Posted on 10/17/2003 11:07:44 AM PDT by RussianConservative
MOSCOW - Duma passed the bill “On the federal budget for 2004” on the second reading on Wednesday. It was passed by a vote of 236 to 157, with one abstention. It was State Duma Chairman Gennady Seleznyov who abstained.
Unlike the first reading, where the main macroeconomic parameters of the budget were determined, the deputies decided on budget spending items on Wednesday. Spending is set at RUR 2.659 trillion (about $88.28bn according to the current exchange rate), and revenues are projected to be RUR 2.743 trillion (about $91bn). The surplus is set at RUR 83.403bn (about $2.77bn).
The Finance Ministry of the Russian Federation does not hide its satisfaction. Finance Minister Alexey Kudrin stressed that the State Duma had passed the budget as approved by the government. In his opinion, it means that all agreements achieved by the government and the deputies during the preliminary, so called “zero” reading of the budget, “proved to be high quality and reliable, and the priorities have been placed correctly”. Implementing their separate agreements with the Cabinet, the members of pro-government factions rejected all ‘unsanctioned’ amendments. Naturally, this angered many other deputies.
Sergey Glazyev, a member of the State Duma, said that his proposals, if adopted, might have increased budget revenues by more than RUR 500bn (about $16.6bn) compared with the government’s variant. This could be achieved through natural resource royalty payments to the government and taxation of profits that were not reported or were taken out of the country illegally, as well as through more efficient tax collection and more efficient use of state property. In addition, Mr. Glazyev said that the 2004 budget could do without a surplus. Viktor Gerashchenko, the former head of the Central Bank, supported this idea. In his opinion, under the circumstances, it is “not very sensible” to seek a permanent surplus and the creation of a stabilization fund.
Mr. Glazyev has regularly criticized budget bills over the past few years. He finds various epithets for the budget. This year, he described the bill as “the budget of a bankrupt nation”. But his proposals remain the same – to take natural resource royalty from producers, to enhance tax collection, stop the illegal withdrawal of funds, and take some other measures, which are not very popular with the ruling elite.
Although polemical, Mr. Glazyev’s proposals are based on sound economic reasoning. Indeed, Russia mobilizes much less additional revenues from high oil prices to the budget system compared with Venezuela, Mexico or Norway. In these countries, state-owned companies account for the bulk of oil production, which significantly simplifies the process of collecting natural resource royalty payments. In Russia, with its strong ‘oil lobby’, the situation is different.
There are problems with tax collection, too. This indicator is calculated in many countries, but Russia is the only country where it is almost officially projected in the budget. Mr. Glazyev is right: this is nonsense. On the other hand, Russia’s fiscal agencies are becoming more and more efficient. Five years ago, tax collection was about 60 percent, and now it is 95 percent. This is on par with many European countries. However, the Russian budget still does not receive an estimated RUR 100bn to RUR 120bn a year.
Finally, the combination of a stabilization fund and a budget surplus is bewildering. In pure arithmetic terms, both represent the extraction of part of revenue of the economy. In the first case, sort of ‘rainy day savings’ are being created, and in the second case, the public debt is being paid. But both mechanisms serve the same purpose – to lessen the dependence of the budget from the situation on world markets. But this goal can be achieved by other means.
The problem is that a budget surplus has become critical for the government in recent years. Up to 10 percent of budget revenues are de facto taken from the control of parliament. These revenues are controlled by the Cabinet, and nobody bears responsibility for how efficiently they are spent. Only starting next year will this sphere be controlled by law, instead of government rulings. But proposed amendments to the budget code just legalize the present practice of spending ‘additional’ budget revenues. This approach might not lead to bankruptcy, but there is little hope for flourishing, either.
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