds. According to Ministry of Finance, over the first six months of 2013 the budget income has reached 6.26 trillion rubles, and spending - 5.89 trillion rubles, thus, the bottom line is 370 billion rubles, which might be enough to, for example, double  pending on healthcare.

Experts say that treasury spending is uneven, most of the expenditures occur at the end of the year. Thus the main expenditures are yet to come and they will clearly exceed the revenues. “The year’s deficit could come close to 1% of GDP,” says Nikita Maslennikov, head of the Finance and Economics department of the Institute of Contemporary Development. “In monetary terms it is about 660 billion rubles. The reason is that economic growth is slowing down. Corporate earnings this year are dwindling. As a result, the income tax and other duties may form a large hole, which would affect not only the federal budget, but also the regions.”

“There are a lot of budget programs, where spending can be cut not just by 5%, by even by 25,” says Nikita Krichevsky, chief researcher at the Institute of Economics of the Russian Academy of Sciences (RAS). “And thoughtless spending could be replaced with tax breaks. This is the path that almost all countries follow.”

Officials have promised that ordinary Russians would not be affected by the current policy. Sixteen budget items, including scholarships, pensions and public sector wages will not fall under reduction.

Kommersant daily indicates that the 5% reduction of approximately half of the fiscal spending will give the budget revenues an additional 69.5 billion rubles in 2014, 73.3 billion rubles in 2015 and 76.4 billion rubles in 2016. The second, even weightier proposal of the RF Finance Ministry is to save 102.2 billion rubles in 2014, 125.8 billion rubles - in 2015 and 133.4 billion rubles - in 2016. One of the components of the saving policy is the refusal from the indexation of the costs associated with payment of allowances to the military.

Other budget saving proposals of the Ministry of Finance for 2015 are even more ambitious. Thus, it is proposed to postpone the 2015-2016 funding of the Moscow-Kazan high-speed highway for (57.5 billion rubles) until 2016, and “take it into account in conditionally approved expenditures.” Cancelling the idea of the ·· government’s social block on the promotion of pensioners’ later retirement for 2015-2016 will, according to the Ministry of Finance, save 162 billion rubles in two years. It is not planned so far to cut the defence spending, but part of the spending (about 200 billion rubles) is planned to be shifted for the period after 2017.

In fact, if it were not for the “fiscal rule,” the treasury could have avoided a large deficit. The government adopted the rule a couple of years ago. The point is simple - if the oil price exceeds 91 US dollars per barrel, then all the surplus goes not to the treasury, but directly to the Reserve Fund - until it grows to 7%. And this could take at least a few years - the Reserve Fund currently has less than 3 trillion rubles (a little more than 4% of GDP).

As a result, since the beginning of this year, nearly one trillion rubles have been added to the Reserve Fund. “Complete nonsense: reducing costs, we continue to replenish the Reserve Fund,” Igor Nikolayev, director of the Strategic Analysis Institute of the Financial and Accounting Consultants company, is perplexed.

According to experts, the country’s economic growth depends on the amount of investment. And if spending is cut and taxes raised, there is no way investments can be attracted.

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