crisiЖ ЮЖкsЭ - iep.ru · sergei sinelnikov & konstantin reznikov warsaw, may 1995....

Center for Social & Economic Research

CrisisЖ ЮЖкЭ

by

Sergei Sinelnikov&

Konstantin Reznikov

Warsaw, May 1995

Materials published in this series have a character of working paperswhich can be a subject of further publications in the future. The viewsand opinions expressed here reflect Authors1 point of view and notnecessary those of CASE .

Paper financed by the Ford Foundation (grant No: 930-1199)

v£) CASE Research Foundation, Warsaw 1995

ISBN 83-86296-42-9

Editor;

CASE - Center for Social & Economic Research00-585 Warszawa, Bagatela 14tel/fax (48-2) 628 65 81; tel/fax (48-22) 29 43 83

Budget Crisis in Russia

1, Economic transformation and macroeconornicchanges in Russia

By the end of 1991 the Soviet Union ceased to exist and its former republicsformed new, independent states. As an independent state, Russia has existed since1992. This event defined the period under consideration in our study: 1991-1994. Itwas only in 1992 that the Russian budgetary system had to begin performing theentire range of functions characteristic of an independent state. Before that Russia wasone of republics belonging to a federal state where finance was highly centralized. Inour opinion, any attempts to reconstruct the Russian budget before 1992, taking intoaccount all the amounts generated on its territory for both the Russian and statebudgets cannot be correctly done due to lack of the necessary statistics.

Thus, as regards the period preceding 1992 our studies (except where specified)concern the budgetary system of the Soviet Union.

1.1, Conditions of the budget crisis in Russia in 1991-1994

After World War II and up to the beginning of the 1980s the budget system inthe Soviet Union showed a high degree of stability, without any serious fluctuations involumes and composition of revenue and expenditure, as well as a virtuallynon-existent or very small budget deficit which was covered, as a rule, by the budgetbalances at the beginning of the year (Fig 1.1.1).

Figure 1 1 1. Revenues, Expenditures and Deficit of The State Budget of USSRj n % o f O N P i n i950-1990

70 -I

С 60

3 40 -и

1 30 -u

&~ 20

0 10 -tf

. f *- * _»

\ ч-*-*""" "*'*-\ _.-.-....,bx^ ^***~ *~ "** "" ** ~*- -

» * * ™ л * *

\

Ч

*\

1950 I960 1970 1980 1982 1984 1986 1988 1990

4

2

- 0

w

' "4 aTS

- -6 ^

- S

• -10

* REVENUES, % of ONP " '•* " EXPPNDITURBS. % of GKP — *• " DEFIQT, % of ONP

The main sources of revenue for the USSR consolidated budget included profitpayments from enterprises, turnover tax, private income tax and revenue from foreigneconomic activity (Fig 1.1.2).

CASE Foundation

5. Sinelnikov &. К. Reznikov

Figure 1.1.2. Structure of the Revenues of State BudgetofUSSR in 1950-1990

100%

80%

60%

40%

20% -5

0% -J

Mother

П income &om foreign economic

activities

• stale taxes on population

• finances of social insurance providedby government

• Payments from slate enterprises andorganizations profits (income)

CJTax on turnover

1985 was a crucial year, initiating a series of processes that triggered an acutebudgetary crisis in 1990-1991. Some of these processes took place on the revenue sideof the state budget, some others - on the expenditure side.

The unfavourable change in foreign trade conditions as regards the market forfuels should be mentioned as the first factor contributing to the budget crisis. Despitesome growth in the volume of export of crude oil, petroleum products and natural gas,State revenue from the sale of fuels decreased almost twice in 1985-1990 owing to afall in the world prices.

At the same time a sharp decrease of consumer goods import occurred in1985-1987. Cuts in consumer goods imports constituted an effort to off-set the overalldecline in hard currency proceeds, so that the level of imports as regards machinery,equipment, materials, etc could be maintained at the original level. Nonetheless, thecuts resulted in a decrease of revenue from turnover tax on imported consumer goods.In 1985-1986 the share of imports of consumer goods and raw materials for industrydecreased from 36% to 31% in the total imports. The share of machinery andequipment grew from 37% to 41%.

The second most significant precondition of the financial crisis in 1990-1991was the vigorous boosting of processes of partial economic reform. In the earlierperiod, operations of enterprises which were not subjected to centralization weiedetermined in five-years plans and defined in more precise terms in annual plans. Theentire net revenue was confiscated from enterprises in the form of payments out ofprofit. 1987 saw the introduction of a new system of state-owned enterprisemanagement under the name of "full cost-accounting and self-financing". Under thissystem each enterprise was to make payments out of its profit, contributing to funds,governmental and local budgets, and making deductions to the relevant ministry. Theremaining profit was shared amongst cost-accounting funds of enterprises. Inaccordance with the Soviet Act on the state enterprise (association), which went into

CASE Foundation - 4 -

Budget Crisis w Russia

effect in January, 1988, product deliveries, economic standards, limits of centrallyassigned resources and a series of normative indices were set by way of thegovernment order indicating the required deliveries.

As a consequence, the nature of the Soviet economy was changed in two ways.First, enterprises became strongly oriented towards profit maximization. Second, theenterprises found opportunities to increase their financial results, since the state orderdid not cover the entire production program of an enterprise.

As a result, the rapid increase of profit in enterprises continued, including alsothe part of profit which remained at their disposal and was allocated for wages,material incentives and social development (Table 1.1.1). The growth rate of theaverage monthly wages accelerated from 2-3% up to 8-10% in 1988-1989 and 13% in1990.

Table 1.1.1. National economy profits, wages & income of population in 1980-1990

Volume of profits

in % of previous year

parts of profits remained at dis-posal of enterprises & organi-zations in USSR in 1986-1990

mean monthly wage in nationaleconomy (rouble)

in. % previous year

Monetary income of population(bil. roubles)

in % of previous year

1980

121,6

105,4

41

168,9

342,3

125,9

1985

175,9

105,4

45

190,1

102,9

420,1

122,7

1986

200,6

108,8

46

195,6

102,9

435,3

103,6

1987

209,0

106,9

47

202,9

103,7

452,1

103,9

1988

240,2

112,3

50

219,3

108,3

493,5

109,2

1989

268,2

109,0

52

240,4

109,4

558

113,1

1990

282,4

103,9

51

274,6

114,2

652,5

116,9

Approximately in 1988 enterprises obtained the opportunity to manipulate pricesof products manufactured in surplus of the state order. Formally such products weremanufactured not by the enterprise itself, but by co-operatives and other private andquasi-private entities, controlled by the parent enterprise. Price manipulationsconcerned also products marketed through commodities exchange, etc.

Table 1,1.2. Dynamics of wholesale & retail prices in 1970-1991

Retail prices forconsumer goods

Wholesale pricesof enterprises &manufacturers

1970

100

100

1975

99,7

98,6

1980

103

98,1

1985

105

98,1

1986

102

1 1 3 . 1

1987

101

99,7

1988

101

100,1

1989

102

100,5

1990

105

102,7

1991

189

1JS,0

- 5 - CASE Foundation

Т.Ы« 1.1 J. STATE BUDGET OF USSR AS PER SECTIONS (mln-rouble*. % ofGDP) 15*0-1990

QDPI

1980

619000

I

1981

645000

1 1Я2 1

701600

19t3

735400

1П4

764300

i <L nl \ \ Ч. о! \

19&5

777000

| 19*6

[ 799000

*ol

1987

825000

, . 4. at

19U

875000

i .

| 9430OO 1

t, of \ \ % o( '

1990 1

1000000 |

1 %rf 'roin

QDP i^^^UDp^^MGDp GDP GUPmki

GD?

INCOMES

ToUl, tacomci

T«x on tumovtr

P*y meats from »шс

catejpittc* ind ocguuunonlpro fiis (laconic)

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flnMK**T of iOdJj LGIQJVICC

provided by government

ilkle Uxa oa рорп!»Под

income bom foreigneconomic ictmac*

otberEXPENDITURES

Toul

Mtlioai] ecoaomy

SacuJ AcuItBrtl (cmces

Deftoce

A.dmmumaoa

Fongn ecoaoiiuc «cuvica

ОтЬм

L

301700

94109

89819

1718

13957

24511

78586

294631

161031

98797

17124

2544

0

15135

1

489 1 320635Д15Д 100396

H.5

03

23

4.0

12,7

47,626,0

16.0

2,80,4

0,0

2,4

92432

1864

15012

25501

85429

309794

169770

103635

17054

2638

0

16697

49,715.6

14.3

OJ

23

4,0

13Д

48.0263

16,1

1.60,4

0.0

2,6

3S303W1006O1

102358

1878

22349

26638

99208

343150

197289

109556

17054

2788

0

16463

50Д143

,,,

03

ЗД

3,

14.1

48.828,1

15,6

2,40.4

0.0

2.3

...357919.1

101903

106642

1175

23069

27627

95503

354265

201832

114804

17054

2857

0

17718

48.714.0

,0

0,

3.1

3,

13,0

48Д27,4

15.6

230.4

0.02.4

— n376400

102712

115556

2612

24528

28788

101194

371184

211716

119658

17054

2861

0

19895

49Д

13.4

15.1

03

"

M

13.4

48,627,7

15.7

гд0.4

0.0

2,6

~

372600

97716

119497

2522

25382

30018

71100

26365

386469

219452

125573

19063

2982

15100

4299

48.012,6

15.4

03

33

3.9

9Д

3.4

49.7

28Д

16Д

14

0.4

1.9

0.6

371600

91547

129802

2641

26513

31217

64400

25471

417100

226300

133700

191003OOO

16000

17000

46.5

11.5

16,2

03

»

3.9

8.1

ЗД

52Д

283

16.7

2,4

0.4

232,1

137ШО

94445

127398

2854

28061

32528

69319

23795

430930

226947

139964

2O244

29U

24600

16252

\П.4

15.4

03

3,4

3,9

8.4

2.9

52Д27,5

17.0

W0.4

3.0

2,0

378900

100994

119636

2825

30077

35870

62631

26868

459526

242824

151251

20244

3037

26000

16169

413

113

13.7

03

3.4

4.1

7Д

3,1

513"27,8

173

13

033.0

1.8

\ \401900 j 41.6

111100 114

I1S500

4200

33100

41700

67200

29100

482633

200069

149314

75230

3384

28400

16235

12Д

0.4

34

4.4

„

3.1

51Д

21Д

15,4

8.00,4

3,0

U

\

410100

121200

116500

6400

43200

43500

75200

4100

513200

197500

170000

69100

5100

28500

43000

*U)1 .3

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As a result, wholesale prices growth started to accelerate, accompanied with thepreservation of a sufficiently strict control over retail prices. In the presented officialstatistics (Table 1.1.2) the abrupt upward change of retail prices is observed only in1991. This fact is attributed to use of the manufacturers' wholesale prices index, i.e.the index that does not take into account the above techniques allowing to evade pricecontrol.

The continuing reduction in the effective administrative control over wholesaleprices, along with a rather rigid control over retail prices, resulted in the reduction ofbudget receipts from turnover tax (Table 1.1.3). Moreover, the same trend in1990-1991 was responsible for an increased burden of budgetary subsidies.

The third factor contributing to the budget crisis was the beginning of theimplementation of the economic policy of "Accelerated social and economicdevelopment" in 1985. The policy was to initiate the next stage of industrialization ofthe national economy through rapid growth of investment.

This attempt to accelerate development was made in spite of the fact that by thattime the rigid and strict administrative system had ceased to exist and all its meansand stimuli had already lost all impact.

Figure 1.1.4. Government investment in USSR in 1980-1990*

Investment, total(bil.roubles)

in % of GDP

1980

133,7

1981

138,8

103,8

1982

144,0

103,7

1983

152,1

105,6

1984

174,3

114,6

1985

179,5

103,0

1986

194,4

108,4

1987

205,4

105,6

1988

218,2

106,2

1989

228,5

104,7

1990

229,8

100,6

(*) Since January 01, 1984 new estimate prices were introduced

In these prices volume of investments is 150.9 bil.roubles (index 1.129)

Investment growth rates increased from 3% in 1985 to 8.4% in 1986 (Table1.1.4). Afterwards the rates began to decrease again, until 1990-1991, wheninvestment started to fall. As a result, a sharp growth of budgetary expenditures oninvestments took place. The Acceleration policy provided also for an increase ofinvestment made by enterprises themselves. That Induced a reduction in budgetrevenues due to the growth of the part of profit withheld by enterprises and remainingat their disposal in accordance with central plans for production development Thedecrease of budget receipts from the deductions from enterprise profits, whichcommenced in 1987, is clearly visible in the data presented in Table 1.1.3. From 1986until 1989 such payments fell from 16% of GDP to 12% of GDP. The "Acceleration"policy affected also the composition of imports, biased in favour of means ofproduction. As a result, budget revenues from turnover tax were reduced.

The fourth factor which contributed to the worsening of budget problemsmomentum and which was specific for the situation in the USSR, included the resultsof the campaign combatting hard drinking and alcoholism, implemented in 1985. As a

- 7 - CASE foundation

Л'. Stnetnikov Л. К.

result, budget revenues from turnover tax were reduced. In comparison with 1984figures, in 1985 the sales of vodka 'and strong spirits in the USSR fell 14%, in 1986 -by 45%, in 1987 - by 57%; the sales of wine were down by 20%, 60% and 67%,respectively. As a result, budget revenues from turnover tax (Table 1.1.3) fell from13.5% of GDP (in 1984) to 11.5% of GDP (in 1986-1987). The reduction of publicrevenues from the sale of alcohol accounted for almost 10 billion rouble (slightly over1% of GDP) in 1985-1988. It was not until 1988 that the turning point was reached,because of a lack of enthusiasm as regards the anti-alcohol campaign. The rapidgrowth of revenue from the production of alcoholic beverages and restoration of thetraditional proportion of such revenue in the budget began in 1989.

The fifth factor, which is hard to confirm in a quantitative manner due to thelack of appropriate statistics, is related to the growth military expenditure, connectedwith the war in Afghanistan and the new stage in the arms race, generated by the tenseinternational situation.

In the beginning of 1989 the budget situation started to cause serious anxietyamong the governing circles of the nation. Hence, starting from March 1989, attemptswere made to strengthen a rigid budget policy. A series of governmental and partydecisions were made, determining the necessity to reduce investment growth,introduce cuts on military spending, continue the manufacturing of alcoholicbeverages and increase the share of consumer goods in the total import. The decisionsalso set the goal of restricting the social expense growth. The investment cycle thathad started in 1984-1985 was not completed by introduction of adjustments into thebudget, as had been traditionally the case. The reduction of government investmentexpenditure in 1989 resulted in a series of natural negative consequences: increasingnumber of incomplete construction projects, longer delays in the commissioning ofindustrial project, reduction of industrial production output in these industries whichare closely tied to investment levels. At the same time, investment cuts failed to bringabout positive results as regards the budget, due to the abrupt growth of socialexpenditure and subsidies in the budget (Table 1.1.3).

Growth of social expenditure was driven by the general liberalization of sociallife. The 1st Congress of People's Deputies of the USSR caused a splash of populismand expansion of social programs. Efforts aimed at a more strict budget policy wereseriously criticised. The pension reform was outlined, and assistance programmes forveterans, students, families with children, etc, were approved.

Growth of social expenditure (by 1.2% of GDP) and subsidies related to theprice growth (over 1% of GDP) in 1990 outweighed the effect of a decline ininvestment and defence expenditure, the growth of revenue from the sale of spiritsand import of consumer goods (Table 1.1.3).

In 1990 the legislative basis for the tax reform was set. The USSR lawsregulating taxes levied from enterprises and private persons, as well as regulationsgoverning their enforcement in Russian Federation were adopted. The overalldirection of tax reform implemented in Russia is in general consistent with the mainlines of reform in Eastern European countries. The reform included the transition froman individualized distribution of profit between enterprises and the budget to the tax



on profits, transformation of turnover tax and customs dues, modification of thepersonal income tax with the introduction of tax returns, modification of the socialinsurance system and other items.

1.2. Economic poicy in 1991Serious changes in the USSR economy took place in 1991.

AH of a sudden the traditional tools of economic administration, including theplanning of tasks concerning production volumes and efficiency in enterprises,centrally fixed prices, funds and limits regulating product deliveries and resourceacquisition became void. The process was accompanied by the total liberalization ofsocial life, changing and removing these groups of interest and stimuli that previouslyconstituted the driving force for administrative management system.

In 1988-1990, new laws setting the framework for the economic liberalizationincluded the Co-operative Law (1988), Banking Law, Act on the Central Bank(1988); State enterprise Law (1987), Ownership law (1990), etc.

Nonetheless, all these measures failed to pave the way for the introduction ofmarket mechanism governing economic processes, but only weakened administrativetools used for enterprise management, provided managers with a certain degree offreedom as regards adrninistrative decisions, under circumstances where allparameters and measurements were utterly distorted and could not be used to set goalsfor economic activities. As a result, products and resources deficit started to reappearat an increased scale. Prices started to grow more and more rapidly, along with thedomestic product and forced savings.

Implementation of a series of measures introducing economic liberalisation wasnecessary in order to stave off these phenomena, but the central government failed tomake conclusive decisions with respect to a serious modification of the economicpolicy. Instead, the government continued the implementation of partial reforms andpetty improvements of economic mechanisms. As a result, the material and financialdisproportions continued to rise throughout the entire year. Postponement of radicalchanges was strengthening the social tensions and casting a more and more sombresiiadow over the future reform.

In order to balance revenues and expenditures of the USSR budget in 1991, atleast in the formal manner, the government went as far as to impose some additionaltaxes. The following taxes were imposed: wages fund tax which contributed to thestabilization fund; social insurance contributions were increased to 26%; a part (20%)of enterprise depreciation charges was also levied as a form of quasi-tax. At the sametime the mandatory sale of a part of hard currency earnings realized by exporters wasalso established.

Those measures were intended to increase the level of budget revenue»*! to 55%GDP, while during the previous years these revenues accounted for 40-45% of GDP.New taxes and contributions were to off set the following budget disproportionsaccumulated over the previous years: growth of social expenses (budget andextra-budgetary funds), strong increase of price subsidies, due to the increase of prices


Л A'-

of agricultural products, introduced centrally, (autumn 1990) and the increasedwholesale prices of industrial products (January 1991).

