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Section Institutional Problems 5. 5. 3. The Military Expenditures of the Federal Budget The 2007 federal budget122 envisaged the spending of 822,036 million rubles, which amounted to 2.63% of GDP, or 15% of the federal budgets expenditure under Section National Defense. Although it seemed that the May adjustment of the federal budget123 did not openly interfere with military expenditures, as early as February the reports of the Federal Treasury124 began to assert that the allocations under this sections had been set, by the Law, in the amount of 825,169 million rubles; by November, they had grown, without the Law having been formally altered, to 833,978 million rubles. After the 2007 federal budgets acquiring its final shape in November125, with the expenditures under Section 02 being fixed at the level of 839,103 million rubles, the discretionary growth of expenditures, nevertheless, continued.

Thus, the Governments adjusted budget revenue and expenditure126 authorized the spending, under this section, of as much as 840,623 million rubles in November, and of 843,222 million rubles in December.

In the final version of the federal budget, expenditure rose from 5,463 billion rubles to 6,531 billion rubles, or by 19.6% by comparison with the version dated as of the end of 2006.

At the same time, the expenditures under Section 02 National Defense grew by 2.1% to 839,103 million rubles, or 2.61% of GDP, or 12.9% of the federal budgets expenditure. It should be noted that the expenditures under the other sections of the budget increased more considerably (with the exception of Section 03 National Security and Law-Enforcement Activity, where the rise in expenditures amounted to 1.8%).

Due to a more significant growth of expenditures under the unclassified sections of the final version of the federal budget, there was a certain decrease in the degree of its general secretiveness, by comparison with both the initial version (from 12.2% to 10.3%) and the two previous federal budgets (see Table 28). However, the secret expenditures of the 2007 federal budget did increase in absolute terms from 669,025 million rubles in the initial version to 674,747 million rubles in the final version.

The 2007 federal budget was the first one where some of the allocations were classified, namely those under Section 11 Interbudgetary Transfers and Sub-section 0410 Applied Scientific Research in the Sphere of the National Economy of the functional classification of the federal budgets expenditures. And although it is very tempting to believe that the declassification, in 2007, of the allocations under subsection 0806 Other Issues in the Sphere of Culture, Cinematography and Mass Media would set a good example for all the developers of the Russian federal budgets, an analysis of the federal budget for the year 2008 and for the 20092010 planning period 2008 indicates 127 that the tendency toward a steady decrease in the transparency of the main financial document of this country is very much alive.

Federal Law On the 2007 Federal Budget, No. 238-FZ.

Federal Law On the Introduction of Alterations in the Federal Law On the 2007 Federal Budget, No. 74FZ, of 15. 05. 2007.

Reports on the implementation of the Federal Budget (see http://www.roskazna.ru/reports/fb.html).

Federal Law On the Introduction of Alterations in the 2007 Federal Budget, No. 267-FZ, of 23. 11. 2007.

See the Federal Treasurys data on the implementation of the Federal Budget.

See Ekonomiko-politicheskaia situatsiia v Rossii. 2007. August. (The economical and political situation in Russia. 2007. August). Pp. 4448.

