Page 52 - RusRPTNov18

6.1.1 Budget dynamics - specific issues...
Government sector spending will increase in real terms this year, and will continue to rise next year to implement projects in Putin’s May Decree. Higher inflation will reduce real spending growth. The added spending will be funded by the VAT hike and by lowering the federal budget surplus. Even so, the federal budget, which assumes the Urals oil price at about $60 a barrel, and the entire consolidated budget are expected to show notable surpluses in the next few years.
VEB published a macro projection for 2018-2021 with a base case featuring a pension age increase by half a year per year starting in 2020 . The very next day, the projection was deleted from VEB's website. The Minister of Economy announced at the "Russia: New Opportunities" Forum that such an increase is indeed being discussed, with several proposals on the topic already formulated. When prodded by journalists on where such discussions are occurring, he replied "in society." Both stories mark continued paralysis on pension reform, despite an increasingly evident need to do something: the number of workers per pensioner continues to shrink, as do pension benefits in real terms.
Russia's Finance Ministry warned that it would have a RUB204bn ($3.3bn) hole in budget revenues in it if state-owned enterprises (SOE) don’t pay out the 50% of profits they have been ordered to by the government ,InterfaxandV edomosti dailysaidonApril23citingunnamed sources in the government.
MinFin’s complaints is the latest in a running battle between the liberal fraction running Russia’s finances and the heads of Russia’s largest companies, most of whom run their enterprises like personal fiefdoms. MinFin continues to demand that state-owned enterprises pay the requested 50% of IFRS net profit in dividends, warning the Prime Minister Dmitri Medvedev that 2018 budget will have a big hole in it if they don't.
The 2018 federal budget plans to raise RUB380bn in dividends based on 50% of IFRS net profit, most of the state majors dodge. Gazprom natural gas giant alone will save paying the state RUB78bn by paying 25% of consolidated net profit.
Rosneftegaz holding controlled by influential ally of President Vladimir Putin Igor Sechin is another long-time rival of the Ministry of Finance in the fight for dividends , and still holds half of the RUB40.6bn interim dividends for January-June 2017 from Russia's largest oil company Rosneft. Rosneftegaz does nothing other than hold shares and has less than a dozen employees. Sechin is head of both the oil company and the holding.
Also Russian oil pipeline monopoly Transneft dodged the full dividend payout for 201 7. t is unlikely that given the favourable oil prices environment the government will manage to create urgency and will to have the oil and gas giants budge.
"It is worth indicating that the amount under discussion is equivalent to around a $2/barrel increase in annual oil prices, thus the negative effect on the budget in relation to the lower-than-expected dividends payments is clearly not an
52 RUSSIA Country Report November 2018 www.intellinews.com