Economists saw the draft budget brake for development

The box with the documents of the draft law “On the Federal budget for 2017 and the planning period of 2018 and 2019”

Photo: Artyom Korotayev/TASS

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Experts from a dozen institutions and business associations reviewed the draft Federal budget for three years and came to the conclusion that the budget in this way will be a drag on economic growth

The ranepa Higher school of Economics, the economic faculty of Moscow state University and several other institutions and business enterprises sent to the state Duma his conclusions on the draft budget for 2017-2019 (available in the database of documents of the lower house of Parliament) that the Committee of the Duma budget used in preparing the consolidated findings. The state Duma will consider the budget in the first reading on Friday, November 18.

Budget stagnation

In the draft Federal budget “made only a weak attempt to determine the place of the budget in the system of state policy from the point of view of the current needs of the domestic economy and prospects for socio-economic development in General,” reads the conclusion of experts of the economic faculty of Moscow state University, headed by Alexander Auzan. MSU experts believe that in conditions of “economic crisis” fiscal policy should not be a “passive-adaptive”, as proposed by the government, it should actively influence the economic situation in the country. The authors findings suggest radically revise the main parameters of the budget — to abandon the “accelerated Pro-cyclical fiscal consolidation” (deficit reduction over three years from 3% of GDP to 1%) and, conversely, to increase the deficit through domestic borrowing and privatization. But fiscal consolidation can begin, when to resume sustainable economic growth, economists say MSU.

In the structure of budget expenditures is dominated by unproductive social and defense. And the pace and proportion of spending cuts linked to GDP growth and priorities, wrote in their conclusion, the experts of the Financial University under the government. In the opinion of the Russian Union of Industrialists and entrepreneurs (RSPP) said that the draft three-year budget “is the budget is not development, and stabilization/stagnation”.

Expenditure on national defence reduced in the next budgetary cycle by 27.1%, but the vast majority of this reduction is due to the transfer in 2016, and early implementation of guarantees on loans to enterprises, written by experts of the Higher school of Economics (HSE). In 2016, the government decided to prepay the loans of defense enterprises on 800 billion rubles., previously taken from state-owned banks to the state procurement. But except for this single factor of reduction of expenses of the Ministry of defence in 2017 will amount to 6%, and in 2018-2019 it will be less than planned reduction of the “base” appropriation levels in other areas (6% vs. 9% in 2018 and 11% in 2019). This will continue reducing the cost of education in relation to GDP from 3.7% in 2016 to 3.5% of GDP in 2019. Their level is gradually shifted from the characteristic of developed countries (4.5% of GDP in the OECD average) in the direction of characteristic of developing countries, experts say the HSE.

The share of “productive” expenses associated with investment in human capital and science, will be reduced to-GDP ratio from 1.67% to 1.33% over the next three years, experts of the Russian economic University named after Plekhanov. “The low and declining relative to the world level of expenditure on human capital does not provide opportunities for medium-term economic growth and the transition to the investment model of economy”, — said in the conclusion of the University.

Excessive optimism

HSE experts write that the basic scenario of socio-economic development, which formed the basis of the draft budget, would be “overly optimistic” in terms of GDP growth (of 0.6% next year and 1.7 and 2.1% in 2018 and 2019), if the government does not make efforts to change growth model. The authorities underestimated the negative impact on the economy of the planned reduction in government spending, believe in HSE. According to estimates of the Center of the HSE, taking into account the planned reductions in spending in real terms, the GDP growth will be only 0.4—0.7% in the next three years.

The Institute of Economics draws attention to the fact that the economy and budget remains heavily dependent on the geopolitical situation and the situation on the world markets. Development opportunities are limited by outdated technology system. “In the preservation of this situation, a significant role is played by insufficient funding of science, formation of new structure of human capital, qualitative reorientation of the professional growth of labour resources in accordance with the development of priority sectors of the economy, and the need for financial support of economy of Crimea, assistance to the Donetsk and Luhansk regions, involvement in events in Syria and the need to respond to the approach of NATO to the borders of the country,” write the experts of the Russian Academy of Sciences.

The country will remain unfavorable investment climate, continues to stagnate or decline in GDP, will remain inflationary pressures caused by including non-monetary factors, write the Financial experts of the University, and therefore “doubts” the validity of the dynamics of non-oil revenues in the next three years, they wrote.