It was quite obvious, however, that such measures were not realistic. By the end

of 1991, laws concerning the application of the USSR tax laws on the territory of theRussian Federation were adopted, on the basis of the Republic's declaration ofindependence. These documents initiated the "budget warfare" during which theUnion government strove to keep its control over the budget system, and the Russiangovernment tried to ensure its autonomy.

In the course of such activities, which disorganised economic life, legislativeauthorities and governments at all levels were making decisions that contradicted theinitial budget estimates. Rates as regards personal income tax and tax on profits werelowered, sales tax was transformed from a cumulative ad valorem tax (as it had beenprovided for in the draft regulation) into an analogue of value added tax; moreover,zero sales tax was introduced with respect to numerous products.

As early as in the first quarter of 1991 the lack of realism in the construction ofbudgets adopted in the USSR and in Russia was quite obvious. As regards the revenueside of these budgets, the situation was disastrous: the Union budget was performedto a mere 40%, while the Russian one was performed in 60%.

An effort to improve budget situation at all budgeting levels resulted in thereform of retail prices, implemented on 2nd April, 1991, developed in order tostrongly reduce the load of subsidies burdening the budget, enhance revenues fromturnover tax, limit the sphere in which prices were controlled in an administrativemanner.

However, retail prices reform, which implied mainly price increases generated inan administrative manner did not bring forth any improvements in the budgetsituation. This can be explained by the degradation of traditional means of performingcentralized control over price movements and the domestic product.

The stability of wholesale prices and the freeze imposed upon the revenues ofthe population (which could not grow over 85% of the amounts compensating forprice rises) constituted the main requirements as regards the effectiveness of the pricereform and its influence upon the budget The government was, however, unable toensure that these conditions are met. In fact, nominal revenues rose twice, instead ofthe planned 1.3 times. Retail prices grew 1.9 times instead of 1.6 times; wholesaleprices - 2.4 instead of 1.95 times. In the light industry and food industry, whichaccounted for a very significant part of turnover tax received by the budget, thegrowth of wholesale prices was even higher; 3.1 and 2,6 times, respectively. As aresult, budget revenues from turnover tax were lower than had been planned, whilebudgetary expenditures, both allocated for the price increase compensation and for thesupport of organizations financed from the budget, military and investmentexpenditure, etc., were higher than had been assumed.

In the summer of 1991 tensions in the relations between the Union and theRussian government continued to grow. After the suppression of the coup attempt on



19th - 21st August, 1991, the actual independence of the republics was largely

increased, leading to a full collapse of the national budgetary system.

Starting from 1st November, 1991, Russia terminated transfers of the amountslevied within its territory and agreed to finance the expenditures that had so far beencovered from the Union budget and the economy stabilization fund.

Thus, the study of the performance of the Union budget has to end in October,1991. According to the official statistics, the 1991 Union budget accounted for 83.2billion rouble, while the total budget figure (including the Union extra-budgetary fundfor economic stabilisation) amounted to 119.6 billion rouble. There was a deficit asregards the budget of the Russian Federation (taking into account the settlement ofprice differences concerning agricultural produce, operated at the expense of creditresources). As a whole, the deficit of the consolidated budget of the former USSRstates increased from 10% of GDP in 1990 to approximately 13-16% in 1991.

The above data, however, fail to include all financial operations performed bythe government. According to evaluations performed by the World Bank, the budgetdeficit was financed from surplus (forced) savings belonging to the population andenterprises. The monetary and credit system received funds from enterprises,amounting to 10.3% of GDP (total deposits made by enterprises in 1991 accounted for14% of GDP). Funds from private deposits amounted to 21% of GDP. The positivebalance of Russia's external settlements accounted for 1.5% of GDP. Thus, in 1991,the Russian budget deficit was assessed to account for 30.9% of GDP (See RussianEconomic Reform. Crossing the Threshold of Structural Change. World Bank, 1992).

1.3. Economic policy in 1992-1993

By the end of 1991, it became obvious that a gradual conversion of theadministrative economic system into a market economy would not be feasible.Legislative gaps, the absence of the necessary market institutions, an overwhelmingprevalence of state ownership, and the high amount of monopolies were hindering theimplementation of stabilization measures. Thus, the liberalization of prices andmarkets, while all macroeconomic proportions remained utterly out of balance, couldlead to hyperinflation. The complete break-down of the financial system, however,did not allow any time for the implementation of measures which would permit aninstitutional transformation and partial stabilization that would precede theliberalization of prices.

Thus, the aggregate financial situation which has been described above, as wellas the accelerating decline of production and foreign trade, made it necessary toimplement comprehensive economic reforms in Russia within the shortest delaypossible.

1.3.1. Liberalization of prices and inflation processes

The liberalization of a majority of prices merely legalized the complete collapseof the government-controlled price system and turned suppressed inflation into an

overt process. Government's efforts to avoid hyperinflation in the course of price

- Ц - CASE Foundation

S. Sititbiikov & К. Reznikov

liberalization and the liquidation of the monetary "overhang" required theenforcement of a tough budgetary and monetary policy.

In January, 1992, after the liberalization, consumer prices grew 3.5 times andwholesale prices grew 4.8 times, as compared to December, 1991. In the subsequentmonths, until summer 1992, inflation rates were reduced to approximately 10% permonth as regards retail prices, and 12-15% as regards wholesale prices. In the autumnthe average monthly increase of retail and wholesale prices reached 25-26%. As aresult, over the entire year, prices of consumer goods and services grew by 2600%,while wholesale prices of industrial goods increased by 3400% (Table 1.3.1).

As has been pointed out by different authors, the change in prices recorded in1993 reflected, with a certain delay, the dynamics of the main monetary aggregates(Table 1.3.1).

The rate of exchange of rouble, in relation to US dollar, grew by 132% duringthat year and reached 418 roubles by December 1992. The average rate of exchangeduring that year was 248 rouble.

The above data illustrate the relatively strict monetary policy implemented inwinter and autumn of 1992. Rates of growth as regards M2 monetary aggregate werewithin the range of 9-14%. These figures are relatively small, judged against thebackground of an abrupt fall of demand for money. During that period this constitutedthe main factor behind the inflation. By June the demand for money was generallystabilized, and inflation began to be determined essentially by the growth of moneysupply. At the same time, a considerable growth of cash resources was recordedduring the same period.

In 1992, when Central Bank credit volume grew 24.4 times, the volume of creditfor commercial banks increased 19.6 times, and credit for the government - 18.1times. Credit for the states belonging to the rouble zone, which began to be granted inFebruary, 1992, amounted to 1566 billion roubles in December. Credit granted to thegovernment represented nearly 37.3% of incremental credit granted by the CentralBank; credit for commercial banks - 38.2%; credit for the rouble zone states - 24%.

Investment credit was extensively used in order to solve the problems related tothe support granted to the national industry, agriculture and other sectors, as well as inorder to overcome the crisis resulting from enterprises' insolvency. A markedseasonal fluctuation of the Russian national economy exerted a considerable influenceupon such an extensive growth of credit. By the end of spring large credits wereallocated to agricultural manufacturers and enterprises responsible for the supply ofproducts to the regions of the Far North. Virtually the entire amount of such creditwas granted upon preferential terms and the financing required for credit service wasassigned from the Republic's budget.

In July and August the rate of growth of the Central Bank credit was extremelyhigh, reaching 50% monthly. It was not until September that the growth rates wereslightly reduced.

An interesting event which took place in autumn, 1992, consisted of theimplementation of a rather strict budget policy against the background of a


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S. Sinffbiticov <& К. Reznikov

considerable cash growth. In October and November volumes of Central Bank creditgranted to the government recorded practically no growth, and the growth of thecentral credit in the fourth quarter was mainly related to credit granted to commercialbanks. A significant role in this process was played by the procedure of mutualoffsetting of enterprise liabilities.

The high rates of prices increase continued in early 1993. On the other hand, asis clearly visible from the presented data (Table 1.3.1), monthly rates of M2 cashgrowth in 1993 (16%) were somewhat lower than in 1992 (average 19-20%). At thesame time the average monthly rates of prices rise in 1993 (23%) were somewhatlower than in 1992 (21%), excluding the rapid rise recorded in January.

In 1993, serious changes occurred both as regards the composition of cashresources and the sources of their growth. The average monthly rate of growth for theCentral Bank credit over the twelve months of 1993 amounted to some 14.6%. Aconsiderable growth was observed in March, when credit granted to the Governmentincreased at a rapid rate.

The growth in Central Bank credit volume amounted to 275%, of whichapproximately 51.2% corresponded to credit granted to the government; 34% to creditfor commercial banks and 13.8% to credit granted to the states belonging to the roublezone.

During the first two months more than half of the Central Bank credit wasgranted for CIS governments. Then the situation changed: starting from May theCentral Bank abandoned the provision of credit to the rouble zone states. Startingfrom that time the credit was to be channelled through the federal budget and was toundergo a considerable reduction.

In 1993, the total M2 increase amounted to 316%. During that year the share-ofcredit allocated to the government accounted for 51% of the overall credit growth inthe Central Bank; credit for commercial banks - 34%; for CIS - 14%.

The rate of exchange of rouble rose from 442 rouble per dollar in January 1993to 1247 rouble in December, resulting in a 198% rate growth. The average rate ofexchange during that year amounted to 1034 rouble per one USD.

The accumulation of foreign reserves of the Russian Federation, generatedmainly as a result of the mandatory sale of a part of hard currency proceeds operatedby exporters and the purchase of currencies by Central Bank yielded a significantinfluence upon the monetary situation in 1993. Russian foreign reserves grewconsiderably in 1993 (from 2.8 billion dollars to 4.9 billion) and in the first hah0 of1994.

In 1994, the growth of Central Bank credit amounted to 213%. The averagemonthly rate of growth of Central Bank credit during twelve months was 11.2%. Aconsiderable growth was recorded at the beginning of the year (in February - to 18%)and July-August (by 17%) which resulted mainly from the growth of credit granted tothe government.



Overall, during that year, M2 increased by 188.9%, with the average annualgrowth rate at 9.1%. In April M2 grew by 17% and this situation continued also inMay-June (13%), constituting one of the elements which contributed to the inflationin October (15%) and December (10%). These phenomena confirm the hypothesisstating that there is a 4-5-months' delay between the growth of cash resources andinflation. Annual inflation rate by December, 1993, amounted to 300%,

By the end of the year the rate of exchange of the rouble in relation to the USdollar amounted to 3550 dollar: 184% more than in December 1993.

1.3.2. Banking system1

In 1992-1994 the banking sector did not undergo any radical reforms, since themajor changes had been introduced at an earlier stage, by way of implementation ofRSFSR Act on banks and banking activities in the RSFSR, dated December, 1990 andthe Act on the Central Bank of the USSR.

Before 1989 the banking system had been a one-level system: there were sixgovernmental specialized banks which shared amongst themselves all existingcustomers. The central bank, in the proper traditional meaning of the term, did notexist, because the total volume of credits investments, distribution of credit betweenbanks and directions for the use of credit were determined in the governmental plan.Since 1989, first commercial banks begun to appear on the scene, however, theirnumber and the scope of operations of these banks was insignificant

Since 1991, the number of commercial banks started to grow like an avalanche.All subordinated branches of the governmental specialized banks (except the StateBank) were declared independent in accordance with legal prescriptions. They wereallowed to choose their own customers and to grant credit in an autonomous manner.The Central Bank of the Russian Federation and its local branches were established,replacing the former State Bank. According to the "Central Bank Law", the CentralBank deals with the refinancing of commercial banks, manages the federal budgetaccounts, settles accounts between banks, issues licenses for banking activities andsupervises the activities carried out by commercial banks.

At first (in 1989), operations performed by commercial banks were limited to theopening of settlement accounts and the granting of credit. Then banks obtained thepermission to render cash services for their customers. Since 1991, second-tier bankswere allowed to handle foreign currency operations, both inside the country andabroad. Furthermore, commercial banks carry out operations involving governmentsecurities and the securities issued by non-financial corporations, as well as leasingand trusteeship operations.

Until 1992 the settlement of accounts between banks was being carried out byway of inter-branch clearings. Such a system of settlements, a remainder from theone-level system, was not consistent with the two-tiers banking system because itgave some banks the opportunity to pay their customers' invoices at the expense of

this section was compiled by G Gntsenko


S. Suwlnikov & К. Retnikov

other banks, without any formal agreement on interbank credit. For this reason, in

1992 all cornmercia] banks were ordered to perform settlements throughcorrespondent accounts, which were opened either at the Central Banksettlement-cash service centres, or directly by the bank in question with some otherbank.

In 1992-1994 the growth of number of new commercial banks was accompaniedby the closing down or restructuring of the already existing ones. Restructuring bymerger applied to these banks which were unable to meet the requirements of thesupervisory authorities as regards liquidity standards, in case when only a merger withanother bank could save the bank from closing down. Licenses for banking operationswere withdrawn from a number of banks, due either to the insolvency of their

customers, or as a result of risky credit operations of these banks which led them toincur heavy losses, resulting in heavy debt in other banks exceeding their reserveaccounts.

1.3.3. Liberalization of foreign trade1

By the beginning of 1992 the reform of foreign economic activities in Russiahad already gone through a number of stages. At the onset of perestroiJca thedecomposition of the government monopoly over foreign economic activities began,

Twenly-one USSR ministries and all the republics of the Union were granted the rightto carry out export and import in a direct manner. In 1988, practically all industrialministries obtained this right by way of government regulations. As early as by theend of 1988 the number of enterprises entitled to diject approach to the world marketexceeded 200. By the end of 1990 around 26 thousand such enterprises wereregistered, but the volume and scope of their transactions still remained ratherinsignificant (in 1988-1990 their operations accounted for slightly more than 1% ofthe trade turnover).

In order to develop the money market, free sales and purchases of currency

funds in exchange rouble at "contractual" prices were arranged for. Such transactionswere carried out at foreign currency auctions that were organised by the Bank forForeign Economic Activities of the USSR starting from November, 1989. Thistechnique was somewhat modified by the Presidential Decree dated 2nd November,1990, which provided for the establishment of a special fund to which enterprisesinvolved in export sales had to sell 40% of their currency proceeds, against rouble, atthe commercial rate of exchange.

In March, 1989, the list of products (works, services), covered by import andexport licences was published. Initially this list of products covered by mandatoryexport licensing comprised a comparatively small number of items, mainly fuel andraw materials, which accounted for a significant part of export in terms of cost. Lateron this list was extended and in 1991 over 90% of export items were subject tolicensing.

this section was complied by S. Prikhodko



In 1992, measures leading to the liberalization of foreign economic activitieswere accompanied by the toughening of strict administrative regulations. Allocationand licensing of exports was introduced within the territory of the Russian Federation.Since January, 1992, the mandatory sale of 40% of currency proceeds at the specialrate and the sale of 10% of proceeds at the market rate was introduced, along withexport tariffs.

Until mid-1992, imported commodities were free from customs tariffs, whichfacilitated the rapid growth of consumer goods import Nevertheless, a temporarycustoms tariff was introduced in July, and a regular, permanent tariff wasimplemented in September. Also in July limits on the export of strategically importantraw materials were imposed, by way of the introduction of the special exporter status.On the other hand, the universal floating rate of exchange of the rouble to dollarbecame effective in July 1992, and the limits imposed on the sale of foreigncurrencies to private persons and the mandatory sale of currencies at a fixed rate wereabolished.

Measures intended to restrain export sales (customs duties, licenses, quotas,mandatory sale of currency) turned out to be more effective than any measuresintended to provide positive stimuli. Attempts to stop the sharp decline of exports,causing a reduction of foreign currency inflow needed for imports, failed. Exports ofproducts which were not covered by regulations were decreasing 1.5-2 times fasterthan the average.

The budget situation was most seriously affected by the introduction of thesystem of subsidies for centralized purchase of imported goods, which was basedupon subsidy coefficients.

In 1993, the stimulation of export activities was carried out by means ofstrengthened governmental regulation combined with an effort to protect the trade inthe power and fuels industry, food and agricultural industry and engineeringcomplexes. As early as by the end of 1992, the institution of "special exporters" wasreduced to a considerable extent, and at the beginning of 1993 the allocationprocedure for wood and timber exports was restored. At the same time the fuel andpower industry was given customs and tax preferences for export deliveries within thescope of governmental needs. By the end of 1993, export tariffs were reduced on theaverage by 50% and the list of goods subject to export duties was almost twice shorterthan it had been initially. Foreign currency revenues from export activities, however,were considerably lower than expected. The system of allocations and exportpreferences granted to the centralized exporters was not capable of defending itself.

1993 was a hard year for the Russian imports, due to the removal of centralizedimport subsidies and the implemented customs and tax policy. During 1993, thevolume of imports fell by 27%, In the first quarter of 1993 value-added tax wasimposed on imported goods and import customs duties were increased. During thewhole year the excise rates were revised, and as a result, by the end of that year, theyreached prohibitive levels as regards certain types of goods, e.g. vehicles. InNovember, 1993, customs duties were increased once again, and in December


5. SineUiikov & К. ReznUcov

regulations concerning import activities carried out by natural persons were mademore strict.

The Presidential Decree No 1007 on the abolition of allocation and licensing ofexport deliveries of goods and services, dated 23rd May, 1994, which was slightlyamended, became an important document that confirmed the new rules of governingthe control over foreign economic activities. Detailed by-laws to the above Decreestated that all the former tariff preferences regarding deliveries of crude oil andpetroleum products would remain in force throughout 1994. In 1994, goods exportedfrom the customs territory of the Russian Federation, falling within the limits ofexport deliveries intended to meet federal government's needs, continued to beexempt from customs duties. Since 1st January crude oil, gas as well as oil and gasprocessing products were exempt from duties within the framework of exportallocation corresponding to the government needs. Fixed assets intended for use in theindustry, purchased by oil processing enterprises in exchange for the proceeds fromexport of crude oil, gas and processed products were exempt from import duties.

