Budget-2018–2020 is based on cheap oil and a weak ruble

The state Duma adopted in the first reading the Federal budget for 2018 to 2020. There are still second and third reading, but the basic design of the main financial document of the country is clear: economic growth in Russia will continue, despite the fact that the exchange rate of the ruble, according to government forecasts, will decrease as the price of oil is falling. However, no “Golden mountains” the country will not see — on the contrary, all have pursed and save. At least in the next three years.

photo: pixabay.com

Federal budget of Russia for 2018 to 2020, the government has already pretty loud christened “budget of growth.” The reason for that financial authorities there. Recall that the stable growth of the gross domestic product (GDP) in our country stopped in 2015, it is estimated that the economic decline of 3.8%. In 2016, the situation has changed for the better, however, GDP continued to remain in negative territory (-0,2%). This year the government expects this growth to 2.1%, so in principle the status of “rising” could get the budget 2017. However, apparently, the Cabinet decided to assign this “brand” to the main financial document of the country, which again, as in pre-crisis times, calculated on a three-year period.

In 2018, as suggested by the government, Russia’s GDP will grow in the same way as this year — by 2.1%; in 2019 the economic growth should accelerate to 2.2% and in 2020 — up to 2.3%. To the records of the mid-2000s, when GDP from year to year grew 6.8%, still far, but progress (at least on paper) there.

Ahead Of London

Meanwhile, Russia still does not even reach the average growth rates of the world economy, which, according to the forecast of the International monetary Fund, should be in 2017 and 3% in subsequent years will accelerate even more. At the same time we must understand that the growth of the world economy (nominal global GDP) is “the average temperature in the hospital”. This growth is ensured by a number of developing countries — mainly China, which adds to GDP by 6-7% annually. In Britain, for example, the growth rate in the next three years is projected at 1.5–1.6% per year. So when the authorities say that the Russian budget will be a “budget growth”, they are right: not all developed countries of the West is able to show such growth.

Doubly valuable that the government thus no longer relies on the oil factor as the main driving force of our growth. Moreover, officials expect falling of the prices for “black gold”: in 2018 to about $43 and 8, and to 2020-mu — to $42.4 per barrel.

After oil, according to the budget, will weaken the Russian currency. Such a cheap dollar, as of now, we do not see: in 2018 it will cost an average of 64.7 ruble, and by 2020 could reach the level of 68 virtually any.

Thus, according to the parameters of the state budget for three years, the government is confident that cheap oil and a weak ruble will not upset the domestic economy. On the contrary, Ministers believe that it is during the years of crisis have learned to cope with external challenges and can grow even in such adverse conditions. In particular, inflation in the next three years should not exceed 4% per year. On the one hand, this means that it will remain at the record low level achieved in this year. And on the other that we are not facing deflation, which has recently been a headache for Central banks of the developed countries of the world.

photo: Ivan Skryplev

On increasing the budget

Budget revenues in 2018 will grow by 3.7%. However, in 2019, the revenue growth will decline to 2.4%. Apparently still affected by the fall in oil prices. Whereas in 2020, the situation in the commodities market will not become an obstacle for revenue growth, and they will shoot up almost 5%.

Proof that the government no longer relies on the oil and gas sector, is the fact that the share of revenues from the extractive sector in the budget will be gradually reduced. If this year it is 39%, then in 2018 it will be reduced to 36% and by 2020 will fall to 33%.

The increase in income not related to the export of hydrocarbons is impressive: this article in 2018 will increase by 9% in 2019 — 6.1%, and in 2020-m by 5.2%.

What the government is going to replace the income from the export of raw materials? Apparently, revenues from taxes and other fiscal charges, as well as from exports of agricultural products industry, engineering industry, defense industry and chemical industry.

With taxes, everything is clear: to increase or to enter a new state quickly enough. Of course, after the presidential election. Moreover, under fiscal pressure can get a wide variety of areas. Some tax reforms have already known. For example, in some regions of Russia from may 1 next year will be introduced resort fees. It is also planned to increase the single tax on temporary income, which often applies to small business.

A lot of talk about increasing income tax and VAT, which the government apparently relies in the first place. Have raised the question of what should otherwise count this tax for the producers of consumer goods and retailers, so they do not appear the temptation to compensate him for the expense of buyers.

There is a proposal to exempt people receiving wages below the subsistence level from paying personal income tax. This issue has already been raised in the state Duma.

The idea is that in regard to fiscal policy, the state has a fairly wide room for manoeuvre: officials can raise the tax rate in General, may increase compulsory insurance contributions but also to change the structure and system of tax authorities.

As for the possible increase of other items of income not related to oil and gas, the situation is more complicated. On the one hand, the Russian non-oil exports in the first half of 2017 increased by almost 19%. It is time for the agricultural sector. In particular, in 2017, Russia is expected to record in the history of the grain harvest — 130 million tons. Also increased the volume of industrial production: January to September — by 1.8%. Confidently look statistically processing enterprises, the production of which in the first nine months of this year increased by 1%.

