New presidential term of Putin can start with a budget maneuver

New presidential term of Putin can start with a budget maneuver

The President asked to find money for education, health and infrastructure.

In the presidential administration and the ministries to calculate the increase in expenditure on education, health and infrastructure, told “Vedomosti” several meeting participants and Federal officials. This is done at the request of the President, but the official order was not.

Support the idea, in particular, presidential aide Andrei Belousov and Chairman of the Central Bank Elvira Nabiullina, but subject to structural reforms, according to the interlocutors “Vedomosti”. There is an understanding that expenditures on human capital and infrastructure must be increased, the official said: “the Main question — where is the money? Without them it’s just a slogan”. Discussed options, told the interlocutors of “Vedomosti”: the reduction of costs, increase in taxes, the easing of fiscal policy.

The budget maneuver suggested by the experts to Vladimir Putin and on the eve of the previous presidential election, in 2011, in strategy 2020: increase the share of spending on human capital and infrastructure, to reduce defense, security and law enforcement. Manoeuvre failed: first, the incentives to reform was weakened by high oil prices, followed by the events in Ukraine and the sanctions, said the head of the Economic expert group Evsey Gurvich. The government’s actions were directed in the opposite direction, said the Director of the development Center of the Higher school of Economics Natalia Akindinova.

But the idea of fiscal space is not dead: it stands for Chairman of the Center for strategic research (CSR) Alexei Kudrin, who is preparing a new programme of reforms on behalf of Putin. Kudrin estimates that if six years earlier the maneuver was still held, GDP in 2017 would grow faster by 0.4 percentage points.

CSR offers to 2024 to gradually increase government spending: education — 0.8% of GDP on health care — 0.7%, and infrastructure — 0.8% compared to 2017 (the authenticity of the calculations have shown that two members of meetings).

Reduce defense spending compared to current budget are proposed.

But it is expected to reduce the cost of law enforcement and audit staff. Both sectors are inflated, their optimization can reduce costs within 1% of GDP, the participant of the meeting. The maneuver is scheduled to begin in 2018, saying the party meetings and the Federal official. This year we are unlikely to see significant reforms, says the latest.

In addition to reallocating money in the budget for officials and experts to discuss and other sources of funding. Kudrin proposed to mitigate the fiscal rule. Now oil and gas revenues that the government can spend in 2018-2020 gg.., are calculated based on $40 per barrel of Urals oil prices in 2017, Kudrin believes that it is possible to increase the cutoff price to $45. This will provide additional funds in the range of 1% of GDP, estimates Akindinova: the threat of extremely low oil prices retreated, the difference between $40 and $45, in fact, no. Against easing the rules, the Ministry of Finance, said its officials. For the preservation of the budgetary rules and economic development, said another official.

The Ministry of Finance believe that resources for health and education could be mobilized to the budget through the whitening of the economy and increased targeting of social support.

The Ministry also consider whitewashing one of the key sources of funds, knows Federal official, but also structural reforms that will accelerate GDP growth and additional budget revenues.

Discussed increase of taxes, e.g. personal income tax and excise tax on luxury goods, say two members of meetings. And the co-financing population health services — about this possibility last year, said Putin. At the meetings the President discussed the personal income tax rate of 15% with more less than now — in fact, it is speed dial, knows Federal official. And co-financing, and a progressive income tax will inevitably be introduced, but not in the coming years, says Akindinova.

In Russia the exemption from personal income tax for the poorest (not more than 45% of average wage) sectors of the population to preserve the revenues the rate would have to increase to 14.3%, follows from the calculations of the Economic expert group.

Another source of money to maneuver — raising the retirement age. These funds should be spent on health care because the elderly are the main consumers of medical services, says Director of the Independent Institute of social policy Higher school of Economics Lilia Ovcharova: to improve the accessibility and quality of services in primary outpatient care to invest in high-tech medicine.

CSR expects that full implementation of his program will accelerate economic growth to 3% in 2019, says Ovcharov: it will increase the budget revenues and will allow to spend more on human capital and road maintenance, not reducing the investment in defense, security and public administration in absolute terms. This should be a key source of funds for manoeuvre, insists one of the officials. “Politically acceptable maneuver should usually be accompanied by a redistribution of additional income from economic growth, not reduction in the nominal cost,” — said in an interview to “Vedomosti”, the rector of Ranepa Vladimir Mau. But if economic growth will be lower, you will have to release additional resources to raise the retirement age, abolish tax credits and raise income taxes or to mitigate the fiscal rule, categorical Ovcharova.