In 1994, export was operated according to five different methods, calledregimes: crude oil and petroleum products regime; strategically important rawmaterials regime; regime regulating the delivery of goods exported under internationalcommitments made by Russia; special export procedure (weapons, dual designationgoods, medicine, nuclear materials, etc.); and export contracts registration regime.

On 1st July, 1994 new import tariff was introduced in the Russian Federation.New rates had the most impact as regards food products, which until recently hadbeen free from all import duties.

Since 1st January, 1994, a new tax on imported goods was introduced; exportedgoods, both produced and acquired, exported services and works, certain kinds ofgoods were exempted from value-added tax in case of their import into Russia.

In 1994, the domestic sale of goods and services in exchange for foreigncurrencies (cash) was abolished. The procedure governing the transfer of goods whichare not intended for industrial or other commercial activities across the customsborder, operated by natural persons, was changed: the value of duty-free import wasreduced 2.5 times.

1.3.4. Privatization3

Since November, 1991, the activities in the field of practical introduction ofprivatization gained strong momentum. The government of B. Yeltsin - E. Gaidar,having at the outset proclaimed privatization as one of the key components of theeconomic reform, pressed for the development of privatization, but at the same timehad no real possibility of immediately gaining control over the privatization process.For this reason, one of the peculiarities of the economic reform program pursued bythis government was the liberalization of prices preceding the commencement oflarge-scale official privatization.

this section was compiled by A. Radyghin



This resulted from the fact that it was not viable to expect the completion of the"large" privatization due to an extreme deficit of goods in 1991, as well as intensivespontaneous privatization.

As early as on 29th December, 1991, "The main provisions of the privatizationprogramme for governmental and municipal enterprises in the Russian Federation for1992" were adopted, and their implementation began on 1st January, 1992. The"Provisions" actually became the first document regulating the practical privatizationprocess and initiating programmed (i.e. not spontaneous) privatization in Russia.Nowadays, the normative basis of Russian privatization comprises over 200 keydocuments alone.

Regardless of all tensions resulting from the political duelling involved in theRussian privatization problems "at high and nether places", the actual privatizationprocess in 1992-1994 was developing with a sufficient intensity. By 1st July, 1994,over 40% of all small enterprises in Russia were privatized within the framework of"small" privatisation; more than 70% of privatization applications had been settled bythat time. In the course of "large privatization" over 20 000 joint-stock companieswere established on the basis of medium and large state-owned enterprises, by 1stJuly, J994. In mid-1994 the number of shareholders in the newly establishedjoint-stock companies or cheque investment funds was about 40 mil l ion.

Within the Russian privatization program a special place was assigned to thecheque privatization. Decision on the introduction of the cheque-based model(summer of 1992) as a method of stimulating privatization processes in Russia wasadopted under the circumstances of a lack of solvent demand on the part of thepopulation; "zero" interest in the Russian privatization on the part of foreign investors;existence of over 240 000 governmental and municipal enterprises (which requiredstandard privatization procedures); necessity of achieving the maximum pace of thelegal privatization process in order to lock the intensive spontaneous privatization andensure breversibility of economic reform in general; necessity to create new socialStrata which would not be interested in a communist revenge.

All these economic and political factors determined the development andlaunching of the Russian cheque model. What were its strategic goals?

There was only one real goal: to achieve a temporary, large-scale redistributionand fixation of private ownership rights in Russia, with minimum social conflicts, inorder to permit further transactions in favour of really effective and responsibleowners. Taking into account the conditions under which the privatization process inRussia had started, and the true goal of the Russian version of mass privatization,cheque method becomes quite admissible.

The first stage of the Russian privatization is connected with end of thefunctioning of the cheque method. This stage began in 1992 and was completed on30th June, 1994. Despite numerous economic, political and social costs related to thecirculation of cheques, the real principal goal, i.e. mass re-distribution andconsolidation of ownership rights on the national scale was achieved. Even if thechanges were still somewhat formal and not so "civilized", however, the following


5- Sinelnikov & К. Reznticov

elements already existed in Russia by mid-1994, mainly due to the use of the cheque

method:

- corporate sector in economy;

- exchange markets for securities and securities markets outside the scope of theexchange, including infras true cure for the trade in privatization cheques, auctionsystems for privatization and secondary market for the shares of privatizedenterprises;

- institutional system (still transitory, but already rather powerful) in the form ofinvestment funds and other structures;

- a social stratum, which - with numerous reservations and without forgetting itsextreme heterogeneity and legal defencelessness - nonetheless may be termed as theowners stratum.

It can already be said that, mainly due to the implemented privatization programof 1992-1994, any reintroduction of the government monopoly and administrative andbureaucratic control over Russian enterprises would be difficult to achieve; however,it is still too early to dismiss such a probability. In a broader sense, enormous changesfor the better which took place in the sphere of property relations have created thebasis for modifications and relations of power within the Russian society. During thatperiod the issue of organizational restructuring of Russian enterprises and theattraction of investment was not, as a rule, raised in real terms. At best, the onlysolution as regards these issues was the acquisition of a share in stock by relativelylarge foreign investors - however, the interest acquired by foreign investors, at least atthe first stage, would not be a controlling one.

Thus, a potential investor on the secondary market must take into account theproperty structure which has already been introduced in Russia and its possibledynamics, as well as changes in privatization ideology introduced in mid-1994,

The second stage, which began in July, 1994, must be oriented precisely towardsthe redistribution of property rights acquired in the course of the initial distribution, sothat the shares reach the really responsible owners. This process should be madeeffective and should be provided with legal safeguards.

As regards privatization proper, this would mean first of all a transition from thesystem of property distribution operated free of charge to its real sale, from theaccelerated "privatization for the sake of privatization" constituting the quantitativebasis for the reform - to a slow privatization directed towards restructuring andinvestment.

To put this in another way: the new privatization model must be based on twounderlying key concepts, determining the methods applied at least within the "largeprivatization": sales should be in vestment-oriented, providing the investor with anopportunity of acquisition of the controlling block of shares in the course of the initialshare placement

Apart from the purely privatization-related tasks, there is a number of taskswhich it will take longer to fulfil: to ensure a dynamic and effective development of


Budget Crisis ш Russia

the Russian share market, real-property markets (including land), development of a

network of investment institutions, a civilized system of corporate management,which are the most important conditions for the effective functioning of the Russianprivatized enterprises.

1.3.5. Agrarian reform4

The main direction of reforms in the agriculture was pragmatically economic-driven - to render agriculture more effective and less heavy for the budget.

The first steps made in this direction were aimed to create developmentopportunities for family farmer units. The first experimental attempts of this kindwere made in 1987-1988. But already during the period of reforming efforts it becameobvious that only 10-15% of peasants wished to manage their land independently, andprivate-owned farming sector would be unable to become the principal force in thenation's agriculture in medium-term prospective. This situation caused the necessityto re-organize the existing collective and Soviet farms and transform them intomarket-oriented entities.

By the end of 1991 the main decisions that initiated the curcent stage of reformwere made.

All collective and Soviet farms were to be re-organized within a year. In thecourse of this rather formal procedure their employees were granted collectiveownership of practically the entire cultivated land and the funds. All funds weredivided amongst workers and pensioners in the form of shares; land was to be d iv idedinto equal parts and allocated in proportion to the number of years a given person hasworked at the farm. Share owners had the right to take their shares in kind, leave thefarm to run their own farming plots, or contribute their shares to the collective entityand remain at work.

Land shares turned out to be, by the Russian standards, not so vast: 6-10 hectaresper person. The possibility to sell and rent the shares to a collective or Soviet farmwas provided for in order to avoid land fragmentation. Thus, a peasant wishing toestablish his own farm, could enlarge his plot by buying or renting his neighbour'sshares.

As a result, the number of farmers increased sharply, from less than 50 thousandat the beginning of 1992, to already over 285 thousand farmers today. Problemsrelated to land acquisition ceased to constitute the main source of worries. Thefarming sector now accounts for about 5-6% of the nation's agriculture.

During the recent years practically all the collective and Soviet farms have beenre-organized. At first, they could be transformed into joint stock companies orproduction co-operatives. A majority of agricultural entities went this way,

Second, in spring of 1992, the government, having encountered a certainresistance on the part of peasants, allowed those farms that were unwilling to be

this section was compiled by E. Serova


5. Sinelnikov & К. Reznikov

ic-orgajiiy,cd Lo mainUm ihcij j'umici status. Today about иисИЫп! ui' fu ims c o n t i n u ein the fonn of collective and Soviet farms. Nonetheless, even these farms took overland and funds and, as a rule, divided them into shares.

The third, and the most radical re-organization method consisted of a completeliquidation of an old agricultural unit and its division into farming units, agriculturalco-operatives or private service companies and co-operatives. As a rule, sucbenterprises jointly use and maintain the infrastructure of a former farm. The numberof farms which were reorganised in this manner amounts to about one thousand (fromamongst 27 thousand collective and Soviet farms).

At first, it was supposed that the division of land and funds into shares wouldcreate a strong incentive for employees and companies. The objective was to cutagricultural enterprises from the government financing, marketing and procurementsystems in the formal and legal way, at the same time waiting for the enterprise tocommence its own restructuring effort under the influence of the market, so as toadapt to the new situation.

Such changes were expected in the long run and could not take place rapidly.Nonetheless, three main trends as regards the transformation of former collective andSoviet farms can already be discerned.

The first trend leads eventually into the division of an agricultural enterprise intosmaller independent production units - family farms, partnerships, co-operatives, etc.

The second method of economic transformation of large farming enterprises istypical for these areas in which large-scale extensive grain production is located, withskilled personnel, high productivity levels and large funds. Such enterprises undergothe process of property concentration in the hands of a small group of owners whopurchase, exchange and rent additional land areas.

Finally, the third way - the least desirable, but evidently unavoidable in thecurrent situation - is rather typical for many areas in Nechemozemye regions ofRussia. Most probably, a majority of agricultural enterprises located in this zone willformally preserve the status of a collective enterprise (regardless of their currentdesignation - collective farm or joint-stock company), but peasants will chiefly workon their own small plots of land. Production will drop to the survival level, permittingthe subsistence of peasant families. With the growing demand for agriculturalproducts in the medium term, the most viable of these farms will constitute the basisfor the future development of farming in these regions.

Besides institutional changes in agriculture, market economy has begun toemerge. The government purchases system undergoes liquidation, in spite of someadministrative relapses at the federal and regional levels. Commercial intermediarystructures, i.e. organized markets, begin to emerge, along with vertical agro-industrialintegration. It must be noted that numerous crisis-related phenomena in the foodmanufacturing sector are connected with the fact that the government withdrew fromthe agricultural market more rapidly than the market infrastructure could develop.

As regards purchases, price control as regards wholesale and retail prices in thefood sector at the federal level has been fully abandoned. The market for agricultural


Budgel Crisis ui Russia

machinery and fertilizers is sufficiently liberalized, even though the demand on thismarket has fallen due to financial restrictions.

The agricultural crediting system remains one of the least reformed spheres ofthe agricultural sector. With the persisting high rates of inflation agriculture cannot dowithout the support of governmental credit. Nonetheless, the old system governing thedistribution of financing still persist, causing very inefficient use of credit.

Today, the focus as regards reform in agriculture shifts from institutionalchanges to the creation of an adequate market infrastructure for agricultural producersand consolidation of an effective governmental policy in agriculture.

1.3.6. Budget policy

Basic principles of the tax reform that is being carried out since 1992 were tostabilize tax collections at the level corresponding to the levels that existed in theUSSR in 1988-1990; to ensure maximum possible continuity of the tax system asregards the proportion of indirect taxes that allows to ensure the stability of budgetrevenues while prices are rising; to create equal tax conditions for all forms ofownership.

The financial policy pursued since 1992 has gone through three rather distinctstages. The first stage, from the beginning of the year until the end of spring, featureda relatively strict budget policy; the second, in the summer of the same year wasmarked by a relaxation of the budget policy and rapid growth of the deficit in thegovernment finance, the third from autumn to December included the adoption ofextraordinary restrictive measures and more strict budget policy.

The initial draft budget for the first quarter of 1992 established the budgetarybalance by introducing severe expenditure cuts (starting with cuts as regards nationaleconomy and defence) and providing for a rather large share of governmental revenuein GDP.

In the first three months of 1992 consolidated budget revenues amounted to19.1% of GDP, expenditure - 19.5% GDP. Budget deficit in the period from Januaryuntil March amounted to ca 0.4% of GDP. Budget expenditures were made along withthe collection of revenue. In April the relatively strict budget policy was continuedand the cash deficit of the budget amounted to 1% GDP.

By the middle of the summer pressures exerted upon the Government and thePresident, as regards the provision of financial support for the population andenterprises began to increase. As a result, in the period from May to August, abouttwenty regulations of the Russian Federation, presidential decrees and governmentorders were adopted, requiring additional funding in 1992, at over 2% of GDP, to beused for social purposes. Support for the industry, agriculture and other sectors, aswell as resources bailing companies out in case of insolvency were granted fromexpanded Central Bank credit

In comparison with the first quarter, during the first six months of the year theconsolidated budget expenditure for the national economy grew from 5.8% up to


Л', SLntlnttov Л A'.

8.4% of GDP, social expenditure grew from 5% of GDP to 6.8% GDP and defence

spending was up from 3.2% to 4.7% GDP.

These processes, along with a shortage of budget revenues as compared to theplan resulted in a considerable worsening of the financial situation of the budget.Budget deficit in the first half of 1992 amounted to 6.2% GDP. In July the deficitreached 7.7% GDP and over a period of eight first months it amounted to 10.8%GDP.

Accelerated price increases and a decline in the rate of exchange of rouble,recorded in the summer, were caused by the growth of cash resources, which hasalready been described above, along with the monetization of the budget deficit byway of granting credit to enterprises, as well as the favourable balance of trade withother states belonging to the rouble zone.

Due to the above, the strengthening of the restrictive budget policy in autumn,1992, became one of the major tasks of the Government. In order to maintain thebudget deficit within the range determined by the Act on the 1992 budgetary systemof the Russian Federation (901.5 billion roubles) it was necessary to constrain theincrease of deficit in September-October to a maximum of 130 billion roubles, whichin practice meant a possibility of an absolute increase of the deficit by 13.6% of theplanned annual amount.

In September-November state expenditure was cut sharply. At the same time, inOctober-November 1992, tax proceeds increased to a considerable degree. Budget taxrevenues increased from 23% of GDP in September to 26.7% of GDP in November1992 (Table 1.3.2)5.

As a result, in September, the budget deficit of the Republic decreased from 820billion roubles to 716 roubles, or to 7.5% of GDP. Of course, the situation involvedalso a certain degree of budgetary debt with respect to social sphere institutions,labour remuneration, settlement of accounts for the delivery of weapons andagricultural enterprises. These expenditures were financed along with the collection ofrevenues.

In October, 1992, the actual deficit of the federal budget amounted to 4.4% ofGDP. In December the budget deficit of the Republic fell to 4.2% of GDP. Thefederal budget deficit over the twelve months, according to official statistics,amounted to 950 billion roubles (5.3% of GDP); i.e. slightly more than the limitingvalue of the deficit determined by the Act on the 1992 budgetary system of theRussian Federation. At the same time the expenditure growth in the consolidatedbudget in December, after the dismissal of E. Gaidar, totalled over 60% of monthlyGDP. As regards local budgets, the annual surplus of revenues over expenditureamounted to 316 billion roubles.

The budget policy in 1993 went through two quite distinct periods. The first one

lasted from January till September, 1993, until the date of publication of thePresidential Decree No. 1400 on the gradual constitutional reform in the Russian

enclosed on the end of this part



Federation, dated 21st September. The Decree authorises further expenditure to bemade according to the decisions made by all legislative and executive bodies, withoutany regard to budget revenue. Even though the Russian Ministry of Finance waspursuing a relatively strict policy, the gap between the actual budget deficit and theplanned figures was broadened at an accelerating rate. The second period continuedfrom October to December 1993. The radical change of political forces in Septemberallowed to achieve a reduction of the difference between the planned and actualexpenditure, thus providing a potential possibility of establishing budget equilibrium.

Since there was no approved budget at the beginning of 1993, budget activitiesin January were carried out based upon figures calculated as one-tiiird of budgetfigures which had been set for the fourth quarter of 1992, As a result, in January, abudget surplus in the federal budget was recorded, amounting to 0.5% GDP, while thetotal level of collected taxes was at 28-7% GDP, and federal budget revenuesamounted to 17.6% (Table 1.З.2., Table 1.3.3)6.

After that, the Supreme Soviet made the decision according to which thegovernment was allowed to finance undertakings to the amount of one-twelfth of thevolume of appropriations provided for in the draft budget of the Russian Federation.This decision did not bear an impact on the budget in February, when the budgetdeficit of the Republic amounted to 4.8% GDP. However, in March expenditure at allbudgetary levels continued to increase. The federal budget deficit reached 10.6%GDP, while the deficit of the consolidated budget amounted to 6.3% GDP. In Aprilthe budget deficit of the Republic decreased to 7.1% of GDP, and the consolidatedbudget deficit fell to 3.4% GDP.

The confrontation between the Parliament and the Government, as well as thestrengthening of controversies amongst various groups within the Government did notallow the Parliament to adopt the second version of the Act on the 1993 budget of theRussian Federation until the end of March. The 1993 Budget provided for the budgetdeficit at ca 18% GDP.

A certain, even though only temporary, strengthening of the reformist forcesoccurred in April, after the National Referendum, which supported the course ofeconomic reform. As a result, the Central Bank and the Government signed a jointstatement on economic policy, imposing limits upon centralized credit. ThePresidential Decree No. 842, on some measures implemented in order to restraininflation was adopted, imposing a moratorium on the expansion of the budget system.The termination of technical credit operations in favour of the CIS countries in May,1993, constituted yet another positive factor, along with the introduction of inter-statecredit granted from the budget of the Russian republic.