On the other hand, the main obstacle to the growth of non-oil exports is the lack of competitiveness of many Russian goods on the world stage. It is composed of many factors — the high cost of resources and financial instruments, high administrative barriers, lack of conditions for foreign investment, unprofessional management, problems with transportation to the…

The increase in revenues from production growth implies the presence of new, additional markets. Russia has long operated a program of import substitution. In the agricultural and other sectors, it justifies itself. But the domestic market is not elastic. Our country in any case will have to seek new foreign partners, the appearance of which depends largely on the removal of Western sanctions.

The government believes in the dollar

However, back to the budget. What will happen with the deficit and spending over the next three years? Budget expenditures will increase modestly enough — on average 1% per year. Their maximum growth will be in the year 2020, primarily due to significant strengthening in this period revenues. In this regard, in 2018-2019 employees of budget organizations, pensioners and other recipients of budgetary allocations to the generous donations from the budget should not wait.

The budget deficit although it will become a chronic disease of our economy for at least another three years, but from year to year will decrease. If the 2017 projected deficit at 2.2% of GDP (most likely, in reality it will be lower), then in 2018 it will be reduced to 1.4% of GDP. In 2019 and 2020 it needs to fall below 1% of GDP.

In the “budget for growth” provides innovations that will allow you to spend received a windfall from oil and gas exports wiser than before. In 2018-2020 will act “fiscal rule”, which means that all revenues from exports of raw materials, which will be higher than planned (if the price of oil will exceed budgeted) will be directed to the Reserve Fund. These funds will be spent on social programs and investment in major state projects.

Thus, if suddenly there will come a “rainy day”, that without funds we will not stay. It is important that our authorities have not made a mistake with the forecast of the ruble, that has not turned out like in 2016, when due to the strengthening of the national currency only in January–August, the Reserve Fund has lost more than 380 billion virtually any. By the way, approximately the same situation was repeated in the beginning of this year, therefore, the forecast of the authorities for the growth of the dollar greatly optimistic.

Elections will not be?

It is considered that in the draft budget, which was adopted on the eve of parliamentary and presidential elections, usually laid additional expenditure to increase the collection of votes by the ruling party in the elections. That is, the more the state will distribute funds from the budget to the needs of different social groups, the higher the turnout will be and the higher the probability of victory of the ruling party or its protege.

If desired, a similar pattern can be seen in the document. Social spending in the “budget for growth” will increase in 2018 to 4.86 trillion and in 2019 — to 4.95 trillion, and in 2020 to 5.3 trillion. On average, this article will add 3% per year, whereas General spending budget is just 1%. The indexation of pensions to working pensioners in 2018 will not, and for disabled it usually will hold on the level of inflation of the previous year. However, if the average retirement pension in Russia is 12.5 thousand virtually any, with the indexation of 4% (the forecast rate of inflation in 2017) it will grow to 500 virtually any. This amount will pay for is that occasional trip to the grocery store, despite the fact that it will be enough only for most necessary goods.

If you look closely at the structure of the budget of Russia for 2018 to 2020, it seems that there are no elections in Russia, and not assumed. Costs are reduced even in the article the defense industry, which is considered the main pillar of power. The same social spending though will increase quite rapidly compared to other costs, but their main growth will be in the “post-election” period.

What is the reason? It can be assumed that the government is confident in his unshakable position and a stable situation in the country. The government promises to the electorate of the “Golden years” of oil at $100 and the dollar for 60 cents. At the same time, presenting the project “budget growth” for a discussion of the state Duma, the government demonstrates that it can firmly vouch for what will happen in the next three years, and is ready to give voters answers to a wide range of issues concerning prospects of economy and social sphere.


Igor NIKOLAEV, the Professor of the Higher school of economy:

“The draft budget for 2018 to 2020 has three main features — excessive rigidity of the pre-election character and gain manual control. Special attention draws the item of expenditure on the economy. In particular, the column “General Economic issues”. If in 2017 it relies 19.7 billion virtually any, then seen rapid growth: in 2018 170 billion, and in 2020 — 422 billion General Economic issues — the costs of activities under specific instructions of the President. Their volume is comparable with current expenditure on education, and in the next three years is 5 times more than the cost of the space and 10 times more than the physical. Even in 2015 for these purposes it was allocated 1,5 billion roubles. The creation of such a “reserve” means increased manual control in the economy and does not characterize the budget as transparent. Such a budget is unlikely to provide the declared government objective to emerge at the turn of 2018-2020 years growth rates above the world — 3.5% of GDP per year.”

Alexander Knobel, Director of the Center for research in international trade RANH and GS:

“On the budget for 2018-2020 is possible to speak with cautious optimism. Really appreciate the participation of the state in the economy and the expenditures for functional areas will be possible not earlier than in the first quarter of 2018, when we will have the budget of extended government. Unlike the Federal budget it is the sum of regional budgets and extra-budgetary funds. There are areas — acabaron, homeland security, law enforcement activities, which are financed from the Federal budget. Education funds are spent from regional budgets on health care — from extra-budgetary funds”.

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