RUSSIAN ECONOMY IN trends and outlooks Table The Share of the Classified Expenditures of the 20032007 Federal Budgets, in % Code and name of item (or sub-item) that contains 2003 2004 2005 2006 classified expenditures Total expenditure of federal budget 9.73 9.83 11.33 11.80 10.01 ISSUES OF NATIONAL IMPORTANCE No data 128 No data 3.67 6.28 5.0108 International relations and international cooperation 31.88 18.04 0.01 < 0.0110 State material reserve 97.73 93.33 82.86 89.23 92.0111 Fundamental research 2.13 1.22 1.0115 Other issues of national importance No data No data 0.05 0.72 0.02 NATIONAL DEFENSE 37.22 38.40 42.06 42.77 45.0201 Armed Forces of Russian Federation 35.39 36.11 33.07 35.59 37.0203 Preparation of economy for mobilization 100.0 100.0 100.0 100.0 100.0204 Preparation for and participation in ensuring collective security and peace-keeping 100.0 100.0 100.activity 0205 Nuclear weapons complex 100.0 100.0 100.0 100.0 100.0206 Implementation of international obligations in sphere of national defense 100.0 41.05 45.22 46.90 50.0207 Applied scientific research in sphere of national defense No data No data 98.37 93.94 93.0208 Other issues in sphere of national defense No data No data 2.49 8.79 24.03 NATIONAL SECURITY AND LAW-ENFORCEMENT ACTIVITY 23.33 20.79 28.52 31.64 31.0302 Internal security agencies 3.40 3.01 4.76 6.31 5.0303 Internal service troops 13.21 11.10 11.76 10.31 9.0306 Security agencies 100.00 98.91 97.80 95.49 97.0307 Frontier service agencies 19.73 22.88 100.00 98.97 97.0309 Prevention and liquidation of consequences of emergency situations and natural 43.69 41.74 59.02 62.39 50.disasters, civil defense 0311 Applied scientific research in sphere of national security and law-enforcement No data No data 73.95 66.41 64.activity 0313 Other issues in sphere of national security and law-enforcement activity No data No data 8.26 50.71 39.04 NATIONAL ECONOMY No data No data 0.05 0.02 0.0402 Fuel and power engineering No data No data 5.0411 Other issues in sphere of national economy No data No data 0.12 0.06 < 0.05 HOUSING AND UTILITIES SECTOR No data No data 3.42 0.0501 Housing sector No data No data 4.22 5.07 EDUCATION 2.76 2.69 2.0701 Pre-school education 2.03 2.17 2.0702 General education 1.51 1.91 2.0704 Secondary vocational education 1.06 1.03 1.0705 Retraining and advanced training 16.85 15.78 17.0706 Higher vocational education 3.15 2.93 2.0709 Other issues in sphere of education 0.30 0.33 0.08 CULTURE, CINEMATOGRAPHY AND MASS MEDIA 0.17 0.17 0.0801 Culture 0.14 0.10 0.0804 Periodical press and publishing houses 13.46 7.45 2.0806 Other issues in sphere of culture, cinematography and means of mass communica 0.02 0.15 tion 09 PUBLIC HEALTH CARE AND SPORT 4.30 3.99 2.0901 Public health care 5.61 4.66 2.0902 Sport and physical culture 0.28 0.26 0.Total expenditure of federal budget 0.01 ISSUES OF NATIONAL IMPORTANCE 0.Source: IET estimates based on the data of the 200307 federal budgets (the data for the years 200304 are presented under the corresponding items and subitems of the existing budget classification).

The absolute and relative values of the major components of the RFs military expenditures, and their change by comparison with the year 2006 in accordance with the final version of the 2007 federal budget, are shown in Table 29 (recalculation into 2006 prices has been Can not be applied due to changes in the budget classifications structure.

Section Institutional Problems performed on the basis of Rosstats first estimation of the GDP deflator index for the year 2007129).

Table Direct Military Expenditures of the Federal Budget under the Section National Defense Share of 2007 Expenditures as 2007 milbudget expendi- percentage of Change in 2007, by comlion rubles tures, in % / GDP / change by Sections and subsections parison with 2006, mil/ same in change by com- comparison with lion rubles / growth in % 2006 prices parison with 2006, 2006, in p.p. of in p.p. GDP NATIONAL DEFENSE 839,103 53,149 12.85 2.739,297 7.75 2.64 0.Armed Forces of Russian Federation 606,163 18,701 9.28 1.534,064 3.63 2.35 0.Mobilization-related and military train- 4,157 146 0.06 0.ing for civilians 3,662 4.14 0.02 Preparation of economy for mobiliza- 4,736 672 0.07 0.tion 4,172 19.21 0.01 Preparation of and participation in en- 117 43 0.00 0.suring collective security and peace- 103 71.,92 keeping activity Nuclear weapons complex 12,099 ,770 0.19 0.10,659 6.74 0.07 Implementation of international obliga- 6,665 71 0.10 0.tions in sphere of military-technological 5,872 1.20 0.03 cooperation Applied research in sphere of national 122,759 14,887 1.88 0.defense 108,158 15.96 0.23 0.Other items in sphere of national de- 82,408 19,542 1.26 0.fense 72,606 36.83 0.06 0.Source: IET estimates based on the data of Federal Laws No. 238-FZ, of 19 December 2006, and No. 267-FZ, of 23 November 2007.

One further part of military expenditures incurred at the expense of other sections of the Russian federal budget is presented in Table 30. In contrast to previous years, it now includes the estimates of the low bound of the military establishments expenditures incurred under such traditionally civilian budget sections as 04 The National Economy, 05 The Housing and Utilities Sector, 07 Education, 08 Culture, Cinematography, and Mass Media, Healthcare and Sports, and 11 Interbudgetary Transfers.

The indirect military expenditures related to previous defense activity are presented in Table 31, while the aggregate indices of the RFs military expenditures in the year 2007 are presented in Table 32. The observed unprecedented rise in expenditures on pensions was caused by the October decision130 to repay the States liabilities, dating back to 199598, to pensioners of the Ministry of Defense and of the Frontier Service. The corresponding funds in the amount of 42.615 billion rubles were allocated, in due course, to the RF Ministry of Finance.

Without taking this sum into consideration, the Ministry of Defenses pension expenditures in 2007 declined by 2% in real terms.