The change of the relative power of political forces allowed the Ministry ofFinance to stabilize the budget situation. In May, federal budget expenditure ondefence and order, as well as on the national economy and expenditure made on thesocial sphere were somewhat reduced. As a result, the deficit of the federal budget fell

enclosed on the end of this part

- 25 - CASE f-'oundatian

5. Sintlnikov & К. Reznikov

to 5.7% GDP. In June, the slight decrease of spending on the national economy anddefence, along with a stabilization of other types of expenditure, continued. As aresult, the federal budget deficit in the first half of 1993 amounted to 4.8% of GDP,

while the federal budget revenues in the consolidated budget amounted to 26.8% ofGDP.

On July 22, 1993, the Supreme Soviet adopted the Act on the revision of 1993budget indices, setting the target deficit at 22.6% GDP. President B. Yeltsin did notsign the Act and returned it to the Parliament for further consideration. On 27thAugust the Parliament approved practically the same version of the law, havingadopted the Act on the introduction of changes and addenda to the Act on the 1993budget of the Russian Federation, where the deficit was reduced by a mere 60 billionroubles, i.e. to 22.1% GDP.

i!

The main controversies between the position expressed by the SupremejSovietand by the Government, as well as the differences of opinion between conservativeand radical groups within the Government, were related to the decisions concerningthe balance between the financial stabilization and the necessity to support thenation's industry, agriculture and other sectors of economy by issuing money.

In July and August negative trends in the budget situation strengthened. Thistime the decrease of revenue was to a considerable degree independent from thepolicy of the Ministry of Finance and was mainly caused by accelerated inflation inthe summer of 1993. The consolidated budget deficit (Table 1.3.2.) grew from 2.8%GDP in June to 5% of GDP in July, and 6% of GDP in August. The federal budgetdeficit grew from 4.8% of GDP in June to 7.2% of GDP in July and to 8.1% of GDPin August (Table 1.З.З.).

Budget system revenues amounted to ca 26% of GDP in July-August (withoutextra-budgetary funds). The important trend was the decrease of tax collection, from28.4% of GDP in May to 26.4% of GDP in July, and 26.3% of GDP in August. Thisresulted mainly from the decrease of tax revenue of the federal budget from 13.9% ofGDP in May to 11.8% of GDP in August.

In September the situation continued to deteriorate. The consolidated budgetdeficit amounted to 8.6% GDP, while federal budget expenditure increased onlyslightly. Tax revenue of the budget fell to 11.1% of GDP. Additional budget revenueconsisted of the Russian Central Bank profit, amounting to 0.5% of GDP. Expenditurewas financed from the sale of currencies by the Government, which accounted for1.6% of GDP during 9 months, sale of precious metals (0.8% of GDP) and IMF credit(1.6% of GDP).

The radical change in the balance of political interests and influences afterpresident B. Yeltsin dissolved the Supreme Soviet and the Congress of People'sDeputies in September, 1993, permitted a sharp modification of the budget policy.

The modification did not concern budget performance on cash basis (the- federalbudget deficit in the fourth quarter was maintained at 8% of GDP), but applied toexpenditure-side liabilities of the Government. After the Parliament was disbanded,

CASE Foundatian - 26 -


the Government had the real opportunity to put budget expenditure in line withrevenue and impose limits upon Central Bank credit granted to the Government.

A number of decisions which would lead to expenditure reduction were made.Such decisions concerned primarily the removal of grain price indexation and theindexation of prices of other crops delivered to the State; removal of bread subsidies(with the introduction of bread allowance for certain citizens); removal of importsubsidies and of a majority of preferential credit (except for budget credit); increase ofthe refinancing rate of the Central Bank. Government investment was seriously cutand all expenditure items on the federal budget for the fourth quarter of 1993 werereduced by twenty percent. The pension fund and other extra-budgetary funds weresubordinated to the Government, which obtained the opportunity to use their spareresources for financing of the federal budget deficit.

Despite the strict measures adopted in autumn of 1993, previous budgetarydecisions concerning expenditure, due to the forces of inertia, led to a sustained highbudget deficit. The decline of the share of tax revenue in GDP continued, though at aless rapid pace (Table 1.3.2.). Tax revenue of the Russian consolidated budget fellfrom 25.4% in January-September to 24.6% in January-December, 1993; the revenueof the budget of the Republic fell from 11.1% to 10.3%, respectively.

As a result of the harsh and extremely painful procedure of expenditurereduction, the 1993 federal budget deficit remained at 9.4% of GDP and a basis for agradual decrease of the inflation rate (16% in November, 13% in December of 1993)was set.

The situation in the governmental finance in 1993 was largely similar to thesituation during the previous year. There was no approved budget at the beginning ofthe year and the gap between government's obligations and the resources put at itsdisposal was becoming wider still.

In the First quarter of 1994, the federal budget was performed on the basis of thePresidential Decree issued in December, 1993, setting expenditure at the level attainedin the fourth quarter of 1993, taJcing into account the 1.9 times increase in wages.

In March, 1993, the draft federal budget for 1994 prepared by the Governmentwas presented to the State Duma of the Federal Assembly of the Russian Federation.After discussion in committees and commissions and Government review, the budgetwas adopted by Duma in its first version on May 11, 1994. The federal budgetrevenue, as compared with the initial draft, were increased to 17.2% of GDP, in spiteof the fact that the implementation of the budget had already demonstrated the lack ofrealism cf such indices: during the three first months of 1994 tax revenues in therepublic budget amounted to 8.1% of GDP (1993 - 11.8% of GDP), including tax onprofit at 2% of GDP (1993 - 2.4%); value-added tax - 3.5% of GDP (1993 - 4.5% ofGDP); excise tax- 0.5% of GDP (1993 - 0.6% of GDP).

In the adopted version budget expenditure was higher than in the initial draft andamounted to 26.8% GDP (194.5 trillion roubles). This resulted mainly from anincrease of expenditure for agricultural industry, while the growth of expenditure onthe social sphere was obviously insufficient. The federal budget deficit grew from

- 27 - CASK Foundation

S. S'melnikov & К. Reznikov

8.6% of GDP (62.4 trillion roubles) to 9.7% of GDP (70.0 trillion roubles ). Thisversion of the budget, with minor changes, was adopted by State Duma on 24th June,1994 and approved on the same day by the Council of Federation.

Thus, almost during half a year the nation, similar to the situation recorded in theprevious year, operated without an approved federal budget. In the second quarter thebudget was implemented on the basis of the Act on the financing of expenditure fromthe federal budget in the second quarter of 1994. A similar situation was observed asregards the local budgets which were also adopted with a delay.

The most important feature of the 1994 Budget, which had a multi-facetedinfluence upon the budget policy, was an erroneous GDP projection, both in real andnominal terms (the decline was under-estimated). Budgetary calculations assumedGDP at 725 trillion roubles and projections were based upon overestimated inflationrates. In fact, the annual GDP in 1994 amounted to 630 trillion roubles.

Due to the restrictive budgetary and monetary policy at the end of 1993,inflation rates in spring-summer 1994 reached their lowest level during the entirereform period. As a result, nominal budget revenue was increasingly lagging behindnominal expenditure as specified in the Budget, The accumulation of unsettled budgetliabilities was caused not only by overestimates as regards the share of expenditure inGDP, but also by overestimates as regards the nominal value of spending.

i At the beginning of the year the decline of budget tax revenue was furtheraggravated. As a result, consolidated budget revenues in the first quarter amounted to22% of GDP as compared with 28% of GDP in 1993; revenues of the budget of theRepublic were at 10.4% of GDP, as compared with 13% in 1933 (Table 1.З.З.).

Under these circumstances, the Government was financing federal budgetexpenditure from the available credit allocated by the Central Bank. During the firstquarter of 1994 government spending fell from 19.2% of GDP in 1993 to 17.1% ofGDP. As a result, the federal deficit over the three months of 1994 amounted to 6.7%of GDP, as compared to 7.8% of 1993. The federal budget deficit was financedmainly from the Central Bank credit amounting to 7.5 trillion roubles (7.7% of GDP).

During the second quarter the situation as regards budget revenues improvedslightly. The consolidated budget revenues over the half-year period amounted to24.4% of GDP, over the first seven months of 1994 - 25% of GDP; revenues to thebudget of the Republic - 12.1% of GDP and 12.0 of GDP, respectively.

Budget expenditure followed the dynamics recorded by the revenue. Federalbudget expenditure grew to 16.6% of GDP in July and 18.3% of GDP in August.Loans, net of repayments, amounted to 2.6% of GDP in July and 3.2% of GDP inAugust, From January until August, 1994, expenditure on government administrationgrew to 0.8% of GDP (as compared to 0.5% of GDP in the first quarter), whiledefense expenditure fell to 4.0% of GDP (4.6 % of GDP in the first quarter), budgetexpenditures on the social sphere grew to 1.9% GDP (17% of GDP in the firstquarter), expenditure for the national economy grew to 3.0% GDP (2.2% of GDP inthe first quarter).


Budget Crisis w Russia

The federal budget deficit increased to 7.1% dining the first six months and9.4% during the first seven months of 1994. 80% of the deficit was financed fromCentral Bank credit (8.8% of GDP), issue of securities (1% of GDP) and foreignfinancing - 1.3% of GDP (including IMF credit amounting to 0.5% of GDP).

In September and October, 1994, the situation remained virtually unchanged: thetax budget revenue remained at 22.3% - 22.4% of GDP; federal budget deficit was at9% -10% of GDP.

The budget situation did not undergo any considerable changes in November.Consolidated budget revenues amounted to 25.9% of GDP, of which tax revenues -35.5% of GDP (Table 1.3.2.)-

Federal budget revenue amounted to 12.1% of GDP and expenditure was at 22.1% of GDP, with the deficit amounting to 10.1% of GDP. Tax revenue of the federalbudget, amounting to 10.7% of GDP were rather stable during the last half-yearperiod (Table 1.З.З.).

Budget deficit was financed from credit granted by the Central Bank of Russia(7.6 % of GDP), issue of securities (1.2% GDP) foreign financing (1% of GDP).

Preliminary estimates as regards the implementation of the federal budget duringthe last twelve months show a similar pattern. The federal budget deficit amounted tosome 11% of GDP. Thus, the December warfare in Chechenya begun too late to havea serious impact upon the budget. According to the official information, the financingof military actions would fit within the current expenditure estimates of the relevantministries and no major expenditure was made as regards assistance to refugees andrestoration of the economy.

As regards overall expenditure estimates, as regards the war in Chechenya,figures quoted by different sources vary widely, from 5 to 15 trillion roubles, i.e.0.5% to 1.5% of planned 1995 GDP and at the moment it would be hardly possible todetermine which estimate is correct. For the time being the only thing that is clear, isthat expenditure made on both war actions and the subsequent restoration of thedestroyed areas will be macroeconomically efficient.

While evaluating financial consequences of the war, it is necessary to take intofccount the accumulated budgetary debt towards all entities which receive the relatedresources. The terms and specific amounts of debt repayment will be included in realbudget expenditures allocated for the financing of different items. In relation to thewar activities it is fully clear that the repayment of budgetary debt to the involvedministries will be assigned top priority.

Appendix

Table 1.3.2. IMPLEMENTATION OF THE CONSOLIDATED BUDGET OF RUSSIA in1992 - 1994

Table 1.3,3. IMPLEMENTATION OF THE FEDERAL BUDGET OF RUSSIA in 1992 -1994


Т«Ы* 1JJ2. IMPLEAIENTATION OF THE CONSOLIDATED BUDGET OF RUSSIA In 1992 - 1994

GDP

1. INCOMES A SUBSIDIES

1 laconic Uxei, Wt.es on profit*

I 1 .Income Ux oa physical person*

1 .2. Tax on profits of enterprises

2 T«xw of wages fund

2.1. Deduction» fur mandalory health

3. T»xe* on property

3.1. T*x on property

3.2. Land tax

3 3. T« OD operations with «ecuritica

4. Internal taxes

4.1. VAT4.2. Special Ux

4 3. Excbes4.4. License charge for production & (aie

of alcohol

4.5. Royally for use of deposits &. nalural

resources

4.6. Deductions for regeneration of the

minerals & raw materials base

4.7. Revenues for the prices regulation

fund

5. Tax on forign tr»dc

6. Government duty

7. other taxes

TOTAL TAX REVENUES

Non-tax proceeds incl:

other Income

income of Central Bank

].*Jt ;eds of the purpose -orica led finances

Co. reduction of budget dcBcil

balance* of budget finances by beginning

of the year

CAPITAL COSTS1. Income from privatization

TOTAL REVENUES

*92 '«.- W- J-Ш- / « Л - J«L- )«.. JM_, ,M_. Jan. w Jan

Fcb "«h АМ May JUM July Auguit Sept. Oct Nov fW479

bin

rouble*

35

8

27

0

0

0

0

0

0

23

16

0

6

0

0

1

0

10

4

63

14

11

3

0

77

1080

Ыл

rouble*

93

17

76

0

0

0,1

0

0,1

0

73

53

0

)4

0

4

2

0

6

0,4

2175

18,958

150

3,958

0,3

193

1834

bin

rouble*

155,3

323

123

0

0

0,262

0

0.262

0

138,3

106.6

0

23

0

6

12,7

0

1003

30742,1

32

0

10,1

0.72

0,72

350

2633

Ыл

rouble*

305

50

255

0

0

2,52

0,5

0

215

170

0

31

0

10

4

0

39.608

570423

310

11.8

12

615

3459

bin

rouble*

426

69

357

0

0

4

3

1

0

278 Д

221.9

0

403

0

12

4

0

48,208

764

57,4

450

12,4

1.71,7

824

4599

Ып-

ГОиЬЫ

529

94

435

0

0

4,591

330.791

0

372,6

299

0

52

0

15

6.6

0

6130

1197958.7

440

14.7

3333

1041

6018

bin.

roublci

715.2

122,2

593

0

0

11.4

9.613

0

504,4

414

0

60

0

19,8

10,6

0

7930

191330

77,262

0

'

153

6363

1413

7576

Ыл

roubles

874.7

159.7

715

0

0

17311,6

5,7

0

663,7

549

0

77

0

23

14.7

0

107

0

22

1685

94,178,1

0

0

16

11,1

11,1

1790

9502

bin.

rouble*

1029

203

826

0

0

41.7

13.6

28,1

0

912,605

753

0

99

0

40

20

0,605

181.40

242189

97,7810

0

16,7

19

39

2305

12227

bin.

roublei

1450.2

259 .2

1191

0

0

n38338,6

0.1

140031179

0

123

0

61

34,5

23

2Й2Д0

253215

84,6

67

0

0

И.6

28.428.4

3328

14890

bin.

rouble*

1710.6

322.4

1388.2

0

0

107,8

47,7

60.1

0

1792,5

1516

0

152

0

723

47.2

5

333,4

0

31

3975

1253

108

0

17,8

40.004

40.004

4141

ll(0€3

bb.nxible*

2041,1

431,1

1610

0

0

127354,6

71

1,7

M2332004

0215

0

!04,6

74

26,2

467,4

0.443

5103148,7

1290

19,7

62,262,2

5314

%ODP

из

2.4

8,9

0,0

0,0

0,7

030.4

0,0

13,4

11,1

0,0

uo.o

0,6

0,4

од2,60,0од

283030,70,0

0,1

0303

29,4

EXPENDITURES AND SUBSIDIES LESS REPAYMENTS

I. Government expenditures

1. Government services of geaeraldesign alien

2. For defence

3. Expenses for low enforcement

authorities

4. For science

5. Social & public services

5.1. Education

5.2. Culture, arts, mass media

5.3 Health care physical culture

5.4. Youth polycy prognunise

5.5. Social insurance

5.6. Subs ц die* for pension fund

5.7. Programmes of Chernobyl &

Semipalatinsfc

5 8. Allowances & compensation for

children

5 9. Government services for national

economy

7. Other functions

7.1. Other expenditures

7.2. Expenses for foreign economicactivities

7 3. Expenses for JCTVJCCS of internal debt

7.4 Expenses for servicee of ex tern A) debt

7 5. Subventions for close administrative-teuilonal regions

Ц LOANS LESS REPAYMENT

1. for enterprise*

1 1. froro budget

2 incomplete trsnifer of income* by CB

3. Other crediting ojicTitionj (balance)

TOTAL EXPENDITURES A

SUBSIDIES. LESS REPAID

INCOMES & SUBSIDIES, LESS

EXPENDITURES AND SUBSIDIES,

REPAYMENTS DEDUCTED

52.4

1

12

1

17,410

1

6

0

0,4

0

0

0

17

4

4

0

0

0

182,212

4

38

13,9

<J

50,612

28,9

4

16,7

0

1

0

0

0,0)2

53

17,7

15

2,7

0

0

2

2

2

0

344,389

63

56,4

20,2

8 1390,789

484

6,8

32,7

0

2,7

0

0,074

0,015

305,6

56,8

41

15,8

0

0

13

1313

0

584,023

J0.9

99.7

30,2

13,7

138323

723

11

50,4

0

4,4

0

0.03

0,193

177,2

114

73

4)

0

0

4

4,1

4.1

0

833,993

14,4

161,8

42.1

19,1194,793

1023

17,1

68.9

0

6

0,481

0,012

263,8

138

97

11

0

0

6

f.V

6

0

1238,991

21,2

215,2

59,6

25,1313,491

177,6

23,9

102

0

9,8

0

0.074

0,117

386,8

217,6

166

51,6

0

0

18

1818

n

1746,062

32,6

258,2

85,1

30,5

413,762

231.7

31.9

136

0

12

0

0,162

2

585

310,9

237

73.9

0

0

33

33

33

2310381

40

380

112

43599,881

282,7

42,8

176

0

15,1

41381

38,8

3 1.1

808 ,2

3273

228

993

0

0

144

144

144

2761.1

49,9

453,1

133 Д

51474Й.1348,1

534

2283

0

20,9

41.9

50Д

3,2

939,2

388,1

272

116,1

0

0

BOOO

Ofl88Я ЯOO

3433,7

65

519Д

161.4

59,2

924,9

431,6

66,8

285,8

0

26,2

51,2

594

3,8

11644

5394

328

2114

0

0

91

9191

4270

76,8

639

192

7931100,4

512,4

813

3544

0

ЗЗД

51,2

644

33

14734

709

409

300

0

0

105

105

105

5848.6

105,9

8553

245,2

107,61460,9

679,4

116,2

467,7

0

65

5U

78,1

33

2059

1014,7

598

416,7

0

0

32,4

0,6

4,7

1,4

0,6

8,1

3,8

0,6

2,6

0,0

0,4

03

0,4

0.0

11,4

5,6

33

23

0,0

o.o

106 0,5868

106

1060.6

0,6

52

25

184 357

-8

588

27

840

-16

1257

-216

1779

-3641

2454

-664

2849

-544

3525

-197

4375

-234

59SS

•641

0,0

33,0

-34

T.biel J-2. IMPLEMENTATION OF THE CONSOLIDATED BUDGET OP RUSSIA In 1992- 1994

1993

Jan.

