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1.3. PublicFinances

Major factors of thebudgetary policy in year 2000

In year 2000, there formed an exceptionallyfavorable situation of the budgetary sphere. For the first time since 1992 thelevel of tax revenues of the federal budget has exceeded 15 per cent of GDP,while total revenues have topped 16 per cent. At the same time, the budgetaryexpenditures have been at the lowest level during the last decade.

Table 1.3

Administration of Revenues and Expendituresof the Federal and Territorial Budgets (% of GDP)


1992

1993

1994

1995

1996

1997

1998

1999

2000

Federal Budget

Tax revenues

16,6

12,4

11,5

11,6

9,9

10,9

9,6

12,6

15,2

Revenues*

16,8

14,0

13,1

14,3

12,7

12,5

11,2

13,7

16,2

Expenditures

44,8

23,2

25,2

19,2

20,1

18,5

14,4

14,8

13,7

Deficit

-28,0

-9,2

-12,1

-4,9

-7,4

-6,0

-3,2

-1,1

2,5

TerritorialBudgets

Taxrevenues

12,0

13,5

13,5

12,2

11,6

12,9

12,1

12,0

12,6

Revenues*

12,3

16,9

18,2

14,8

14,7

16,0

14,8

14,5

15,2

Expenditures

12,0

13,1

17,9

15,2

15,6

17,3

15,1

14,5

14,7

Deficit

0,3

3,8

0,3

-0,4

-0,9

-1,3

-0,3

0,0

0,5

* including revenues of target budgetaryfunds.

Source: RF Finance Ministry,authors’calculations.

There were several factors behind such apositive situation of the federal budgetary revenues.

First, the key factor was the price situationfavorable for traditional Russian staple exports – oil, natural gas, non-ferrousmetals, and timber1.

Second, the general growth in the economy ledto a broader tax base, what resulted in increasing tax revenues both in nominaland real terms. Thus, real profits of enterprises grew by 50 per cent ascompared to 1999 figures, while the real increase of tax revenues made 82 percent. In year 2000 the growth of real household incomes made 9.1 per cent,while wages and salaries increased by 22.5 per cent, the aggregate personalincome tax revenues of the federal budget were up by 14 per cent. Aggregateindirect tax revenues of the federal budget increased by 36 per cent ascompared with 1999 figures (VAT revenues grew by 40 per cent).

Fourth, tax administration improved, what,according to the Revenue Ministry data, resulted in a growth in tax revenues byone fourth. This growth was mostly generated by large taxpayers (262enterprises). For instance, Gazprom increased its cash payments by 50 percent, while UES nearly tripled cash payments.

Fifth, the growth rate of arrears oftaxes2 due to the federal budget decelerated considerably. In year 2000the annual increase in tax arrears made only 0.1 per cent of GDP, while thereal increment of the balanced tax arrears for year 2000 made only 2 per cent.

Sixth, the level of non-monetary budgetadministration lowered. For instance, the amount of target financing made Rub.16.6 billion (0.2 per cent of GDP) in year 2000.

The diminishing federal budgetary expenditurein terms of its GDP share may be explained by the fact that GDP grew in realterms by 7.5 per cent over the year, and by 12.5 per cent exceeded the amountof nominal GDP (Rub. 5,350 billion) set by the budget.

Table 1.4

Annual Increase in Tax Arrears (% of GDP)


1996

1997

1998

1999

2000

Federal budget

1,1%

1,3%

2,1%

0,8%

0,1%

Consolidatedbudget

3,0%

2,4%

2,9%

0,7%

0,5%

Source: RF Revenue Ministry,authors’calculations.

Table 1.5

Rate of Increase in Arrears in Real Terms(Real Annual
Increase in Arrears in % of theAmount of Arrears
in the PreviousYear)


1996

1997

1998

1999

2000

Federal budget

41%

42%

30%

18%

2%

Consolidatedbudget

100%

46%

24%

9%

10%

Source: RF Revenue Ministry,authors’calculations.

Analyzing theadministration of 2000 budget law

On August 25, 1999, the RF governmentsubmitted to the State Duma draft Federal law On the Federal Budget for Year2000, however, the first draft was voted down and returned for furtherelaboration. After the conciliation commission had redesigned the draft, theState Duma passed it at the first reading on October 26 of 1999. The draftbudget was passed at the second reading on November 5, the third reading tookplace on November 29, 1999. On December 3, 1999, the draft was approved uponthe whole and submitted to the Council of Federation. The Council approved thedraft on December 22. On December 31, 1999, the President singed the draft intolaw On the Federal Budget for Year 2000.

The expenditure was planned at 16 per cent ofthe amount of GDP set by the budget, after the expenditure items were adjustedfor extra revenues, they made 19 per cent of GDP.

The expenditure items related to lawenforcement agencies were considerably increased (by 43 per cent), whileexpenditure for the social sphere grew by one third, and the financing of thestate support of branches of the national economy was increased 1.5 times.

Administration of the original budget foryear 2000 across items of budgetary>

Several factors were behind this unevenness.The under-financing of the International activities item was chiefly causedby the absence of tied credit facilities from international financialorganizations in amounts envisaged by the budget. The cut in expenditure forthe government debt servicing chiefly concerned the domestic debt.

The excessive spending for law enforcementagencies once more demonstrated the power and purposefulness of their lobby.

Table 1.6

Law On the Federal Budget for Year 2000 (Rub.mil.)

Law on amendments and additions to law On theFederal Budget for Year 2000 introduced in connection with extra revenues(Rub. mil.)

Administration of the 2000 federal budget (Rub.mil.)

% of the target

% of the adjusted target

Profit tax

63449

171009

178603

281%

104%

Personal income tax

23928

27543

27321

114%

99%

Value Added Tax

277488

366751

371812

134%

101%

Excises

119938

131534

131039

109%

100%

Fees for use of naturalresources

11112

17841

18635

168%

104%

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