Page 14 - RusRPTAug23

presented as no cause for concern and interpreted as a one-off due to a forward dispatch of federal funds from next year’s budget with the aim to ensure a more balanced approach to spending throughout 2023. Budget deficits were again reported in January-February 2023 but speakers from Russia’s Finance Ministry kept a brave face arguing in their public communications that the budgetary situation should improve dramatically as the year proceeds.
Cabinet debates taxes and other means to increase the revenue flow.
Around April-May 2023 the bullish mood started to gradually change when, following the start of the budget-planning process for 2024, as Russian government officials started to talk more frequently about the need for budget consolidation including a review of current and planned expenditures. That was accompanied by discussion of the need for new or a revision of existing taxes – the “windfall tax”, a hike in the oil price used for taxation purposes (via cutting the set gap between the Brent and Urals blends), re-introduction of personal tax on interest paid on bank deposits, and a new wave of discussion of a higher progressive personal tax rate, etc.
Spending cuts back on the Cabinet agenda. Attempts to boost the government’s revenue flows are also accompanied by a stronger push toward slashing some, less critical, fiscal expenditures. The efficiency of the way the Cabinet spends its money on many budget items has been recently questioned by a number of officials from Cabinet ministers to auditors of the Audit Chamber and a range of Duma deputies. The last such move came from Finance Minister Anton Siluanov who, according to media reports, on June 29th at a government meeting on the new budget draft suggested that all ministries should cut spending on their “non-protected” items by 10% Y/y. While he did not specify what such items include, most probably the larger of these items could be expenditures on investment, road construction, economy, public administration, and ecology. At the same time, “protected” items clearly will include social programs, defence, education, healthcare, regional transfers, and debt payments. We believe that this year’s budget process will be a difficult one as the government is facing the major task to balance its finances in a situation where it no longer can rely on large inflows of oil & gas revenues or easy and almost unlimited access to the credit markets. Under these circumstances, fiscal tightening will come as unwelcome news for the economy, which in 2022-23 grossly benefited from a huge expansion in budget
14 RUSSIA Country Report August 2023 www.intellinews.com