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An illusion about the absence of problems inthe public finance sphere was due to the fact that from 1992 till mid-1993 thegovernment was able to maintain a rather high level of tax receipts byimproving the taxation technique as well as owing to a rather slow erosion ofthe taxpayer discipline. However, from 1993 there was an uncontrollablereduction in tax receipts. That is why, further development in the fiscalcrisis in 1997 would have been unavoidable without the implementation of theradical tax reforms.

Fiscal crisis which sharply intensified atthe turn of 1995-1996 and turned out to be a very complicated phenomena by itsconsequences. Had it been only the influence of financial stabilisation andpolitical uncertainty resulting from the election campaign, then tax collectionshould have more or less automatically returned in 1997 to at least thestarting point. However, the real situation was rather different. Withoutconstant purposeful efforts of the executive power aimed at collecting taxes,the tendency reflecting the fall of tax receipts continues tounfold.

Submitted to the State Duma on 25August, the draft 1998 budget was being prepared parting from the morestrict procedures of distribution of public funds than it was in previousbudgets (Table 11). In particular, ministries have received the limits forfinancing and could not haggle with the government over the volumes offinancing. The proposed draft budget was based on the main provisions of thedraft Tax Code which was approved by then in the first reading. The draft TaxCode envisaged a reduction in the tax burden on the economy with simultaneousincrease in tax collection and a reduction in the scale of an illegal taxevasion. The draft budget foresaw a reduction in the primary deficit (withoutthe state debt service) to 0.5 per cent of GDP. Expenditure on the state debtservice was envisaged in the amount of 4.38 per cent of GDP. That was based onthe forecast of the further decline in the interest rate down to 14 per cent.Priority items of budgeted expenditure became allocations on the implementationof the military reform, social and culture sphere, health care.

In the course of discussions in the StateDuma and the work of the Trilateral working Commission on the discussion ofmain indicators of 1998 federal budget, the parameters of the draft budget havebeen modified. As aforesaid, calculation of the budget revenues were based noton the forecasts which corresponded to the draft Tax Code but on the packet oftax laws submitted by the government as an alternative to a comprehensivetax reform.

Table 11

Main indicators of the 1998 federalbudget
(% of GDP)

1996

(real execution

GDP -

RB 2256 bn

1997

(real execution)

GDP -

Rb 2675 bn

1998

(draft submitted on 25.08.97)

GDP -

Rb 2750 bn

1998

adopted in 1 reading 05.12.97

GDP -

Rb 2840 bn

1998

adopted in 2 reading on 25.12.97

GDP -

Rb 2840 bn

1998

adopted in 3 reading on

05.02.98

GDP -

Rb 2840 bn

1998 adopted in 4 reading on04.03.98

GDP -

Rb 2840 bn

TOTAL EXPENDITURE

12,6%

12,07%

12,37%

12,94%

12,94%

12,94%

including:







I. TAX REVENUES

9,7%

9,10%

10,52%

10,81%


10,81%

10,81%

including:







1. Corporate income (profit) tax

1,4%

1,24%

1,04%

1,70%


1,70%

1,70%

2. Tax on capital gains

0,00%

0,00%

0,36%

0,00%


0,00%

0,00%

3. VAT

3,7%

4,38%

5,38%

4,97%


4,97%

4,97%

4. Excises

2,0%

1,88%

2,40%

2,77%


2,77%

2,77%

5. Payments for the use of natural resources

0,2%

0,26%

0,28%

0,30%


0,30%

0,30%

6. Taxes on foreign trade and foreign economicactivity

1,0%

1,04%

0,98%

0,95%


0,95%

0,95%

II. NON-TAX REVENUES

1,9%

1,56%

0,94%

1,00%


1,00%

1,00%

including:







1. Earnings from public property or from publicactivity

0,2%

0,25%

0,16%

0,19%


0,19%

0,19%

2. Earnings from the sale of public property

0,04%

0,70%

0,22%

0,29%


0,29%

0,29%

3. Revenue from the foreign economicactivities

0,7%

0,32%

0,29%

0,24%


0,24%

0,24%

III. REVENUE OF TARGET BUDGETARYFUNDS

1,0%

1,43%

0,90%

1,13%


1,13%

1,13%







TOTAL EXPENDITURE

15,8%

15,30%

17,17%

17,60%

17,60%

17,60%

17,60%

including:







I. State administration and localself-government

0,2%

0,36%

0,41%


0,39%

0,40%

0,42%

II. International activity

1,2%

0,31%

0,77%


0,51%

0,51%

0,51%

III. National defence

2,8%

2,98%

2,97%


2,88%

2,88%

2,88%

IV. Low enforcement activities

1,3%

1,63%

1,58%


1,47%

1,47%

1,47%

V. Fundamental research

0,3%

0,36%

0,49%


0,50%

0,39%

0,39%

  1. Nationaleconomy,

of which:

1,84%

1,96%

1,58%


1,85%

1,85%

1,85%

- industry, energy and construction

1,16%

0,99%

0,89%


0,97%

0,97%

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