Page 65 - RusRPTNov19

6.1.1 Budget dynamics - results
Despite the third-quarter reversal, the federal budget surplus for the last 12-month period still amounted to nearly 3% of GDP. The turn reflects shifts in both revenues and expenditures. After having risen by 10% in the first half of the year in nominal terms, budget revenues now rose by just about 2% y/y. On-year growth in spending accelerated as expected to 16% y/y in the third quarter, after scoring about 1% in the first half.
Budget revenues from oil & gas taxes went into a tailspin in the third quarter (down 20% y/y) after posting large gains in numerous previous quarters. It was the first decline in oil & gas tax revenues since autumn 2016. Growth in other revenues accelerated and rose to 17% y/y for January-September. More of the gains came from improved tax collection rather than the impact from the VAT hike on January 1, 2019.
Note the “non-oil” budget deficit is now at -4%, which is the level as in the boom years and more significant than the headline rate. The non-oil deficit is the level the government subsidies the economy at MinFin has been trying to get back to the -4% level for years -- a combination of spending for growth and reserve building for the future. And this -4% level was achieved at a time when oil and gas revenues were tanking.
Defence expenditures, the sole government budget sector spending category funded entirely from the federal budget , fluctuates considerably within each year. Defence spending turned to sharp rise in the third quarter, lifting spending growth to about 5% y/y for January-September.
In 3Q19, Russian budget revenues grew 2.3% y/y, the growth slowing from 10.7% in 1H19 and 9% in 2Q19 . They totalled RUB15 trillion in 9m19.
Expenditures, meanwhile, soared 15.9% y/y in 3Q19, versus just 1.3% growth in 1H19 (following a revision - the initial figure was 3%).
The high growth in 3Q19 was likely attributable to increased spending on "national projects,", which should boost construction activity. Still, we have not observed a substantial improvement in construction output in 8m19 (up
65 RUSSIA Country Report November 2019 www.intellinews.o