GDP

I. INCOMES Л SUBSIDIES

1 Incorne Lexe», Uxe» On profit*

1 I Income Lex -on pfiyeiol pcnon*

1 2 Tax on profit* of cctcrjjrue*

2 Taxe* of wage* fund

2.1. Deduction* for mandatory healthinsurance

3 Т axe* on property3 1. Tax oo property3.2 LandUx

3 3 Tax on operation! with Kcwitice

4 Internal taxe*4 1 VAT

4.2 Special UK4 3. Ехя*с*4.4. License charge for production & t

4.5. Royalty for u»e of deposits & natural

resource*

4.6. Deduction* for regeneration of themineral» &. raw malarial* base

4 7. Revenues for the price* regulation

fund5 Tax on forign trade6. Govcramenl duty

7. other tax»TOTAL TAX REVENUESNon-Uot proceeds metother incomeincome of Central Bank

proceed* of the purpose- oriented finance*for reduction of budget deficit

balances of budget finances by beginning

of tbcyearCAPITAL COSTS1. Income from privatization

TOTAL REVENUES

4300

о.

Jlej

4)1

107

304

0

17

13

3

1

594

4*9

41

1

24

22

17

Л8

018

11585339

14

2121

1232

Jan.-

Fcb

9700

Ыл.

гоиЫся

1038

231

807

0

48

395

4

1197974

80

2

57

42

42

263

34

2580125

95

31

40

40

2745

J»n-

Murch1S&00

bin

roublei

2191

36Й

1825

0

92

73

8

11

18881507

139

3

96

63

80

422

58

4651

275

205

71

57

57

4983

J*n -

AjinJ

2-1300

bin

roubles

3681

566

3115

94

99

161144

11

6

28132185

292

5

147

89

95

584

113

7451

259

179

80

74

74

7784

Jan

May

337 00

bb)

rouble*

4724

756

396*

152

152

ISO

17014

6

35992X26

380

6

182

101

104

761

151

9577356

264

92

87

87

10020

Jin • Jin -

June July

45800

Ыл

roubles re

6124

1026

5098

225

225

214

180

24

10

45823612

493

8

238

116

115

919

22612290

921

432

375

114

106

106

13317

59400

ьЬ.

Ajbk*

7882

1359

6523

293

293

293

2ЛО

43

10

57424527

628

10

309

135

133

1109

355

156741220

569

530

121

128

128

17022

Jan-

August

72900

bb

rouble*

9850

1748

8102

291

291

386

307

66

13

69725487

763

12

395

165

150

1244

417

191601801664

264

746

127

154

154

21115

Jw- Зад-

Sept. Ott.

900-M 1093ОПbb bin

roubki rouble*

П£Л< 142П-

21<* 2743

9*« n«:

lit a '.

i№ a:

4<« 615

325 391

)<* 202

15 2Я

8-4?- 1<ПМ

6679 8ОЙ2

94' 1 149

15 19

45« 593

li» 23П

155 и:14-JI l&g-i

491 64ri22ST2 27470

2U15 23*irf750 95~

*M 40-

ОТ) 125

u: i-*t

IS? 221Ш 221

256Ы 30557

Jao.-

Dec

bk

OOP

1**. 25)61 13,0

>*:5 «88 2.7

3?^0 16^73

•* 66

~o 66

ЯО «97ЯЧ 546

^2 314

:-« 37

IX^o 1*431iij-) 1 121 1

1*54 1777

12 29

:-=0 £44

159 310

!~7 200

1977 2347

~5 100933139 Э?864

5S3S 59691117 1232

1 H9 2042

!-*18 2521

151 174

2a3 319263 319

37237 152

10.3

0.0

0.0

0.6

0,3

од

o.o

8.9

6,90.0

I.I

0,0

0,5

ОД

0,1

1,4

0,00,6

24,6

3,70,8

U

0,1

одОД

28,4


L Government expenditures1 Government services of genera]designationZ. For defence

3 Expenses for low enforcementauthorities

4 For science5 Social & pobhc services5 3 Education

5.2 Culture, aru, mas* теша

53 Heallh care physical culture

54 Youth polycy programme

5_5 Social insurance

5 6 Subsutbe» for pennon fund

5 7 Programme» of Chernobyl &Seoupalatmil

5-8 Allowance* & compensation forchildren

5 9 Government services for nationaleconomy7 Other fun CDOB»

7 1 Otltcr oLfcadmact

7 2 Expense* for foreign economicactivities

7 3 Expenses for «crvicca of internal debt

7 4 Expense* lor «ervices of external debt 0

7 5 Subvention* for cloee admmistrative-tcmtonol

a LOANS LESS REPAYMENT

1 jorenlerprue»1 1 from budget

2- mcomplcit aamfcr of incomes by CB

3 other crediting operation* (balance)

TOTAL EXPENDITURES ЛSUBSIDIES, LESS REPAID

INCOMES & SUBSIDIES, LESSEXPENDITURES AND SUBSIDIES,REPAYMENTS DEDUCTED

1005

23

246

69

23

312

148

24

92

7

19

14

8

197

135

47

52

36

106

106

106

2359

61

430

151

28

725

337

49

230

1

20

за

27

23

550

414

110

233

71

497

142

142

Т» Ч

5459

145

949

284

142

1351

617

91

437

1

4J

63

51

48

1479

1109

494

376

239

524

187187

•m

7654

225

1166

379

170

2087970

134

669

2

80

85

78

69

2169

1458

709

454

295

963

460

460

10012

292

1540

519

200

28741343

177

949

3

116

85

98

103

2925

1662

853

479

329

3

1016

559559

13258

377

1905

651

246

40651973

238

1340

4

178

85

103

144

3877

2137

1096

636

403

2

1351

594

594

177S6

497

2361

847

317

5231

2524

325

1733

6

239

85

140 -

179

5163

3370

1717

1153

49S

т

16»

1138113$

22896

618

3033

1053

391

6414

2992

411

2199

7

317

85

184

219

6741

4646

2555

1541

540

10

196]

16111611

29150

801

4070

1412

544

80603747

510

2818

10

4O9

85

- 222

259

8715

5548

3J83

1733

617

150

2002

18911891

34810

989

4811

1778

640

99524631

651

3502

11

498

85

248

326

10394

6246

3587

1987

651

21

2582

2159

2159

42769

1204

5699

2167

753

122485636

816

4323

13

618

85

309

448

12828

7870

4652

2364

827

27

2939

26642664

53849

1476

7210

2624

943

153306956

1046

5388

17

805

85

370

663

16390

9876

6091

2764

989

32

3O4]

27192719

ЗЗД

0,9

4,4

1,6

0,69,44,3

0,6

3,3

0,0

0,5

0.1

0.2

0,4

101

6,13,8

1,7

0,6

0,0

00

U7J7

1,71.7

1111

121

2S56

-111

5983

-1000

8617

833

457

11028

-1008

757

14609

-1292

482

Ш06

• 2.VU

350

24B57

3742

1 1 1

31152

-5466

423

37392

-6835

275

45708

-8471

322

56890 35,1

-10738

TibU 1.3 J IMPLEMENTATION OF THE CONSOLIDATED BUDGET OF RUSSIA 1л 1У92 -1994

1994

GDP

1 INCOMES & SUBSIDIES

1 Income Uxci, taxes on profit!

1 1 Income Lax on physical pcreoui

1 2 T»x ои profit* of enterpriser

2 T»XCJ of wage* fund

2 1 DC duct] Оси for mandatory health

insurance

3 Тахсл on property

3 1 Tax on property

3 2 Land tax

3 3 Tax Ofl operations with sccimliea

4 Internal Uxca

4 1 VAT4 2 Special Ux

4 3 EXCUCJ

4 4 Licence charge for production & *ale

of alcohol

4.5 Royalty for use of deposits & natural

resource*

4 6 Dcductiom for regeneration of tt<e

nuoerala &L raw materials base

4 7 Revenue* for the prices regulation

fund

5 Tax on fongn trade

6 Government duty

7 other taxes

TOTAL TAX REVENUES

Noa-tax proceed» mcl

otbcr income

income of Central Bank

proceeds of the purpose-опсяted finance*

for reduction of budget deficit

balances of budget finances by beginning

of the year

CAPITAL COSTS1 Income from privatization

TOTAL REVENUES

(com)

1-24000

bb

>uble*

245]

620

1831

6

6

51

33

11

7

1997

1674

230

11

57

20

5

220

21

2184964

352270

82

4747

5363

cb f,

580OObin

roubles

5148

1393

3755

14

14

125

84

22

19

3972

3313

17)

19

115

4S

6 0

51146

43210248

758662

0

96

8282

11088

mi ц

Ivch A

94200

bin

roubles

9331

2357

6974

27

27

262

167

39

56

67И

5221

300

850

28

246

66

0

75981

81417985

3446

1002

2017

428

117

117

21S-J8

in - Ji

.pnl Jv

140500

binrouble*

H389

3507

10882

35

35

560

445

56

59

9888

7319

846

1212

41

392

78

0

1083113

118527253

4069

147g

2123

468

173

173

31495

w J»n Jan I

1«У June Jury f

187500 235500 28SSOO

ЬЬ ЬЬ bin

19229

4585

14644

47

47

1212

1049

89

74

13269

9790

124g1656

44

433

98

6283

147

1443

41630

6051

2583

1580

1407

4«1

223

223

47904

I UULJJCB

24O60

5917

18143

60

60

1633

1395

120

118

16740

12078

1673

2204

55

600

130

0

7215

187

1850

51745

7733

3293

1580

2251

609

273

27359751

rouojci

29047

7352

21695

SO

80

2168

1788

196

184

21395

15453

2233

2719

67

762

161

0

7926

232

23«

63214

7816

4435

1618

1139

624

342

342

71372

an • J»=L

in gust S- X-

341500 403100

bla bin

roublej

35742

896]

26781

96

96

3106

2538

343

224

25888

18567

2785

3358

78

894

207

0

8842

283

2915

76872

8895

5379

1646

1236

634

403

4O3

«6170

rtxjblea

41647

10756

3O892

107

107

3951

2918768

266

31195

22227

3380

4085

90

1142

271

0

10511

329

3422

91163

10333

6355

1670

1609

699

483483

101980

l»n - Jan

Ou_ NQV

«7700 S42900

bin. bb

rouble*

47858

12519.135

35338,865

136

135,706

4748

3418318

1009X7

319,855

379*8

2708 2. 148

4143,06

4834,828

104^44

1496358

327,436

0

10511368,432

40883145

10565*8

117317430 ,25 25

1693.68

1868 ,882

737 ,881

553366

553366

117982

roublci

56368

14593452

41774,751

154

15363/

6026

4263363

139671

365.878

44539

31378,698

4832.054

5909,885

116,055

1847.53

454381

0

14727

415,679

4773,466

127003

12930

8573 ,262

1580

1995,056

781^57

624,855

624,855140558

J«n

Dec

630000bb

rouble*

66325

17509302

48815611

184

184.117

6950

4831.408

1661.062

457,694

53639

37334,134

5690303

7424371

133.653

2420.736

635^31

0

19166,838

468.895

5850,783

152585

1601710535,614

1581395

3040,229

859353

748,409

74S.4O9

169350

%

QDP

103

г&

7.7

00

0,0

1.10,803

0 1

835.90,91Д

0.0

0 4

0,1

00

3,00,10,9

24,2

231-703

03

0,1

0,10.1

26,9


I Government ехреа&жга1 Government service* of generaldesign all on

2 For defence

3 Expenses for low enforcement

4 For science5 Social & public scr-ice»5 1 Education

5.2 Culture, arts, тлзл medn

53 Health c*re phymstl culture

54 Youth porycy programme

5.5 Social insurance

5 6 Submdies for реосюо fund 0

5 7 Programme* of СЪетл&Ьу) &Semipalatinsk5.5 Allowance* & ry^'i ^-щаГ1г»п fc»r

children5 9 Governmeni ю-утеея for national

ecooomy7 Other function*

7 1 Other expenditure*

7 2. Expense* for foreign economic

7.3 Expenses for servwa of intern»! debl

7 4 Expenses for service» of external dcbl

7_5 Subvention* for ct *e add£oiiu^tr&Jjve-temtonal region*

П- LOANS LESS REPAYMENT

1 for enterprises

1 1 from budget

2 incomplete отнимет of шсогосл by ГВ

3 otbcr crediting opcnivxil (balance)

TOTAL EXPENDITURES A

7068

256

940

454

171

22881093

141

833

2

76

0

69

74

1682

1277

346

SIS

96

17

00

223

74

74

149

7291

16927

591

3136

1076

365

54252569

363

1914

3

214

0

99

263

4293

2041

928

321

269

17

6

1011

473

473

538

1793Я

27025

980

4435

1683

526

88534026

578 •>

3031

8

425

0

230

555

7282

3266

1743

867

618

17

21

986

735

671

251

28011

AT347

J450

£390

2502

SOS130906018

842

-05

13

639

311

862

11675

4435

2676

£84

SOS

*7

2111

1383989

728

•CASH

55882

1994

7921

3287

98817200

7950

1167

5733

21

779

0

384

1166

15721

8771

4558

1478

1663

1006

6Й.О

5298

1552

1552

1379

2367

<11вО

70385

2529

9639

407S

116022527 ,

10760

1509

7218

34

1100

440

1466

19816

10636

5482

1806

2203

1054

91,0

6233

2748

2748

632

2853

7Л618

;$467

3614

11505

5062

138927114

12819

1900

8688

45

1324

568

1770

25866

13917

7180

2104

2396

1603

1340

8342

3821

3821

1109

3412

96*09

1075-14

3962

14327

6042

1776

324X815086

2701

10674

56

1604

678

2190

31935

17015

8600

2419

3629

2191

176

11970

7512

7912

1017

3O40

119514

127316

4428

16622

7048

2080

3845817698

2719

12563

65

2014

770

2630

37933

20746

10352

3104

4301

2771

218

14337

10060

10060

855

3921

1421 53

149797

5048,679

19559392

8417,016

236536844470

20252,134

3294,907

14491,52

73,985

2346,613

959.42!

3051,056

44857,09

25080

12797.294

3689 72S

5295,409

2854 67-1

443,171

18755

12125

12125438

2173,318

4455 879

16Й552

П3545

5947,11

22274,862

9603,846

2639,69951460

23466,984

3840,426

16764,25

93,741

2727,443

1036.85

3530,734

52930.625

28689

14800,102

4270221

6146.197

2947.499

524,494

19374

1335313352,781

12SO 808

4730.992

191919

210531

7097,812

28018,101

11426,692

3114,97360734

27452,695

4626362

19706.872

110,178

3372,334

0

1289.796

4175,063

6342S82

367П

20537343

4956335

7-198 4O4

3132.5 IS

586,065

22926

И11615115.936

1773349

6037 151

233457

33,4

1,1

4,4

U

0,59,6

4,4

0,7

3,1

0,0

0,5

0,0

0.2

0,7

10,1

5,8

33

0,8

1.2

0,5

0.1

36

2.4

2,4

03

37,1SUBSIDIES, LESS В.ЕРАШ

INCOMES Л SUBimCES, LESSEXPENDITURES A>T> SUBSIDIES,REPAYMENTS DEDlXTfED

-1928 -6*50 -6463 1W63 -13276 • 1Ш7 -33344 -10173 50570 -52361 -64107 10,2

133. IMPLEMENTATION OF THE FEDERAL BUDGET OF RUSSIA In 1992- 1994

GDP

1. INCOMES Л SUBSIDIES

1 Income (axe*, uxci on profits

1 . 1 .Income UX oc phyiieaj fjcrtom

1.2. Т tx on profia of cotaprue*

2. Тче« of WKgc* fund

X I DcjLtliooi for aumiiilofy bolth mcunnce

3. T»i« <te property

3 I. LWtu

3.2- T« oa opcj-abon* wi

4. UtereaJ tuei

4.1. VAT

1992

Ып

4 .5- Royalty for use of deposit! £ mlural resources

4.6 Deduction! for regeneration of tfac mineral* i nw outeritk bwe

4 7 Revenue* for the pnccf regulation fund

4.2. Special Ux

5. Tuc o* fordgB trade

4, Govcrnmcat duty

TOTAL TAX REVENUES

Noo-tix proceeds щс!_

txbcr юсшас

юсоск of Central Baok

proceeds of the purpose-oriented fjnirrei for reduction of budget deficit

balances of budget finances by beginning of tbe year

CAPITAL COSTS

1 InromB from pnvaazalioa

TOTAL REVENUES


L GoverHi

1 . Govemmenl iervjces of gcnend desigtutkm

2. Ftxdefcucc

3. Expenses for low epfotrrnifail iulhoriiies

4 For science

5 Sociil & public scfvtxe

5 I. EducaOon

Si Culture, arts, mass media

5-3 Heafth слге physical cuhure

5.4 Youth policy progrunmc

i j Social insurance

479

i

12

0

12

0

0

0

20

15

4

0

I0

0

0

32

Я

4

0

4

0

40

30

1

12

4

14

2

1

1

0

0

)»л •

Fcb

ЮНО

ЬЬ

roubles

38

0

38

0

0

0

57,5

44.9

11.1

0

1.5

0

53

0

100.8

13

13

0

0

0,151

113,951

113,431

2

38

14

5

17.431

11

3

2

0

0,131

J a n - I

Much f

1K34

bin

roubles

65,5

0

65.5

0

0

0

101,4

84,7

14.2

0

17

0

10

0

177,1

24,9

24,9

0

0

0,151

202.Ш

200,448

2,2

57

20

8

24.3

16

3

5

0

0,3

a n -

vpnl

2433

bb

rouble!

