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Mikhail Fradkov Gets a Sticky Budget
// The document
The government's budget planning committee is supposed to examine a draft of the key parameters of the financial plan for 2006-2006 at a meeting today. The document is top secret. However, Kommersant has managed to find out some of its most important parameters. It will not be easy to implement this plan.
According to Kommersant's informantion, Finance Minister Aleksey Kudrin delivered the final version of the financial plan for the period to 2008 to the government late Friday evening. As is well known, when this document was being worked out, he had to give up the idea of limiting the oil cutoff price for the stabilization fund to $25 per barrel. The prime minister insisted on $27. As a result, the Ministry of Finance had to base its calculations on socioeconomic development scenarios for 2006-2008 and the corresponding financial balance worked out at the Ministry of Economic Development and Trade (Kommersant of April 8]. Moreover, the forecast of the average annual oil price was increased on April 7 from $28 to $34 per barrel. Kudrin was the only minister at the government meeting to oppose the cutoff price increase and to demand that his separate opinion be included in the minutes.
However, he said his ministry would register the key parameters for both the 2006 budget and the financial plan to 2008 based on the government's decision. These parameters have already been discussed to some extent at budget committee and government meetings. The matter concerns federal budget revenues of 4.04 trillion rubles in 2006, 4.3 trillion rubles in 2007, and 5.02 trillion rubles in 2008. Expenses have correspondingly been fixed at 3.6 trillion rubles in 2006, 4.06 trillion rubles in 2007, and 4.4 trillion rubles in 2008. Under these conditions, a budget surplus is projected for all three years. Nevertheless, without recourse to the stabilization fund, the budget will run a deficit.
The budget paradox is difficult to explain. First of all, the current budget classification from the budget stipulates payment of interest on foreign debt but does not take payment of debt principal into account. Nevertheless, Kudrin is intent on reaching an agreement with the Paris Club in May on payment of a major portion of the debt ahead of schedule. In addition, the Budget Code allows the government to spend stabilization fund resources to finance the pension fund deficit. The government has already made use of this power this year and plans to use it in future. We note that, this year, the government has greatly enlarged the list of social obligations on Vladimir Putin's orders. For example, it has promised to double the salaries of federal public servants in stages by 2008. The White House also needs to double spending on financing state pension provision. Indexing money allowances to military personnel to inflation alone will require from 14 billion to 17 billion rubles per year. Meanwhile, the Ministry of Finance has calculated that reducing customs duties and easing taxes, which the government has already agreed to do in 2006-2008, will decrease budget revenues. Thus, budget expenditures will require 66 billion rubles in compensation from the stabilization fund in 2006, 100.7 billion rubles in 2007, and 30.1 billion rubles in 2008.
Furthermore, Mikhail Fradkov has defended investment financing as a budget priority, and the budget forecast assumes an annual increase in this financing. This amount will equal 637.9 billion rubles in 2006, 767.3 billion rubles in 2007, and 906.3 billion rubles in 2008.
The budget committee will be examining all of these parameters at its meeting today. A difficult discussion is in store. Observers are already pointing to the possibility of a dispute between the prime minister and Minister of Economic Development and Trade German Gref. Gref intends to set up an investment fund under his ministry's control from budgetary funds earmarked for investments. Fradkov considers it advisable to assign these funds to specific budget recipients such as the mortgage lending fund or export support. Sectoral ministers are counting on redistributing investment spending to their advantage.
On the other hand, the White House is concerned that the deadlines for submitting the budget to the State Duma might be missed because of protracted disputes at the initial stage of preparing the basic financial law. There has already been a three-week delay, which if not made up for quickly, will make it technically impossible to prepare the budget by August 26, the deadline for submitting the draft budget.
There is one more budget problem. The budget has traditionally been discussed with the principal Duma lobbyists before being submitted to the Duma. The so-called zeroth reading takes place in summer. Kudrin previously organized it, but the finance minister was previously also the chairman of the budget committee, whereas Fradkov is chairman now. Of course, the prime minister could turn the zeroth reading over to Kudrin, but then the finance minister would be faced with defending a budget he does not believe in. Kudrin has so far not said if he wants to share his secrets for persuading the deputies with Fradkov. The deputies are also prepared to use the conflict between the prime minister and the finance minister to their advantage and first of all plan to dispute the forecast oil price, claiming that the government intends to reduce budget revenues in any case. If they are successful, the 2006 budget will have a hard lot in the Duma.
Petr Netreba
All the Article in Russian as of Apr. 11, 2005
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