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In September, the price of oil fell below $40 per barrel again. In total, as economists predicted, Russia has made RUB3 trillion ($39.9bn) less from oil and gas than it did in 2019.
Finally, a fall in revenues from other sectors (not linked to oil and gas) have also contributed to the budget deficit — at both the federal and regional levels. While federal losses weren’t so high, many regions saw their finances suffer significantly: by summer the hole in the regional budgets reached almost RUB150bn ($1.99bn), despite the increase in financial support from the centre (which had planned an additional allocation of RUB300bn or about $4bn).
According to the Finance Ministry’s predictions from July, all of this should have brought the federal budget’s deficit to 5% of GDP (more than RUB5 trillion or $66.5mn by today’s conversation rates) by the end of the year. However, the law on the federal budget for 2020, which was adopted in 2019, had planned for a surplus of 0.8% of GDP.
Budget cuts & new revenues
In July, the Finance Ministry suggested cutting all unprotected budget items by 10%, cutting the weapons program by 5%, and getting rid of cost-of-living increases for civil servants all together. All of this would save RUB2.7 trillion in 2021 ($35.8bn) compared to the record “coronavirus” spending in 2020. They planned to continue the “consolidation” in 2022. This sequestration plan drew sharp criticism from experts, who argue that in times of crisis you need a fiscal stimulus.
First, the Ministry of Finance followed through on its word to cut budget expenditures by 10% across the board. The only exceptions are protected budget lines, such as military pensions and certain social benefits, and military expenditures, which the government will reduce by 5%. (Notably, funding for state-owned television has fallen under the “protected” category and will increase by 40% next year).
This is an unprecedented cut to budget spending, RBC writes. It will save the federal budget nearly RUB1 trillion each year ($13.3bn). The last time the government executed a widespread cut to budget expenditures was in 2016, when oil prices stood at $30/barrel. (They are currently hovering around $40/barrel).
Slashing expenditures is not enough to ensure a balanced budget, however. The Russian government is also planning to implement new revenue collection schemes, which it is calling “revenue mobilization.” Some of these measures have already been announced, such as moving to a progressive personal income tax, taxing interest on deposits over RUB1mn ($13,300), and taxing dividend payments leaving Russia at 15%.
Others are new. In September, the Ministry of Finance proposed adjusting corporate income taxes in the oil industry. These measures have been included in the 2021-23 budget, and should generate RUB200bn in revenue. Furthermore, the budget includes plans to increase excise taxes on cigarettes
80 RUSSIA Country Report October 2020 www.intellinews.com
