Fundamental researchand support of scientific and technical progress
Culture, art, and massmedia
Public health andphysical culture
Redemption andservicing of State debt*
Replenishment of Statestocks
Financial aid to otherpower levels
Expenditures ofgoal-oriented budgetary funds
* w/o expenditures on servicing ofGKOs-OFZs
** w/o redemption of State debt
Source: Ministry of finance. Calculations:authors. It is necessary tocut abruptly the expenditures on the State administration; however, this has tobe supported by the relevant measures requiring time and financialexpenses.
The analysis of the newly promulgated by theState Duma Law “On Federal Budget for 1997”, shows that the Government takes noreal moves in the directions we propose (see Table 1.15). The expenditures sideof the Budget plans to increase the expenditures for all the items, except theinternational activities: the latter will make 0.38% of the GDP which is 0.8%of the GDP less than in 1996. It is planned to increase the expenditures: onthe State administration almost 2‑fold: up to 0,43% of GDP, compared with the 0,2% of GDP in1996; on the national defense: by 1% of the GDP (without any plans of thearmed forces reform); by 1,2% of GDP on the national economy; and by 0.8% ofthe GDP on the social services. The total expenditures of the Budget are togrow by almost 5% of the GDP; this will predetermine the Budget deficit ofalmost 3,5% of the GDP. More than half of such deficit will be financed fromthe interior sources and increase the internal State debt to 22% of the GDP,compared with the 16.2% of the GDP as of 1 January 1997.
For the most optimistic scenarios of thefuture process (suppose the real term arrears do not grow), the Budget incomeswill amount to about 11,4 % of the GDP, i.e., by 4,5 % of the GDP less than theLaw fixes; hence, the expenditures will be executed as the incomes come,and assets are mobilized to finance the deficit amounting to 3,1% of the GDP,i.e., they will not exceed the 14,5% of the GDP (se below). Meanwhile, thestructure of the incomes, which is, in accordance with the Law, similarto the actual structure of 1996, will become even more similar to the latter asthe Law is implemented. This is due to the fact that the balance of thepolitical forces supporting the relevant expenditure items remains thesame.
As of today, certain authors state that thehigh level of the State incomes and expenditures is the main obstacle in theway of the economic growth in Russia.35.
We believe, such approach is based on theoverestimate of the level of the State intervention in the Russian economy andthe unilateral comprehension of the mechanisms of the State interventionism anddisplacement of the private investments by the State ones. It should be takeninto account that the levels of the State incomes and expenditures cannot beunambiguously considered a factor whose high value affects negatively theeconomic development. The economic literature36 has already shown that theparameters of the economic growth are closely linked to the levels of incomes,rates of population growth, availability of the school education, and shares ofcapital investments in the GDP. The empirical analysis of the budget deficit,inflation, real currency exchange rate37 shows a significativenegative connection between these parameters and the economic growth,revealing, by the way, the causal dependence of the growth upon the abovemacroeconomic factors. At the same time, the State expenditures show acontradictory effect on the economic growth38: e.g., the expenditures onthe education, medical services, creation of infrastructure accelerate thegrowth. However, the tax withholdings, supporting the relevant expenditures,decelerate the economic development. Hence, taking into account the dependencebetween the incomes and expenditures of a State upon its economic developmentlevel, one can say that, the growth, between certain limits, of thesocial, educational, and infrastructure expenditures favor the economicgrowth.
During the socialist stage of its history,Russia was characterized by the extremely high State expenditures, if comparedwith those of the market economy countries of an approximately same level ofeconomy. The huge social expenditures, that led, in the sixties-seventies, tothe budget crisis, supported, in the socialism times, the high educationallevel of the population, the high multi-discipline scientific school, theefficient public health system, and the well-developed social infrastructure.All these are important factors creating the potential for the future growth inRussia or supporting the necessary level of the social and political stabilityin the society. Hence, it would have been extremely irrational to lose, in anhistorically short period of time, these comparative advantages because of thespontaneous reduction of the social sphere financing.
Hence, the way out of the budgetary crisisand the support of the budgetary equilibrium in the medium and long terms arepossible only by stabilization and certain growth of the Budget incomes. Thegrowth of the consolidated Budget incomes by 3% to 5% of the GDP will allow toavoid the degradation of the social sphere. We believe, that this purpose canbe achieved not by reinforcing the aggregate tax load, but by reducing theprivileges and struggling against the illegal evasion from taxes.
And, last but not least, is the problem theimprovement of efficiency of the Budget expenditures, including social. Thequestion is, first of all of improving the distribution of the socialexpenditures. As of today, the granted and subsidized State services in thespheres of public health, education, municipal utilities are used not only bythe persons really needing the State support, but also the well-off ones,capable to finance themselves all the relevant costs.
1.7. Variants of economicpolicy
In the second half-year, together with thecomplication of the monetary situation, the political pressure on the executivepower with the aim to soften the monetary policy, including by inflation, grew,as well. First of all, this pressure comes from the economic agents, for whichthe period of stabilization without growth is really painful and which see thereal lack of assets for production expansion. Secondly, it comes from theCouncil of Federation, which, after the newly elected Heads of Administrationshad come there, became a body less dependent on the Federal Government. The newrecombination of the political forces makes the position of the executive powermuch more complicated than in the situation, characteristic till the lasttimes, of the conflict between the Government and the State Duma.
As a result, in the today’s Russia, the problem of thebudgetary policy acquires the two critical peculiarities, differing it frommost post-communist countries at the relevant stage of economic reforms.Firstly, the budgetary policy and the budget deficit in Russia are not purely(or even mainly) economic phenomena being, first of all, political ones.Secondly, the budgetary policy has not become the mechanism offering to theGovernment the additional possibilities for the necessary structural reforms.On the contrary, to reduce the budget deficit, very painful and requiringadditional resources structural shifts in the economy (and, especially itspublic sector) are needed.
The way out of this situation demands, firstof all, the political solutions. On these depends, finally, the answer tothe question, whether the economic growth of Russia will be deferred as themacroeconomic stabilization was before. Here the two variants arepossible.
The first one supposes the growthstimulation by a definitive surmounting of the taxation crisis, and, hence, therelated dependence of the Budget upon the interior borrowings. Theinstitutional and social reforms have to go in parallel with it. The first onesare to form the efficient property rights. The second ones are to improve theflexibility and efficiency of the budgetary policy at the federal and regionallevels.
The second variant is base don thehypothesis of the radical incapacity of the private business to accumulatecapital and invest it in production. Hence, the State is put in the center ofthe investment activities. Here, the State is considered the main tool ofaccumulation of the capital and investments using for this the direct controlover the main macroeconomic parameters39, including the control overthe prices for the main goods and services. I.e., the Government wouldconcentrate in its hands the resources and redistribute them in accordance withthe national economy interests. In fact, in such event, the attention of theState would become focused on the redistribution functions, mainly as for theexport-oriented sectors of the national mechanical engineering.
The latter is crucial. The gap between theexport sectors of the national economy and the sectors oriented to the importsubstitution is, today, the key structure, and, at the same time, the socialproblem of the Russian reforms evolution. The gap between the interests ofthese two sectors forms, today, the basis for the fundamental differencesbetween the leading political forces concerning the outlooks of the Russianeconomic policy. And, vice versa, the absence of such gap is a sine qua non asfor the basic elements of the social and economic policy, characteristic forpractically all the post-communist states of the Central and EasternEurope.
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