The draft three-year budget, according to the REU named after Plekhanov, “different stiffness measures in individual optimistic budget parameters”. It remains unclear whether it will be possible to follow the laid down parameters for the entire three-year period, state economists Ranepa and the Gaidar Institute.

The draft budget includes record low inflation for Russia of 4% for all three years, but the Financial University under the government believes that this forecast is too low. It “contains a threat or increase expenditures by the end of the year, or growth of the balances at the beginning of the next fiscal year (the withdrawal of funds from the economy)”, said in his opinion. Low stable inflation, in the budget, combined with the projected growth of the dollar (from RUB to 67.5 in 2017 to 71.1 RUB in 2019). This is a contradiction, since the weakening of the ruble by 10% adds to inflation by 1.5—2 percentage points, experts say the HSE.

Intergovernmental fiscal imbalances

According to the draft budget, in the next three years will continue the inefficient system of intergovernmental fiscal relations — with a high proportion of transfers, experts say the Financial University.

Their colleagues from Moscow state University indicate that at the regional level in 2013 has been to reduce the financing of state investment programs (including in transport, communications, social infrastructure). It is fraught with crisis situations: “This imbalance <…> is unlikely to be overcome without extraordinary redistributive measures in terms of reducing the total revenue base”, — said in the conclusion of Moscow state University.

About the reduction in the total amount of intergovernmental transfers according to the conclusion of the Ranepa. Together with rising expenditure obligations, as the economists say, it could lead to a further distortion of the structure of regional budget spending and exceeding of the level of state debt of constituent entities.

Control over the state companies

The HSE have questions and the government’s plans to collect the Treasury of up to 50% of the net profit of state-owned companies and Federal state unitary enterprises. The idea is not rejected, it follows from their findings, but “we need to assess how the removal of half the profits in each case will affect the company’s attraction to investors and, accordingly, on its development.”

The prospect of withdrawal of 50% of the net profits may encourage companies to reduce profits by inflating costs. Need an effective system of control over the dynamics and structure of expenses of state-owned companies, warns HSE

State-owned companies generally remain outside the budget statements, their plans and budgets are not presented, and hence to check the validity and reliability of the calculation of Federal budget revenues for three years is impossible, experts say the Financial University. In the end, the forecast of socio-economic development does not contain sufficient information for the assessment base for tax and non-tax revenues. This is especially true of income from use of property in the state.

Support small business and industry

Chamber of Commerce of the Russian Federation and economic Department of Moscow state University propose to abandon the freeze of transfer of pension savings in private pension funds is a source of long money for the economy. CCI proposes not to renew the freeze and to consider the transition to the development of the system of pension savings on a voluntary basis with the participation of the employee, the employer and the state. Experts of the economic faculty believe that the new design of the pension system and to adopt them promptly.

The chamber of Commerce also proposes to spend budget funds to support the real sector. In particular, the “multiples” to increase the volume of Fund of development of the industry, while “in the project for 2017 financial support of the FRP was reduced by 4 billion rubles, in 2018 — 774 million rubles”. The same proposals contained in the conclusions on the draft budget by the RSPP and “Business Russia”. In addition, the Union indicated a reduction in the cost of support for small and medium-sized businesses in three times (from 11.3 billion rubles in 2016 to RUB 4.2 billion in 2019). This, in their view, suggests that a small business has ceased to be a priority of economic policy.

Representing the interests of small business “Support of Russia” asks to consider the issue of transfer tax payments at the local level. In particular, we are talking about the revenues from the USN and personal income tax (in the amount of not less than 25% of income). This will encourage local authorities to develop a system small business. In addition, the organization asks to freeze the deflator coefficient which is used for calculating the single tax on imputed income (UTII) for small business, at the level of 2015 and change its mechanism. Earlier, the Finance Ministry offered to resume the annual increase factor, but the government favoured retaining the current ratio, and the Duma Committee on the budget last week approved the extension of the freezing of the ratio for 2017.

Another offer “Support” — fix on the level of 2016 the minimum wage (6204 RUB) for the purposes of calculating contributions for self-employed persons to social insurance. From January 1, 2017, private employers will pay contributions based on the minimum wage in the amount of 7500 RUB. (growth on 21%), and from the middle of next year minimum wage will increase to 7800 RUB.

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