131.4

0

131.4

0

0

0

154,4

135,9

17

0

3.5

0

39^0

3273

28

28

0

0

0,151

355,451

388,284

5.5

98.7

30

13

35,131

23

5

7

0

0.131

J a u -

May

3459

Ыл

roubles

179.3

0

179.3

0

0

0

20 1,2

175.6

21.6

0

4

0

48,2

0

428.7

38. 1

38.1

0

0

0.438

447,238

5*0,531

7

162

42

19

54,131

35

9

10

0

0,131

Jan-

Jlinc

4599

bin

loubks

206.9

0

2069

0

0

0

259,4

229

24

0

6.6

0

41,7

0,1

S2S3

36

36

0

0

0.9

MS.2

S29,<

10

215

59

24

96.1

71

12

14

0

1

Jan - Jin.- I»n -

July A i

6018

bin

roubles

272.4

0

272.4

0

0

0

3524

316.1

25.8

0

10.6

0

784

0

703,4

52,2

52,2

0

0

1.7

7573

1171,4

15

288

84

30

125.7

91

15

17

0

0,7

JgUJI

7574

ЬЬ

lOublcs

316.5

0

316.5

0

0

0

4453418.1

32,5

0

14.7

0

105,7

0

8874

65,B

6S.&

0

0

4

9573

1422,8

17

380

111

42

242,8

114

22

23

0

0.8

Scpc

9S02

ЬЬ

гооЬЫ

358.9

0

358.9

1.7

1.7

0

454,8

573.4

41.4

0

20

0

179

0

1174,4

67

67

0

0

6

1247,4

1853,209

22

453

132

50

201

132

26

27

0.009

1

J u i -

Oi

1Ш7

bin

roubles

5 VI

0

530

W

5.2

0

10103921.2

5 1 8

0

34 5

2,8

2594

0

1805

45

45

0

0

9

1859

2272

29

520

159

57

335

155

31

34

0

2

Jin - Jan -

Nov D,

14890

bin

roubles

593

0

593

74

7.5

0

12813

1162,9

66Д

0

47,2

5

328,1

0

22O9,9

81.2

81.2

0

0

12,2

23033

27953

33

639

190

77

374

176

39

39

0

2

ic

10043

Ыа

„„Ые*

679,5

С)

679,5

1M17

1.6

1700

1УЮ

100.4

0

73,4

26,2

4593

0

2857,4

92,7

92,7

0

0

18. 9

2949

3839,1

42

855

241

104

488,2

230

59

53

0

14.7

%

ODP

3 8

0,0

3.8

0,1

0,1

00

9,4

83

0.6

00

0.4

0.1

240,0

IS,*

040,5

0.0

0,0

0.1

16,4

2U

0,2

4.7

13

0.6

27

1.3

03

030.0

0.1

5 6 Subsudcs for pension fund

5 7. Programm» of Cbernobyl & Semipalatmsk

5-8. Allowance* & compensation for children

6. Government services for rutiotuJ economy

7 Obcr functions

7.1. Otber cxpcaditurts

12- Expenses for foreign economic activities

73. Expenses for («vises of internal debt

7.4. Expenses for services of external debt

IS Subventions for otfaec levek of budget, iacL:

for local budgets

ayment (balance)

of the fund of financial support

subventions for close «dmimsttiavc-lernlOEiiJ regions

П LOANS LESS REPAYMENT

1 for cxbcr levek of government ukumistriUon

1 I Sbatt Icrm IOUK, given to local budgets

1 jL transferred la federal budget for repayment of

UXoans fat local budgets

2. For cofcrpnses

2.1 from budget

2-2, Government credit

fo< COQVCISIOQ

for investment

3 BxxMnplele transfer of ineotnts by CB

4 odjer crediting operations (balitoce)

TOTAL EXPENDITURES & SUBSIDIES, LESS REPAID

INCOMES & SUBSIDIES, LESS EXPENDITURES AND SUBSIDIES.

REPAYMENTS DEDUCTEDШ FINANCING

1 Internal financing

1 1 Through ocb« levek of budget

1 1 Through Central Bulk (act)

1 3~ Through iniemttiooil finaacuig ofgaatudaos

1 3 Sale of securities

1.4 Other

2. Exlcrtul fin tricing (net)

repay a^aB

3 Crcdin of Bank for foreign tnde (balauce)

AS REFERENCE:CmJm for+AI6 CIS. for mvcscmeaa. lot convcraoo: daditt in currency

0

0

0

7

1

1

0

0

0

0

0

0

0

0

0

0

0

0

0

1.3

0

32

5

2

3

0

0

0

0

0

0

1.40

0

0

0

1.4

1.4

0

0

0

0

59

29. 48

17

0

0

12.P48

0.94Й

12

И,*

3.8

0

С

3.8

13.8

13.8

0

0

0

0

103

102,953

34

41

0

0

27.953

0.953

2?

9,9

5.9

0

0

5.9

4

4

0

0

0

0

154

122,4

42

41

0

0

39.4

3,4

36

18

11

0

0

11

7

7

0

0

0

0.1

216

207,5

88

52

0

0

67,5

31.5

36

2U

5

0

0

5

16.3

16.3

0

0

0

2

353

275.7

133

74

0

0

68,7

31.7

37

47,7

16.7

0

0

16.7

31

31

0

41

39

3

495

335

139

99

0

0

97

58

39

154,4

13,6

0

0

13.6

140.8

140,8

0

42

50

3.2

528

387

161

116

0

0

110

71

39

110

2S

0

0

28

82

82

0

51

59

3

645

527

189

211

0

0

127

83

44

122,4

39.9

0

0

39.9

82.5

82,5

0

S!

64

3

807

675.3

232

300

0

0

143.3

92,3

51

Ш,8

49

0

0

49

87,8

S7.8

0

51.2

77

331095

1013,9

347

416,4

0

0

250.5

142,5

108

89,3

17

0

0

17

72J

72,3

0

03

0,4

0.0

6,15.6

1.9

230,0

0,0

1.4

0,8

0,6

0,5

0.1

0.0

0,0

0.1

0,4

0,4

0.0

30

10

0

0

114.831

-0,88

aо

218,046

-15.897

0

0

398.184

-42,733

0

0

578,531

-111.293

0

0

8S0.9

-285.7

0

0

1219.1

-461.8

0

0

1777.2

-819.9

0

0

0

1963,209

-715.809

0

0

23W.4

-535.4

0

0

2932,1

-628,8

6

0

00

3928,4 21,7

-959.4 -5.3

0,0

00

00

Q.o00

0.0

0.0

Figure 133. IMPLEMENTATION OF THE FEDERAL BUDGET OF RUSSIA in 1992 - 1994

GDP

1. INCOMES A SUBSIDIES

1. Income axes, taxes on profiu

1 1 Income ш. oo physical peraccs

1 2. T»X c>e profits of ciJtcjpmei

2. Тахез of vr-fga fund

2. 1 Deducooas for nianduory Ьс-tii вз

3. Тахеэ oe property

3 ) Land ид

3 2. Тал oo operations wilh

* InternaJ t&xtd

4 1 VAT

4 3 Excises

4 5 Royally for use of deposit* i

« 6. Dcd iX-n* for rcgcoef ыюа c£ tx mmejiJs & raw

4 7. Rcvcuuc3 foe the prices r

4.2. SpecuJ ax

5. Til on fCM-Mgu frad*

fi. Government duly

TOTAL TAX REVENUES

Non-ux proceeds ioct

Other income

income of Ccotril Bank

base

for reduction of bodgel deficit

of the ytti

proceed» of Ibe purpose-oriented

balances of budget fm&nces by

CAPITAL COSTS

1 . Income frcra privatization

TOTAL REVENUES


L Govenime*! expenditures

1. Government tervkxs of general

2. For defence

3. Expenses foe low enforcement

4. For science

5. Social & public sefvkcx

5 I.Eduotkm

5 2- Culture, tftt, raiis media

5 3. Healib cue physwal cuhmc

5 4. Youifa policy programme

5 5. SocuJ шяндосе

1993Jan

4300

ЬЬ-

nxibld

154

0

154

0

2

I

1

457

392

26

0i

22

17

IK

0

729

21

21

0

0

6

75<

*4S

12

246A8oe

23

120

50

15

14

Jin -

Feb

9700

bin

rouble!

371

0

37-7

С

2,*

I

i t

321)

695

41

С

42

41

258

0

1457,i

65

r>6

0

С

11

1534,*

1533

26

4311 4 f ll*fl

27

208

88

23

32

Jan - J»c .

™ ApnJ M»y

ISSOO 24300 33700

ЬЬ Ыа. bin

.Tables roubles roubki

Jao.-

741

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74)

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3

1212

1003

660

63

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415

2372

153

153

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16

2541

79

949

277

140

367

155

38

59

1269

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1269

99

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108

1166

367

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204

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131

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1905

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3517

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165

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126

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746

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13541

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1012

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90000

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3237

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3237

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73

20

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14

5276

4289

522

108

199

158

1380

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10000

1866

132

464

1270

0

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17525

386

4070

1358

521

1650

812

160

265

109

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109300

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3887

0

3887

28.

28

35

17

18

6395

5239

626

139

230

161

1611

21

119-19

1948

185

464

1299

0

48

13945

20512

477

4811

1709

609

2000

973

215

355

128

Jan-

Nov

131X00

bin-

roubles

4657

0

4657

21

2!

44

23

23

75C3

6125

757

185

259

177

1SW

28

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2786

219

1149

1418

0

56

1*972

24937

571

5699

2078

716

2392

1135

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447

155

Jio.-

Dec

1*2300

bbi

roubles

5472

0

Я72

77

41

36

S908

7251

899

248

310

2OO

2256

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14750

4812

249

2042

2521

0

66

21(28

31170

658

7210

2513

894

2917

1356

341

563

210

%

ODP

3.4

0.0

3.4

0,0

0.0

00

5,5

4.5

0.6

0 2

0.2

0,1

M0,0

1033.0

0.2

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0,0

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13,3

19,2

0,4

4.4

U

0.6

1,8

0.8

0,2

0,3

0,0

0.1

5-6. Subsudiei for pension fund

5.7. Programmes of Cbemobyl Si SemiptUtinsk

5.8. Allowance & compensation foi children

6- Government services for national economy

7. Other functions

7.1. Other expenditures

7.2. Expenses for foreign economic iclivtacs

7.3. Expense* for service of micro*! debt

7.4 Expenses for services of external debt

7J. SubveanufM for otber Icvcb of budget, mcL:

fubvcnDoas fot local budgets

Bitctfaudgciuy payment (ЬаЫкх)

finances of tbc fund of financial support

subvention* for close, admin strati ve-temlonal region

H LOANS LESS REPAYMENT

1 . for octK-r Icvcb of government «dmioistratioa

1.1 Short-term loans, given 1й local budgeB

1 2- transferred to federal budget for repayment of

1 3 .Loans for local budgets

2- For enterprises

2,1. from budget

2-2, Government credit

far cocvcrtioa

for investment

3 incomplete transfer of incomes by CB

4. other crediting operations (balance)

TOTAL EXPENDITURES & SUBSIDIES. LESS REPAID

INCOMES & SUBSIDIES. LESS EXPENDITURES AND SUBSIDIES,

REPAYMENTS DEDUCTED

Ш FINANCING

1 Internal Гшапсщд

1 1 . Through otber Itveb of budget

! 1 Through Central Bank (net)

1 2, Throu&b bternatioaAl finMcing argiaiutuitf

1 J Sale of secunlE*

1 4 Other

X External fmancute (net)

repayment*

3 Credai of Bank for foreign tride (baUoce)

AS REFERENCE-

fo(+A16 CIS, fot investments, for coovcrtkin; Credit» Ь CUITCncy

19

14

8

71

108

21

51

36

0

0

0

87

0

0

0

87

87

38

27

184

509

US

231

71

92

92

«3

6

б

102

102

0

355

63

51

646

1200

292

373

239

296

201

95

55*

30

37

-7

0

191

191

337

85

77

£38

1580

407

«7

295

431

263

168

847

3845

-7

0

3O6

3O6

0

503

85

96

1055

1820

454

461

329

576

3J8

237

I

890

109

117

-8

0

324

324

0

457

85

101

1249

2251

575

601

403

672

426

244

2

1313

205

214

-9

0

351

351

757

85

138

0

17O4

3610

1050

1127

498

935

518

415

2

21«

296

3O6

-10

0

1388

784

604

222

382

482

85

182

0

2086

5411

1765

1500

540

1606

616

980

10

2135

13

23

-10

0

1772

1168

604

222

382

350

85

219

277Э

6767

2210

16S3

617

2257

723

1519

15

2121

24

34

-10

0

19S6

13*2

«M

111

85

244

3166

7740

2430

1933

651

2726

866

1839

21

2Ш

27

50

-23

0

2235

1570

665

423

85

303

3750

9731

3250

2307

827

3347

967

2353

27

3042

80

103

-23

0

2687

2008

679

275

85

362

X543

12435

4417

2704

989

4325

1124

3169

32

3198

49

76

-27

0

2827

2134

693

322

0,1

0,2

0,0

2,8

7.7

2,7

1,7

0,6

0.0

2,7

0,7

2,0

0,0

0,0

2,0

0.0

0,0

o.o

o.o1.7

1.3

0,4

0.0

0.0

0.2

735

21

0

0

1996

-161.4

0

0

4216

-1675

1720

1720

1720

5569

-1718

1445

1445

1445

6785

-1933

2034

2036

2036

8581

2198

2195

2195

2195

122&0

-4171

4372

4372

3587

676

109

0

15676

-5914

W72

6072

4509

1451

112

0

196J6

-77TQ

7S10

7810

23197

9252

3797

3797

1583

1451

51

712

0

27979

-11007

11273

11273

8540

H51

%

1186

0

34368 21.2

-12740 -7.

12481

12681

9860

1451

184

1186

0

7,8

7,8

0.0

6.1

0.9

0.7

0.0

0,0

1-3-3. IMPLEMENTATION OF THE FEDERAL BUDGET OF RUSSIA In 1992 • 1954

GDP

1. E4COMES A SUBSIDIES

1 fctiicDc uxcs, ujits on pratBS

I 1 b--»-"-«- tn on phys»:*! ptrsooi

1 Л. Т n on profits of fnn-rpfsta

2, Ttsz* of wages fund

i 1 De--ijcno<is /or mJu*UK-o ЬелПЬ insurance

>, T»J*rf OD property

3 I L-iod tut

3JL. To. DC operations »~uh srcuriucs

4. Im(cj~Bi] taxes

4 I ^ \T

4 J. Ед^ает

4 j RJ-* «hy for use of dcpcajB & uWuraJ resources

4 6- Deductions fot regcnenJKio of tbe mincrib i rw mtfc-riih bee

4 7 R^«=nues for ibc pr*a=s regulation fund

4.2- Sycciil ид

5. Тжт о* foreign trad*

t Go^-ej-Biatul duty

TOTAX TAX REVENUES

tiact-ux. proceeds loci

omcr

шсоше ul Central Biol

of tbc purpose -ocam»td fiD»nees for reducQoa of budget deficit

of budget firnrtv^ by beginning o! ibe year

CAPITAL COSTS

TOTAJ. REVENUES


L Govvrvmeal expenditure*

1. Ge-гвпшсШ servioei o

Z For ddfeocc

3 Expense* ft* low

4. FoescacDCC

5 SocuJ & public services

5 1 Eijcaaon

5 2. Cukmt, uts, BUSS medu

5-3 Hciifa c»re physical

5 4 VoUb policy programme

5 5 Socad insurance

>94 Ьл - J:

1 Feb N

26000

Ыо

rouble!

742

0

742

8

i

7

1343

I IT/

122

19

20

5

213

10

2314

51

51

0

0

0

10

2377

4020

147

940

434

168

402

196

40

94

4

58OOO

Ыо

roubles

13S4

0

13S4

20

2

ia2521

21 9Й

241

26

48

5

471

19

4415

230

230

3

0

0

17

4*62

10572

306

3136

1022

355

1108

575

132

262

43

IO-- Jin - JuL- JlUL- J'

Iwch April M«y June h

94200

bb

rouble

2680

0

2680

37

2

35

4380

3474

484

56

66

0

300

705

34

7834

2205

188

0

2017

0

23

100*4

15*71

490

4435

1567

503

1622

758

182

337

1)9

140 5OO

bb

roubles

4165

25

4140

59

3

56

4387

4903

686

108

78

0

612

1004

45

11640

2414

291

0

2123

0

32

1410*

23536,1

755

6390

2331

772

2460,1

1177

256

524

0,1

198

187500

Ып.

roubles

5304

39

5270

72

3

69

8605

6608

950

72

98

877

4195

5V

20240

4125

1139

1 580

1406

0

38

24403

33013

1071

7922

3057

941

3281

1622

381

695

206

235500

bto-

icmblei

6435

69

6366

1M

a

100

10558

7929

1246

93

130

1160

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24247

5272

] 441

1-580

2251

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295*7

405*5,3

1361

9638

3772

1107

44743

2368

511

829

03

335

Щ-- J)4L- Juа - ЬL D - J.in- ],л -

ily Auguil Sept- Oct. Nov Dec

2S5SOO

bin

roubles

7774

93

7681

141

5

136

13424

10260

1544

118

161

1543

7813

95

29449

4826

2069

1 618

1139

0

60

34335

52283

2185

11505

4655

1324

5501,3

2816

692

1026

0,3

409

341500

bin-

roubles

9493

102

9391

178

7

172

1S344

12182

1859

151

207

1946

«490

11*

34822

5347

2465

1646

1236

69

40238

Ш55

2226

14327

5535

1698

6320

3159

718

1290

0.556

486

403100

bin

rouble!