Sotsialno-ekonomicheskoe polozhenie Rossii: Doklad. (The socio-economic situation in Russia: a report).

Moscow: Rosstat, 8 February 2008.

Edict of the RF President of 18.10.2007, No. 1373s On some measures designed to guarantee the social protection of individual categories of pensioners.

RUSSIAN ECONOMY IN trends and outlooks Table Direct and Indirect Military Expenditures under Other Items of the Federal Budget Expenditures as Change in 2007, by Share of 2007 budget 2007, million rupercentage of GDP / Sections and subsections, or charac- comparison with expenditure, in % / bles / same in change by compariter of expenditures 2006, million ruchange by compariprices son with 2006, in p.p.

bles / growth in % son with 2006, in p.p.

of GDP Expenditures on military establishment under Section National security and Law-Enforcement Activity Internal service troops 46,394 2,451 0.71 0.40,876 6.38 0.16 Security agencies 115,955 9,345 1.78 0.102,163 10.07 0.32 0.Frontier-service agencies 56,927 682 0.87 0.50,156 1.34 0.28 0.Units of Ministry for Emergency 24,457 421 0.37 0.Situations forces, and civil defense 21,548 1.92 0.12 0.Expenditures on military establishment under Section National Economy Military types 131 of expenditures 10,410 4,134 0.16 0.9,172 82.07 0.05 0.Classified expenditures 3,187 2,753 0.05 0.2,808 5,004.34 0.05 0.Expenditures on military establishment under Section Housing and Utilities Sector Military types of expenditures 15,452 7,591 0.24 0.13,614 35.80 0.24 0.Classified expenditures 2,511 353 0.04 0.2,213 18.99 0.01 Expenditures on military establishment under Section Education Expenditures of Ministry of Defense 27,971 5,131 0.43 0.24,644 17.23 0.24 0.Classified expenditures 6,862 336 0.11 0.6,045 5.89 0.02 Expenditures on military establishment under Section Culture, Cinematography, and Mass Media Expenditures of Ministry of Defense 2,429 376 0.04 0.2,140 21.34 Classified expenditures 148 37 0.00 0.131 39.05 Expenditures on military establishment under Section Healthcare and Sports Expenditures of Ministry of Defense 21,434 2,414 0.33 0.18,884 11.33 0.15 0.Classified expenditures 7,112 125 0.11 0.6,266 1.,97 0.04 Expenditures on military establishment under Section Interbudgetary Transfers Federal subsidies, subventions and interbudgetary transfers to closed 19,842 1,645 0.30 0.administrative and territorial units 17,482 10.39 0.05 Subventions to budgets to finance the 1,189 48 0.02 0.exercise of powers with regard to 1,048 4.79 initial registration for military service Source: IET estimates based on the data of Federal Laws No. 238-FZ, of 19 December 2006, and No. 267-FZ, of 23 November 2007.

Items 145, 215, 220252, 256 and 472 of the current budget classification.

Section Institutional Problems Table The Indirect Military Expenditures Related to Previous Defense Activity Share of 2007 Expenditures as Change in 2007 by budget expenditure, percentage of GDP / 2007, million rubles comparison with Sections (subsections) or items in % / change by change by compari/ same in 2006 prices 2006, million rubles comparison with son with 2006, in / growth in % 2006, in p.p. p.p. of GDP Pension provision (Ministry of 129,967 36,025 1.99 0.Defense) 114,509 31.46 0.22 0.Material support for employees of 1,845 208 0.03 0.nuclear weapons complex 1,625 12.79 Housing subsidies for servicemen 29,381 9,908 0.45 0.already discharged or being dis- 25,886 38.28 0.09 0.charged from service Source: IET estimates based on the data of Federal Laws No. 238-FZ, of 19. 12. 2006, and No. 267-FZ, of 23. 11. 2007.

Table The Aggregate Indices of Military and Associated Expenditures Expenditure as perShare of 2007 budget centage of GDP / Total expenditure, expenditure, in % / Type of expenditures change by comparison million rubles change by comparison with 2006, in p.p. of with 2006, in p.p.

GDP Aggregate direct military expenditures 1,201,383 18.39 3.4.18 0.Aggregate direct and indirect military expenditures 1,362,576 20.86 4.related to current and previous defense activity 3.87 0.Total expenditure on national defense, law enforce- 1,513,893 23.18 4.ment activity, and state security 4.86 0.Total direct and indirect federal expenditure related to 1,842,542 28.21 5.current and previous defense, law enforcement activ- 5.39 0.ity, and state security Source: IET estimates based on the data of Federal Laws No. 238-FZ, of 19. 12. 2006, and No. 267-FZ, of 23. 11. 2007.

The data on the month-by-month implementation of the 2007 federal budgets military and associated expenditures are presented in Table 33.

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