Page 18 - RusRPTMay20

property taxes for businesses into the obligation to protect jobs and curb prices.
The main blow will land on small private companies serving end users as well as the service sector. This will undermine income for at least 20mn people — one third of Russia’s economically active.
Regional budget revenues from personal income tax will fall by 20–25% in low income regions to 40–43% in the big cities like Moscow and St. Petersburg.
The fall in tax revenues will lead to budget cuts that will further depress growth as the Russian economy’s performance remains tightly connected to the budget and that will further hurt the regional economies.
The condition of the federal budget depends as ever on the curve of oil prices and the depth of the economic recession.
“Since the quotations are unlikely to recover by the end of summer, my estimate of the missing budget revenues in the second quarter would be RUB1.6–1.7 trillion in the oil and gas losses. I expect RUB650–800bn lost due to lower income taxes, VAT, excise taxes and other charges. In other words, in the most optimistic scenario, the budget will reach 50% of the target levels,” said​ ​Vladislav Inozemtsev​, the ​Director, Centre for Post-Industrial Studies​ in Moscow, in a recent​ ​article​ in Riddle.com. “At the same time, budget expenditure may increase due to increasing transfers to the Pension Fund (by RUB300–400bn) and subsidies to regional budgets (by RUB300–500bn).” That will leave a roughly RUB3 trillion hole in the budget from a total planned spend of RUB19.8 trillion that will be taken out of the NWF, which holds circa RUB9 trillion after part of its funds was used by the MinFin to buy the Central Bank of Russia (CBR) 50%-plus one share in Sberbank in April. In other words there is enough money in the NWF to cover budget deficits for three years at these levels of deficits.
But that is assuming none of the money in the NWF is used to stimulate the economy, which seems very likely to happen. The Kremlin is caught on the horns of a dilemma: on the one hand it needs to deliver on an economic recovery as soon as it can or face rising social tensions and protests; and on the other it wants to conserve as large a reserve as possible to be able to spend its way out of future crises, or even the deterioration of the situation due to the current crisis.
To create some wiggle room the government is likely to trim budget spending to get through this difficult period using as little of its NWF reserves as it can get away with at the expense of letting the economic crisis last a bit longer than otherwise.
“The authorities will doubtless try to reduce the period where they provide support to businesses and pay benefits, shrinking it to 1–2 months, i.e. until May or June,” says Inozemtsev. “They would do so in the hope that summer and the dacha season may mitigate the severity of financial problems faced by Russians. All this means consumer demand will remain low not only in the next month, but probably until the end of summer; then the Kremlin will think about the strategy for an autumn-winter campaign: it will assess trends in the oil market, calculate losses caused by anti-epidemic measures, estimate the most realistic prospects for resuming growth and identify methods of financing the budget deficit in the third and fourth quarter.” The upshot of this policy is enough will be spent to support SMEs and those that are unemployed to get them through the next few months. The summer is an easy time in Russia when much of the population move to the dacha and become largely self sufficient. That buys time to get to the autumn when oil prices are expected to recover somewhat that will give the Kremlin more options.
18​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com