10741

100

10641

n17

55

19204

14461

1851

196

271

2428

10343

133

40515

6212

2933

1670

1609,4

79

4*80*

73040

2345

16622

6464

1986

7350

3547

926

1495

2,028

623

467700

bin

roubles

12465

110.804

12354.256

299

43.068

256.159

23***

17543.534

2653.727

256,75

327.436

3084,616

12525,488

143374

49299

6905

3341,938

1693,68

1868.882

86,16

5*290

8711*

2691.475

19559.392

7817,74

2261,592

8873

4149.221

1225,841

1800,931

3.519

750,106

542900

bb

rouble*

14868

114.975

14753,464

37S

76.27

298,325

27979

20200,147

3418,675

298.758

454381

3607,195

14573,745

157,957

57954

74Й7

3799,796

1692^1

1995.056

101.795

65543

100694

3233.747

22274,862

8919,648

2511.92

10214

4814.092

1396,839

2066,455

13,569

886.378

630OOO

bb

roubles

17239

114

17125.5

488

110,8

377.3

33432

23735.7

4456.1

378.9

635.8

4225.1

18991,8

178

70330

9306

4684,8

1581,4

3040.2

116379753

123114

3847Д

28018.1

10753,7

2964,6

11746

5488,1

1655,0

2320,9

14,1

999.2

*QDP

2,7

0

2,7

0,1

0.0

0.1

53

3.8

0 7

0.1

O.I

0,7

3,0

0,0

11,2

1.5

0.7

03

0,5

0.0

12,7

194

0,6

4,4

U

0,5

1,9

0,9

030,4

0.0

0.2

5 6 Subsudics for PCJBJOC fund

5 7 Progmmncs of Qjemobyl & Semipalitmsi;

5 6 Allow laces & comptos*Iion for children

6. Government services for QAdotul economy

7. Other functions

7 1 . Oiber expeadicmics

7JL Expenses for foreign economic «divines

7.3. Expenses foe service* of internal debt

7.4. Expense* for service^ of exlemiJ debt

7 J. Subventions for otbef kvck of budget, incL:

subventions for loctl budgets

mlerbudgctiry payment (baJinac)

finances of the fund of financial support

subvcouons for close fcdfflimstrmnve- territorial regions

П LOANS LESS REPAYMENT

1. tot ortff levels of govcrnmenl administration

I 1 Sbon term louts, givtn to local budgets

1 2. tuns/erred to federal budget for rep «ушел! of subsidies

1 JJLoaas for local budgets

2. For enterprises

2. 1 from budget

2-2. Government credit

for conversion

for divestment

3. incomplete transfer of incomes by CB

4. other crediting operations (balance)

TOTAL EXPENDITURES & SUBSIDIES, LESS REPAID

[NCOMES & SUBSIDIES, LESS EXPENDITURES AND SUBSIDIES,

REPAYMENTS DEDUCTED

Ш FINANCING

1. Internal financing

I 1 Through other Icvek of budget

1 1 Through CeoinlB»iit(ael)

1 2. Through iniernatxin»! financing

1 3 S»le of secuntiei

1 4 Other

2 Exknul fmujcni^ (acl)

3. Ocdu» of Bulk, far foreign trmdc (balince)

AS REFERENCE.Credjis for+A 1 6 CIS, for lavcsbnciitx, for coavcrueu; cnditt in сштеасуkcct rep* у шел is

0

68

363

1566

117

817

96

536

129

407

0

0

ITS

25

25

0

0

4

4

0

149

4198

-1821

2158

21 S8

2100

58

0

0

%

1391

3254

440

817

269

1728

218

1503

0

7

914

42

42

0

0

334

334

0

538

1148Й

-6524

tm6SS1

6300

81

0

0

226

2128

4926

753

846

618

2709

345

2343

21

907

114

114

0

542

478

64

251

16578

-6514

7*20

7620

7500

120

0

0

3O5

4115

6713

1041

855

808

4009

533

3233

176

67

2*42

222

222

0

1092

698

394 0

728

25S7&,]

-11472.1

117*5

117S5

11538

247

0

377

0

5317

11424

2467

1424

1661

1006

4866

761

3704

288

113

5233

256

272

-16

1233

1233

1379

2365

38246

-13843

7003

3895

1580

1158

997

160

3108

431

0

6313

13920

2938

1750

2203

1054

5975

941

4394

481

159

(413

488

512

-24

2439

2439

632

2354

±6998.3

-17411.3

24Ш

21 550

18100'

1158

2132

160

3316

0

558

0

8683

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00

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Л.З 589,3 0.1

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S. Sinfbukov A. A'. Reznikov

2. Organization of the budget system and the budgetprocesses, characteristics of the budgetaryс assification

Before 1991, the budget system of the USSR constituted an aggregate of allnational budgets incorporated into the state budget of the USSR. In 1991, as has beenpointed out above, budgets of the particular republics were separating themselvesfrom the aggregate and, by the end of the year, the former budget system ceased toexist. Nonetheless, let us first review the budgetary arrangemeats in the USSR at thebeginning of 1991.

The USSR state budget consisted of the Union budget, state budgets of therepublics belonging to the Union and the state social insurance budget. State budgetsof each of the Republics within the union consisted of the budget of the republic, statebudgets of autonomous republics included in the given republic, and local budgets. Asregards local budgets, three different groups can be identified: budgets of regions andterritories, budgets of republican subordinated cities, and area budgets (in theserepublics in which the administrative division into regions did not exist).

In addition to that, regional budgets included budgets of regions and budgets ofterritories (by analogy with the structure of state budgets of union republics). In thiscase, however, a second group of local budgets should be identified: regional budgets,territorial budgets (incorporated into budgets of regions and territories), budgets ofautonomous regions (districts), budgets of cities of regional and territorialsubordination, area budgets.

Area budgets included regional budgets, budgets of cities covered by relevantsubordination, budgets of settlements and rural budgets.

The revenue of the USSR budget came from the following sources:

• Payments from profits (deductions from profits generated by state enterprisesand organizations, payments for the use of principal factors of production and ratedcurrent assets, fixed (rent) payments, available profit balance. In 1991 this group ofpayments was replaced by the tax on profits.

• Turnover-related payments from enterprises and organizations (turnover tax,tax on the revenue from film screenings). In 1991, the tax on sales was applied,governed by rules similar to the value-added tax.

• Payments made from enterprise revenue (income tax from co-operativeenterprises, collective farms, forest tax (payment for timber), payment for water), aswell as payments included in cost (deduction from prospecting).

• Charges and payments for services rendered by governmental organizations(state customs duty, road police charge, other charges and non-tax payments).

• Payments from the population (income tax, tax on single and childless persons,agricultural tax paid by collective farmers and farm owners, tax from house-owners,



land tax (which was not paid by collective farms and persons exempt fromagricultural tax), tax on vehicles.

In general, the distribution of the above revenue between budgets at variouslevels wa.s as follows: revenues transferred to the union budget (less the sharetransferred to the budgets of union republics) included the tax on profits fromenterprises and organizations subordinated to the union, personal income tax,contributions to the state social insurance and customs payments.

The following revenues were transferred to the budgets of union republics:

• a part of the tax on profits from enterprises and commercial organizationssubordinated to the republic,

• forest revenue,

• income tax from collective farms,

• co-operative and social enterprises,

• agricultural tax,

• share in turnover tax and

• other sources of Union revenue to the amount specified in the USSR StateBudget for the given year and some other payments.

The following payments were transferred to the budgets of autonomousrepublics, territories and regions:

• payments made out of profits of subordinated enterprises and a part ofpayments made from the profit of enterprises and organizations subordinated to theunion industries and authorities transferred to these budgets,

• state duties, revenue from film screening,

• local taxes and charges.

Payments from profits made by enterprises of local subordination and transfersfrom higher-tier budgets also constituted the revenue of local budgets.

The revenue of the state social insurance budget consisted of contributions madeby enterprises. The contributions varied depending on the industrial branch and weredefined in terms of a percentage of the wage fund. Other contributions includedpayments for recreation vouchers and amounts allocated from the union budget (withthe share of 52% of the social insurance budget).

The extra-budgetary stabilization fund was supplied from the following sources:contributions from enterprises at 11% of their wage fund, 20% of depreciation write-offs for the full reconstruction of capital assets covered by all property types; profitmade by enterprises from an increase of contractual prices over the specifiedprofitability level, etc.

By the end of 1991 a new Act specifying the basis for budgeting arrangementsand budget processes in the RSFSR was adopted. In accordance with this Act, the


5- Sinelnikov & К. Rezsi'tkov

following budgets are included into the RSFSR budget system and constitute itsindependent parts:

•the RSFSR budget, budgets of republics belonging to the RSFSR,

• budgets of territories,

• regional budgets,

• budgets of Moscow and Saint-Petersburg,

• the autonomous region budget,

• district budgets,

• city budgets,

• area budgets,

• city area budgets,

• local budgets of settlements and

• rural settlements.

It should be noted that independent budgets include the RSFSR budget, budgetsof RSFSR republics and budgets of nationality, state, and administrative entities.

In accordance with the Act, the unity of the Russian budgetary system is ensuredby the application of an universal legal basis, use of a unified budgetaryclassifications, uniform format of budgetary documents, consistent presentation ofbudget statistics at all levels of the budget system, permitting the consolidation of theRSFSR budget.

In 1991, the Russian Federation adopted the Act on the principles of the taxsystem, which specifies the principles of the Russian tax system and types of taxes aswell as determines charges, duties and other payments. The Act was later replaced bythe Act on the introduction of changes into the Russian tax system, dated 16th July,1992, and the Act on the introduction of changes and addenda to some tax laws of theRussian Federation, dated 22nd December, 1992.

The above Act identifies three groups of taxes: federal taxes, taxes imposed bythe republics of the Russian Federation, and local taxes imposed by territories,regions, autonomous regions and autonomous districts.

In 1992-1993, there were 89 second-tier budgets, corresponding to the numberof entities within the Russian Federation, i.e. 21 republics, 10 autonomous districts, 6territories, 1 autonomous region, 51 regions and Moscow and Saint-Petersburg asseparate entities.

In 1992-1994 the rules governing tax distribution amongst budgets at variouslevels remained rather stable, despite some adjustments. Data concerning taxesconstituting federal budget revenues and those feeding into the budgets within theFederation is presented in Table 2.1.



Apart from taxes, collected in accordance with separate Acts and feeding intobudgets at various levels, other payments include customs duties that are transferredto the federal budget. The procedure governing the collection of these payments isregulated by the Customs Code and other documents issued by the State CustomsCommittee of the Russian Federation.

A considerable part of the Russian consolidated budget, together with local andfederal budgets, consists of extra-budgetary funds that can be divided into fundsallocated for social and industrial purposes.

Extra-budgetary funds include the employment fund and the mandatory healthinsurance fund.

The Act adopted in RSFSR on 20th November, 1990, regulating thegovernmental pension system in RSFSR stated that pensions were to be paid throughthe Pension Fund of RSFSR. In 1991, social pension contribution rate fromenterprises and organizations was set at 26% of wages. In addition to that, employedcitizens pay their own contribution at 1% of their earnings.

Amendments to the Act were introduced on 27th December, 1991. The rate ofcontribution to the Pension Fund was set at 31.6%.

On 25th December, 1992 further amendments were introduced, by way of theAct on the introduction of amendments into Clause 8 of the Act on governmentalpensions in RSFSR. Contribution rate was changed lo 28% and the contribution ba.siswas broadened to include wages and remunerations paid on work contracts andcommissions.

At the end of 1991 Social Insurance Fund contributions were set at 5.4%. Thisrate did not change. Resources from this fund are allocated for the payment oftemporary disability allowances, as well as, in certain instances, for the payment formedical treatment and therapeutical diet. In 1992 no penalties were stipulated for asregards enterprises which failed to calculate and transfer adequate insurancecontributions. It was not until 1993, when mandatory registration of individualenterprises at branch offices of the social insurance fund was introduced, that the masstransfer of fund resources began (including amounts payable and outstanding for1992).

Contributions to the employment fund amount to 2% of the wages fund, whilecontributions to the mandatory health insurance amount to 3.6% of the wages fund.

The Russian Federation Employment Act, dated 19th April, 1991, outlined theprocedure for the establishment of the Governmental Employment Fund. In April,1991, mandatory monthly contributions made by employers, at the level of 1% ofwages, were introduced. Starting from the second quarter of 1993 until present thestandard contribution to the Employment Fund amounts to 21% of calculated wages.

A number of extra-budgetary funds have been established for industrialpurposes. Road funds were established under the Act on road funds of the RSFSR,dated 18th January. These funds are used for the financing of expenditure onmaintenance, repairs, reconstruction and construction of public roads.


Table 2-1. Taxes m Russia (conL)

I

Value added tax (basis proceeds from realization of worksservices and some financial operations)

Excises /or

-oil, gas, coal, pecrol

-ethyl alcohol

-spmu

-vehicles aquircd for personal use

-other goods(basis' sale prices si enterprise)

tax on operations »ith secunQes

Special lax (basis -similar to VAT)

Customs duties

a) export duty

including

-crude oil

-natural gas

-uranium ores

b) import duty

-minimum rates (plants, seeds certain tmds of foodstuff

raw materials ores, oil, certain kinds of machines equipment

instrument! spares)

-maximum rates (weapon, ammuruaon, ethyl alcohol,

precious metals aracles vehicles electronics)

RATES:

federal budget

2

federation subjects

budget

3

local authority budget

4

SHARE TRANSFERRED TO

federal budget

5

federation subjects

budget

6

local authoritybudget

7

l.fEDERAL TAXES

Federal taxes charged for federal budget

10-20%

5-30%

9O%

30-55%

specified races

-

0,5% of amount of епшаоп 03%

from each participant of transaction

2,4O%

specified raies ace. to groups of

goods ш % of customs value

23ECUA

5ECUA

3200 ECUA

specified rates ace, to groups of

goods

1-5%

40-100%

-

-

-

-

-

-

-

0,6O%

-

-

---

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

25%

100%

50%

50%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

ТвЫе 2.1. Taxes in Russia (cent)

1

Fax on profits (basis: profits of realization)

Tax on surplus of wages fund over specified minimum (basis

to fund wages fund exceeding standard wages fund)

Taxes on profits:

-dividends and interest for equities bonds and other

securities-proceeds from videorooms rent of video & audio

cassettes

-casinos gambling

-income tax on physical persons (scale minimum rate -

30%; basis: aggregate annual income)

Charges for regeneration of raw male rials-minerals base

(basis: cost of realized minerals)

For instance:

-crude oil. gas condensate

-iron and chromium ore

-ferrous and rare metals

-precious roetais

Royalty for use of natural resources

a) royalty for prospecting

b) royally for extraction

-oil, natural gas

-coal

-iron ore. copper

-gold, platinum, nlver

-construction materials

-minerals of general use

2 3 | 4 5 6

Federal tajcts charged for several budgets

13%

13%

13%

13%

13%

1%

specified rates for lands of raw

materials

10%

3,7%

8,2%

7,80%

-

10%

1-3%

4%

7-10%

3%

-

25% for enterprises 30% for banks

25%

2%

57%

77%

t i %

-

----

-

------

-

-

-

-

-

-

----

raits are imposed by

Iocs! ftiiihonaes

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

40%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

30%

----

-

7

-

-

-

-

-

-

-

-

-

-

-

-

30%

----

100%

•чо

Table 2.1. Taxes in RussU (conL)

L 2 3 4 5 6 ~l

Federal Uxes charged for local budget

Tax on property ceded to heirs and as gifts (cost of inheritance and gift is calculated in minimum monthly salaries MMS)

-щиплите heirs up lo 1700

-170O-2550-over 1550

-other heirs

Gift:-Qiiliirm & parents:

-S50MMS-over 2550 MMS

-Otter persons

Land tax A rent pay for arable land (per unit of area)

Custom property legal actions

Tax on property of enterprises (book cost of property)

Charges (duties) for regeneration guarding and protection of

forests (in % of cost of timber procured by enterprise)

Forest duties

-

-

-

-

-

-

-

-

-

---

-

--

-

-

-

5%10%15%

10-40%

3%

4O%

10-40%

basis rates 665-4950roubles indexation of

basis rates is used

specified rates up to 10%

of amount action

-

-

-

-

-

-

-

50-20% for arable

lands

-

-

-

-

-

-

-

XWfc for city lands

-

2. TAX OF REPUBLICS OF RUSSIAN FEDERATION

-

-

-

2%

5%

subjects authoritiesspecify rates

-

-

-

-

-

-

Payment for water taken in by industrial enterprises from systems (per standards- included into expenses, over standard - for account of profit of enterprise

Education dues (taxation basis wages fund)

Tax on property of physical persons

-structures premises (in % of inventory cost)

-transportation means (in % of minimum monthly wage,

per each horse power)

1%

3. LOCAL TAXES

-

-

Registration fee from physical persons involved in entrepreneurial activity

Tax on advertising (in % of advertising expenses)

Tax en hcmiing fund and soda! & culture] facilities (taxation

basevohime of realized products)

-

-

-

-

-

-

0-1%

3-10%

5%

1,5%

-

50%

-

-

-

--~-

-

--

-

20%

-

50%

-

-

-

-

-

-

-

Other local taxes (Now local au tori ties have ri^ht to impose independently taxes within profits remaimnj; at disposal of enterprises after settlement of tax on profits)

-

-

-

-

-

-

-

-

sокI

DO

Table 2.1. Taxes In Russia

1

tension fund (contributions are paid from all kinds ofwages)

-contributions of employers

—standard rate

-iaagricuture—persons involved in individual labour activities

farmers lawyers—workers &. employers

Social insurance fund (in % of wages calculated on all bases)

Employment fund (conmbutions are raid by employers fromall kinds of wages every month)

Charges for mandatory health insurance (contribution fromwages fund is raid by employer every month)

Road funds

a) tax on realization of fuel & lubricants (% of amount oftheir realization)

b) Lax on road users (in % of volume of production)

•for procurement-marketing & trading

c) lax on owners of vehicles (every year as per horsepower)

-cars

-lorries & tractors

d) tix on acquisition of vehicles

-CITS

-lorries

-trailers

ex oses on sale of vehicles for personal use

OA2

2 3 4 5 6 7

Extra-budgetary funds

2Z%

20,6%

5%

1%

5,4%

2%

0,2%

25%

-

-

-

-

-

-

-

-

-specified rales as per kinds of

vehicle10%

--

--

-

-

-

-

0,4%

0.3%

specified rales ace. tokind of vehicle

0.5-3.1 roubles

2-7.15 roubles

specified rates ace. tokind of vehicle

40%

20%

10%

-

-

-

-

-

-

-

-

3.4%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-„

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

S. Sifielnikov &. К. Rezn'tkov

The Act introduced several taxes: tax on sales of fuels and lubricants, tax fromvehicle owners, tax on the acquisition of vehicles (except for motor cars purchased forpersonal use), excise tax on cars purchased for personal use.

