In the Fall of 1995, together with thedraft Budget, proposals as for changes in the taxation system were submitted tothe State Duma. Some of these proposals were not approved: this reduced, ofcourse, the projected 1996’s inflows. It seems that, if one is based on the Rb2,300 trlnforecast of GDP, the potential Budget revenues appear overestimated. Thisrelates, first of all, to the revenues from the profit tax: the abolition ofthe tax on the over-normative labor payment will result in the lower taxrevenues, compared with 1995, by at least 1% (by 0.22% according to the RFMinistry of Finance).
At the same time, the liquidation ofcertain privileges for the profit tax will hardly give more than the additional0.2% of GDP (0.37% according to the RF Ministry of Finance). Additionalrevenues may result from the removal of the privileges for the Gazprom Company (the Government hasalready began such actions) which had not been accounted for by the draftBudget. If, in 1996, the order of the extrication from under the taxation ofthe stabilization fund could bring the additional 0.25% to 0.3% of GDP of therevenues from the profit tax. herewith, the half of it will be formed by theincreased revenues ‑ due to the elimination of the allotments to the stabilization fundamounting to 15% of the production cost (already implemented) ‑ while the second half seems toresult from the supposed abolition of the order of exception from the taxedprofit of the incomes resulting from the difference between the export anddomestic prices. Secondly, the VAT revenues volume had been overestimated:despite the removal of a number of privileges of the Spring 1995 and the changeof the order of formation of the regions support funds, the growth of the VATrevenues can hardly be estimated as more than 1% of GDP. Thirdly, the almost2‑fold growth of therevenues from the excise taxes (up to 1.92% of GDP), even accounting for thegrown excise tax rates for the crude oil and natural gas, need a seriousorganizational work.
Hence, the realistic estimate of the growthof the relevant revenues amounts to about 0.5% of GDP.
Of course, the today’s conditions assure notablepossibilities to increase the growth rate of the tax revenues by implementingthe activities purposed to improve the taxes collection. If the RussianMinistry of Finance and Tax Police arrive to improve the control and to reducesharply the number of the transactions with the unaccounted for cash a growthof the tax revenues for the main 6taxes may be supposed for 1996 already. Theamount seems difficult to evaluate, but it seems that it will never result inmore than 0.2% to 0.3% of GDP.
Thus, the growth of the 1996’s tax revenues ‑ in what concerns the maintaxes ‑ (compared with1995), and accounting for the changes of the macro-economic situation (theysuppose amendments to the tax Laws and a certain improvement of the taxesinflows) may amount to about 0.7% to 1% of GDP; nevertheless, this estimate isquite optimistic. Hence, under the conditions took into account when developingthe draft, it seems improbable that the volume of the tax revenues to theFederal Budget will amount to more than 11% to 11.3% of GDP, in1996.
In 1996, the inflows from the targetedBudget funds may amount to the supposed 1.07% of GDP. Eventually, the Budgetinflows may be by 1.0% to 1.3% of GDP lesser than those supposed by thedraft.
Budget outlays.When analyzing the projected Budget expenditures, first of all, the growth ofthe expenditures by 2.34% of GDP, compared with 1995, should be noted.Practically no one item of expenditures (except the items “Internationalactivities” and “Replenishment of State stocks”) showed reduction ofexpenditures in real count.
The expenditures on the Stateadministration grew by 0.02% of GDP (up to 0.29% of GDP).
The Law envisions the expenditures ondefense of 3.49% of GDP. This figure is lower than the actual expenditures of1994 (4.4% of GDP), but is by 0.62% of GDP, higher than that of 1995. As it hasbeen noted more than once, in the short term no serious reduction of thedefense expenditures is possible. But the necessity to reduce the defenseexpenditures in the medium term is quite obvious; moreover, in the situation ofthe defense reform and considerable reduction of the armed forces, this processwill, inevitably, require a temporary growth of the defenseexpenditures.
Had the Law supposed the above measures,the growth of the defense expenditures whole have been quite validated. But thedraft does not envision any acceleration of the reform start; moreover, thecalculations envisioned the growth of the personnel of the armed forces by230,000 persons. Hence, such decision will result in the continuing qualitativedecay of the armed forces.
In 1995, the share of the expenditures onthe law enforcement activities dropped to 1.16% of GDP (compared with the 1.8%of GDP in 1994). In the situation when the public order in the country isnecessary, it is essential (just as in the case of the defense expenditures) toanalyze in detail the structure of these expenditures, and, possibly, toincrease the allocations. But the growth of the expenditures on the lawenforcement activities by 0.46% of GDP (up to 1.62% of GDP) envisioned by theBudget Law does not seem well validated.
The Budget supposes that the expenditureson science will amount to 0.5% of GDP. During the period of 1993 to 1994, theshare of the expenditures on science stabilized at this 0.5% level, which is,evidently, insufficient to support the normal functioning of the sciencesphere; moreover, in 1995, the financing of the scientific research made only0.29% of GDP. As a result, to 1995, the total expenditures on the scientificresearch and civil purpose developments dropped almost 4‑fold, compared with the 1995level. The envisioned by the new Law growth of the expenditures by 0.11% ofGDP, compared with 1995, brings the level of financing of the expenditures onscience to the level of 1994.
According to the Budget Law, theexpenditures on the national economy are supposed to total 3.17% of GDP (2.18%of GDP in 1995). Herewith, the share of the State capital investments growswhile the share of the grants decreases. To finance the industry, power, andconstruction, 2.15% of GDP are supposed to be allotted, which is by almost 40%more than in 1995. The main directions of spending of these assets are theState support of the base industries, reproduction of the mineral feedstockbase, conversion of the defense industry, and construction.
The figures envisioned by the draft reflectthe further reduction of the State expenditures on the support of the coalindustry in real values. As for GDP, the expenditures under this item will dropfrom 0.48% of 1995 (as planned) down to 0.33% in 1996 (for comparison: therelevant values made 1.4% in 1993 and 0.9% in 1994). The share of thegrants in the price per ton of coal will drop from 36.4% in 1995 to 24.2% in1996. Hence, the parameters of the draft Budget reflect in the sufficientdegree the process of reduction of the load on the Federal Budget by the grantson coal. At the same time, the change of the structure of the State support ofthe coal industry will not be sufficient: the expenditures on the sanation ofthe unprofitable underground and open cast mines amount to only 21% of thetotal sum allotted to the industry.
According to the 1996 Law on the Budget,the State investments will make 1.45% in GDP; their share in its structurestays on the level of 1995. In the structure of use of the capital expendituresunder this item, the share of the capital investments in the fixed assets willmake about 18%, while the share of the capital transfers will amount to82%.
The Budget Law contains absolutely nochanges in the agrarian policy for 1996, though such changes are especiallynecessary1. An important fact is the budget assumption to return, in 1996,the assets allotted in 1995 for the procurements to the federal Food Fund. The1995’s experienceshows that the assets allotted on the return basis are not repaid in fullvolume.
In 1995, the grants to the animal breeding,at the rates of 1993, were included in the sum of the regional transfer andwere used by the Federation subjects at their own discretion. This order, whichbecame one of the factors instituting barriers in the inter-regional trade ofthe agricultural products and food, remains effective for 1996, as well.Besides, the efficiency of these grants, from the viewpoint of support toagricultural producers, is extremely low. The world practice shows that ahigher efficiency is ensured not by direct grants to agricultural producers,but by enhancing the demand for their products. In the event of the meat anddairy products, these may be the federal programs of free lunches for schools,free catering in the hospitals for retreated persons, and other similar federalprograms. In addition to that these programs not only carry a social charge,but, which is more important, they expand the demand for the produce of theagro-industrial complex. The main condition for such programs must be thepurchase for them of exclusively domestic produce.
The Budget supposes, just as before, to usethe tax on land for the activities of the Russian State Committee for Land, andin a growing proportion. We have noted more than once, that the concept of thetax on land needs to be reviewed. This tax must become local (even notregional), i.e., its level must be fixed exclusively by the localself-government authorities, and be centralized to the Federal Budget in theminimal, but equal for all the territories, proportion. The Federal authoritiesmust fix the upper limit rates of the land tax, ensure the continuation of thealready available privileges on this tax, and its targeted use for theinfrastructure and social arrangement of the territories. The activities of theRussian State Committee for Land must not be related with the volume of theaccumulated tax on land, because this creates the interest of these bodies tohinder the formation of the private farms (the newly established private farmsare released from the payment of the tax on land for the first fiveyears).
The leasing fund which showed its extremelylow efficiency in 1995 stays effective for 1996, as well. But its conservationin the planned volumes may have any sense only if the order of its use ischanged. This fund must be reserved for the guarantees to the financialstructures crediting the leasing operations in the rural economy. This willbreak the monopoly of the Russian Committee for Agriculture Procurement(Rosagrosnab), will become an incentive for formation of a normal market of theleasing services in the agro-industrial complex, will attract the commercialinvestment credit to the rural economy, and will improve the guarantees ofreturn of the assets to the Budget.
The validation of the other expendituresitems in the agro-industrial complex stays extremely poor, just as it wasbefore. In particular, it is difficult to understand the sharp rise of theexpenditures on compensation of the insurance payments to agriculturalproducers. With the reduction of the rate of compensation of the insurancepayment s from 50% to 25% and with the absence of any decisive proposals foradditional stimulation of the insurance activities of agricultural producers,the Budget expenditures on the compensation grew, in 1995, 8‑fold, compared with the actuallevel of 1994, and 31‑fold, in accordance with the 1996 Budget.
Similarly, the issue of the grants on woolwas badly developed. The expenditures are planned for purchase only, withoutanalyzing the use of the feedstock purchased. If the wool is sold, some of theexpenditures will return to the Budget. But if the feedstock purchased stays inthe State stocks, the expenditures on servicing these stocks need to beplanned. This gives large possibilities for an illegal use of the Budgetassets.
The grants to the pedigreed stock breedingseem poorly validated, as well. The calculations give only the rates of grantsper head of livestock and the number of the heads to which the grants relate.But the data on the available pedigreed livestock population are not accountedfor. If really 330 thousand heads are to be supported, all the pedigree stockfarms which receive direct grants from the Federal Budget for preservation ofthe domestic genetic fund of the livestock are to be named. Today the practiceis such that the relevant grants are distributed by small portions amongnumerous livestock farms which are not real holders of the genetic potential ofthe Russian stock breeding; as a result, the efficiency of this targeted grantequals zero.
We do not think that the elite seedsgrowing is today a branch needing State grants. Lots of economies are engagedin the commercial elite seeds growing. Only the purchase of the importedhybrids of corn may be an exception.
Neither the 1995 Budget, nor the Law for1996 show in an obvious manner the Budget loans to the agrarian sector in formof credit against goods. Nevertheless, in 1995, this item of expendituresamounted to almost Rb12 trln; this means that the real expenditures on theagro-industrial complex are almost twice higher than those clearly shown in therelevant item of the expenditures side of the Budget (the producers of thefuels and lubricants, and of the mineral fertilizers to be supplied to therural economy were given the privilege of lower payments to the Budget). Thesame concept is fixed in the 1996 Budget.
The greatest lack of financing (as it hasbeen shown when analyzing the Budget execution) is suffered by the expenditureson social purposes. Their value amounted, in 1995, to 1.12% of GDP (1.9% of GDPin 1994). The Law on Budget for 1996 envisions the increase of the expenditureson social purposes up to 1.75% of GDP. The supposed growths of the expendituresare: from 0.25% of GDP to 0.66% of GDP on education; from 0.17% to 0.22% onculture, art, and mass media; from 0.21% to 0.32% on public health and physicalculture; and from 0.23% to 0.55% on activities in the social policy. However,at such a growth, the expenditures on social purposes will be significantlylower than during the period of 1992 to 1994 (2.7% of GDP in 1992, 2.0% in1993, and 1.9% in 1994). Their absolute value in a comparable expression willmake less than a half of which was allotted for the social sphere from theFederal Budget in 1992.
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