Apart from the road funds, the major industrial funds include the Research andDevelopment Fund, Fund for financial regulation of the situation in metal industry,Fund for the financial regulation in power and fuel industries and certain other funds.During an analysis of these funds, it is difficult to determine the degree of resourcecentralization, due to the rather significant share of purpose-oriented resources whichremain at enterprises. The use of fund resources permits to defer the payment of thetax on profits.

Starting from 1995 all extra-budgetary industrial funds are to be abolished,except for the funds allocated for the financing of general or sector-oriented R&D andschemes allocated for new product development and marketing. Such funds areformed at the level of 1.5% of product (services) cost. Ten percent of the collectedresources are transferred to the Russian extra-budgetary R&D fund ("Russian Fundfor Technological Development") at the Ministry of Sciences of the RussianFederation.

Uniform accounting rules and principles in the Russian Federation wereintroduced by the order issued by the government, dated 16th February, 1992, withsubsequent revisions and amendments. Accounting regulations are mandatory for allenterprises, organizations and institutions that constitute legal entities according to theapplicable laws of the Russian Federation, including enterprises operating on the basisof foreign investment, international associations and entrepreneurial organizations.

In spring, 1992, a new Act was introduced, regulating budgetary rights and therights to establish and use extra-budgetary funds by legislative and executive bodiesof the republics belonging to the Russian Federation, autonomous regions,autonomous districts, territories, regions, Moscow and Saint-Petersburg, as well aslocal self-government bodies. This Act regulates the overall budget processes in

Russia, determines the competencies of authorities various levels, as regards thereceipt of revenue for the appropriate budgets and expenditure made from theseresources. However, amendments to the budget procedures are introduced bynumerous other Acts, e.g. as regards the amounts and the procedure governingtransfers from the federal budget to lower level budgets and distribution of federaltaxes between budgets at different levels, which are specified annually in FederalBudget for given respective year.

Budget classification and accounting are regulated by Ministry of Finance of theRussian Federation. By the end of 1992, the main accounting rules and procedureswere replaced by the letter issued by the Ministry of Finance on the monthlyaccounting related to the performance of budgets in the Russian Federation. Budgetrevenues and expenditure classification was approved by the end of 1990 and changedin the summer of 1992. Since then, the classification has undergone various minor andmajor modifications, resulting in the creation of a universally approved classification.By the end of 1994, the new budgetary classification, effective from 1st January,



uilUHKicpd by wny оГ an Onlr-i i sminl by i l i r M i n i a f i y of Fiunucr, (Ulcd

29th December, 1994.

Presented figures referring to the state of government finance during the periodunder analysis differ from the official statistics due to the fact that our calculationstake into account a series of operations conducted by the government that had beenomitted in the reports of the Russian Ministry of Finance, in accordance with thebudget classification which was currently in force.

Data on the situation of the 1991 Russian budget are based on the officialstatistics of the Ministry of Finance of the Russian Federation, complete with reportson extra-budgetary funds. It was not possible to find credible data which would fullyaccount for foreign economic activities and the Central Bank operations that should betreated as budget operations. As regards the assessment of the consolidated budget ofthe late USSR, it is based on the data related to the implementation of the unionbudget and the available data related to the budgets of former union republics.

Data describing the state of the Russian government finance in 1992-1994 arefar more credible. Nevertheless, the budget classification used in Russia in 1992-1994substantially departed from the universally accepted principles. For this reason, theattempt to reconstruct the consolidated budget, included not only statistics compiledby the Ministry of Finance but also data made available by the State Committee forStatistics of the Russian Federation, Tax Board, Ministry for Foreign EconomicRelations of the Russian Federation, Ministry of Economy, and informationconcerning extra-budgetary funds. In addition to that, it is important to note thatbefore 1993, statistical reports of the Ministry of Finance did not cover the collectionand presentation of data on the economic classification of budget expenditures. Theavailable economic classification of 1993 expenditures is limited to the federal budgetalone and is presented in an extremely aggregated manner.

The 1992 budget statistics of the Ministry of Finance were adjusted both asregards the evaluation of budget revenue and expenditures. During budget revenueevaluation, sources of revenue were re-grouped in such a manner which permittedseparate analysis of different taxes (tax on enterprise profits, personal income tax,property tax, tax on goods and services, foreign trade tax) and the non-tax revenue.

While estimating revenue, apart from changes in the formal classification, it isalso necessary to take into account the resources received by the government in thefirst six months of 1992 as a result of the mandatory exchange of a part of foreigncurrency amounts earned by exporters, at the over-estimated rate of exchange (0.018USD/rouble). These budget revenues in the first six months of the year amounted to110 billion roubles (or 2.4% of GDP), including both: revenues of the currencyreserve of the Republic and a part of foreign currency revenues left abroad byexporters, to be used for centralised purchases of food products, medicines, mineralfertilizers, etc.

The evaluation of 1992 expenditure must take into account import subsidies thatwere not included in the statistics compiled by the Ministry of Finance. In the first sixmonths of the year import subsidies were provided through the sale of currencies toimporters operated at an over-estimated rate of exchange (which in January-July

- 5 1 - CASE Foundation

S, Sinflnikov & К. Reznikov

averaged 0.05 USD/rouble). Starting from the second half of 1992 a unified rate ofexchange of the Russian rouble was introduced. It was assumed that from then onimporters would buy currencies at the market rate of exchange, and sell importedgoods at prices lower than contractual prices re-calculated according to the rate ofexchange. In such instances die difference would be subsidised from the budget. Inpractice, however, the procedure was altered. Currencies were allocated for importers,however, the importers failed to immediately repay the resulting liabilities. Goodswere imported and then sold at a settlement price, which averaged 30% of thecontractual price converted into rouble. The resulting proceeds were transferred to thebudget. As a result, prices for imported goods financed from government credit weresubsidized at about 70%.

It should be pointed out that the amounts of foreign financing of which we havebeen informed, as well as the price subsidies, are clearly over-estimated, due to factthat the current rate of exchange of rouble to the US dollar was applied for subsidyevaluation. The rate reflects the situation as regards currency demand and supply,which was determined by internal to external prices ratio for a narrow group of goodssold and purchased on the international commodity exchange. At various pointsduring the period under consideration, the dynamics of the rate of exchange wasconsiderably different from the parity of the buying capacity of rouble as related toforeign currencies. During the entire 1992 the real rate of exchange of roubleincreased about seven times. In 1993 and 1994 the real rate of exchange of roublecontinued to grow (the figures are to be inserted here), however, also at the beginningof 1995, Russian prices corresponded to only 30-35% of American prices.

Thus, the conversion of foreign financing in 1992, from the dollar equivalentinto roubles, largely over-estimates its real size. In our opinion, the results would havereflected the reality in a far more correct manner if other, artificial methods, such asthe settlement parity of the buying capacity of rouble and dollar, were used for thisconversion, instead of the current rate of exchange of rouble, as quoted on theInterbank Market.

Presented 1993 data also differ from the official statistics as published by theRussian Ministry of Finance. The Ministry used the following method in order toreflect foreign economic operations of the Government in budget performance reports:revenues from import and exports duties were used to cover, in roubles, foreigncurrency expenditure on centralised import purchases. Expenditure included thepurchase of goods for centralized export operations and the purchase of currency forthe currency reserve of the republic.

Such a classification obscures the economic meaning of these operations; for thisreason we have expanded the revenue category including import and export duties,revenue from the realization of government monopoly over centralized exportoperations (revenue from the sale of goods net of expenditure incurred for theirpurchase). Expenditure now includes the purchase of currencies for the currencyreserve of the republic.



As a result, even though the 1993 report prepared by the Ministry of Financeshows the revenue from foreign economic activities at 1.4% of GDP, our estimatesindicate its level at 4.1% of GDP.

Due to the lack of the precise data we could not correctly account for the entireforeign economic activities of the state. First, the revenue from government monopolyover centralized exports was realised in unequal amounts throughout the year.However, foreign currency revenue was converted into rouble at the mean annual rateof exchange. Second, a part of this revenue never actually flowed into the country butremained on accounts with foreign banks and was used for debt servicing andrepayment. Thus, the corresponding expenditure could not be accounted for orcompared with revenue. Third, the revenue from the export of goods and products aswell as the expenditure incurred by the government in order to pay manufacturers forthe delivered products have been accounted for at the time when the shipment ofproducts was operated, in spite of considerable delays in actual payments. Fourth, itturned out not to be feasible to perform a quantitative evaluation of budgetexpenditure financed from the revenue from state monopoly over centralized exports.In this study such expenditure was allocated for external debt service and repayment,financing of non-commercial operations, import subsidies and the creation of thecurrency reserve of the republic.

A part of expenditure incurred in relation to these operations was not reflected inofficial statistics. Our tables take into account their estimated value under foreigneconomic activities expenditures, as well as under "other expenditure".

It also should be noted that the statistics compiled by the Ministry of Financeshow sales of foreign currencies from the government reserve within the financingsection. In our analyses, these sales are accounted for in the section related to thegovernment monopoly over centralized export.

Essential changes in budgetary classification were introduced in 1994. In May,1994, the revenue from centralised export sales were included in the item "Revenuefrom foreign economic activities", along with export and import duties and othersources of revenue. The item "Allocation of purpose-oriented resources for thereduction of the budget deficit", which unti] May, 1994, included currency sales,together with the sale of currencies from centralized export, was removed from theclassification. Data starting from May, 1994, show exchange rate differences realisedin Government foreign currency operations, which in the official statistics of theMinistry of Finance are defined as the difference between the "Sale of Currency" and"Purchase of Currency." The increase of budget revenues since May is thus defined atabout 1% GDP.

In addition to that, the accounting for extra-budgetary funds was also modifiedin 1994 statistics. The State Committee for Statistics of the Russian Federationstopped collecting data on the "availability and movements of governmentalextra-budgetary funds" (form No. 8-F) from enterprises. As a result, the only dataavailable, are limited to the receipts and payments regarding centralized resources ofextra-budgetary funds, while no data are collected as regards the collection and use ofsuch financing at the enterprise level.


5. Sineinikov & К. ReznUcov

3. Revenue, expenditures and deficit of governmentfinance

As has been pointed out above, it is impossible to provide accurate assessmentsas regards budget parameters for Russia and the USSR in 1991. Approximateestimates show that without taking into account foreign economic activities and theseries of quasi-budgetary activities of the government, the budget system deficit informer USSR republics was approximately 15%. Taking into account the above

elements, the deficit would amount to ca 30% GDP. Consolidated budget revenuesamounted to some 38% GDP, and expenditures (including extra-budgetary funds) -about 53% of GDP.

The deficit of the Union budget, including the economy stabilization fund,accounted for ca 6% GDP of the former USSR (where GDP amounted to 2100 billionrouble). In the same period revenues amounted to 7.5% GDP. The overall Russianbudget deficit, including expenditures which were inherited in the fourth quarter fromthe union government and taking into account subsidies to prices of agriculturalproducts granted on the account of Central Bank credit reached 7.3% of the RussianGDP (GDP - 1300 billion rouble), including the deficit of the republic budget - 8.5%of GDP. Russian budget revenues amounted to 25% GDP.

The reconstruction of the government finance system in 1992 (Table 3.1.) showsthat budget receipts and extra-budgetary funds accounted for ca 50% of GDP. Thiscorresponds approximately to the level recorded in the USSR in 1980-1985, i.e. arelatively good period for the state finance. Figures reached in 1992 wereconsiderably higher than in 1991. The level of collected taxes which to a certainextent contradicts the difficult situation as regards the state finance, calls for a moredetailed comment. First, it cannot be excluded that an under-estimated GDP was usedfor 1992. The State Statistical Committee of the Russian Federation initially publisheddata assessing GDP at 14.5 trillion roubles. This level was then increased to 18.063roubles. Second, the following circumstance should be taken into account: aconsiderable surplus of revenue over expenditures in extra-budgetary funds,accounting for 5.1% of GDP, was not used for the financing of the budget deficit.Third, contributions to the industrial extra-budgetary funds do not constitute taxes inthe strict understanding of the term. A considerable part of these amounts remained atenterprises, on condition that they had to be allocated to certain specified purposes.

Revenues of the Russian consolidated budget included extra-budgetary funds -at18.6% GDP, of which 11.9% social funds.

Expenditure of the consolidated budget in 1992 amounted to 60% of GDP, whileexpenditure and loans, less repayments, was at 65.2% GDP. Expenditure of theRussian consolidated budget included also extra-budgetary funds - 13.4%.

As shown in the Table, in 1992 the balance of revenues and expenditures in thefederal budget, including loans net of repayments amounted to 23% GDP. As regardsthe influence of the government finance deficit upon the monetary situation, a betterindex can be calculated on the basis of federal budget balance, including loans net ofrepayments, but without taking into account subsidies granted to importers. Such an


Kger* 3.1. RECONSTRUCTION OF GOVERNMENT INCOME AND EXPENDITURES IN RUSSIAN FEDERATION IN 1992

I. TAX REVENUES1. Income taxes, taxes on profits

1.1 -Income uot on physical persons

1 .2, Tax on profits of enterprises

Z. Dcducoops for social insurance fund*

2. 1 . The employed2,2. EmployesPension fuoiSocial insurance fund

Population social support fund

4, Taxes on owncivtup4. 1 . Taics on properly

4.2. Land UX

43. Tax on operations with securities5. laiemiJ uxcs

5.1. VAT5.2. Excise»SJ. Lktose charge ft* production & fc>li7*rion ofaJcofaol

5.4. Royalty for use of deposit* iod иашг»!resources

5.5. Dcdiiccjoos for rcgeuer»tioo ofraw

Federal

budget

Ыа,

roubles

646

646

19

17

21701

1501101

%

QDP

3.6

3.6

0,1

. o.i0.09.4

U0.6

Locd

Budgets

bin.

roubles

1353431

922

10955

54

0720

498111

*ODP

7,52,4

5,1

0.6

0.3

0.30,0

<,o2,80.6

Eora-budgcUryfunds

bin.roubles

215072

20781716

293

5910

CoosolkUledbudget

% bin.GDP rouble*

1999431

15681U9 21500.4 72IU 20789.5 17161,6 2930.3 59

0,1 10128

5571

2

24211999212

•bol

tOCU

22,44.8

17.624.10,8

19 J3.3Q.7

0,1

1.4

0,6

0.8

27.2>X42-4

5.6. Proccotfa for ibe fund of regubtion o

6 T»x ou fortifn truic

6.1.6 2 Export duty

6.3. Olbcr p^xoeds of forign economk; «ctiv iaei

6.4. Proceeds frotn monopoly of govenwntol for

opcntioos m rafcct of ccaailacd exports

7. txfacr nxct

7.1. Oovtnnncul duty

7.1 Oltnu taxes & charges

7.3. TWoover ux

7.4. Sabs ux

8. Extn-budxcCBO' fundsS l.Roid foodsS-2- RiD fuiiEtam fund

73

26

65963

2S9227

HO

93

93

0.4

0,1

3,80,4

1,6

1.3

0.6

0.5

0.5

110

81

72

4

5

0.0

0.6

0.0

0,0

0.4

0.40,0

0,0

1212287114

6.7

1,60.6

110

73

26

697

63297

227

110

173

164

4

5

12122Й7114

1,2

O.S

7.80.7

ЯЗ

1.9

1,80.40,6

14.0

J.2-

14

о"*• 83 Funds of fmnx_m,( rcj-iibaon il JWl-poweffq complex

Ч 84 Flunk of fin-Uk-m^ rej-.ui£jon ш meullurgy

| $6 Olber

g- TOTAL TAX REVENUES. 3148g1- >*DN-TAX PROCEEDSa

1 Bilmoes of budget Йищл-чз by beginning of i

>-c-mr, cociil»Iing for coverage of expense»34

i locome of CcuCril В»ш1

CAPITAL INCONfES 19

1 In-ome from pavMLncan; j p

TOTAL INCOMES 320 1

SUBSIDIES

1 rrojn Dibti kvtls or j(™=-a±o=ai admintnrUion

1 1 SubvenlKHU fix k>-al "t^gels

1 2, LOADS foi locil budgets

5*4

102143

"4 2271 12,6 33*2

02 10 0,1

20 ОЛ0. 1 43 o^

0,1 43 (U17.7 2344 n o r>62

299 | 7 5 j

299 [.7 5,299 1 7

SI

3,1

0.6

0.818.6

18,6

0.3

0 3

0.3

564

102145

8780

44

2062

62

8906

6,3

1.11.6

98.6

0.50,20,7

Ъ

Cfl

5-&•ч

ft-?sSj•Xs£-о•с

0.7

1.0

LESS REPAYMENTS

I Oevwno^lexpcn*- &471 35 8 2253 12J 2,12 13 4

1 Oovcnuneni s«vi»3 ОГ S=«=nl dcsi amoo

»ad idmiatstrMion)42 °-2 M 04 ,ы85 5 4 7 1U6 1 ,0

855 8.33 for U* enfofcaricm iuifcoanes, mcludaax

240 U 3 «И* 2Д,4 for«:*nce 104 0,6 3 0,0 1П7 t,

5 »c«l & p.bbc «u . «L 489 2,7 P7I 5,4 J618 9,0 307, *'\

5 1 «xbc^lion 230 U 449 2j5i Cukure, »rti. m*» meLivi 59 0_3 57 ^ 679 6 6

5J Htilrh c«c & pbysicaj oakure 53 Oj 4 j 5 .,, *•'5 4 youtb pobry pmanrnr-f **& ^,6

55 SocuJ msuranac ]g 0_! 5Q Q

5 6 SubsjdKs for Pcnswa ftmd 51 о'з M °'7

51 0.55 7 Cbcmobyl & Scmip»bcQii prognuntncs

'8 0,4 _„78 0,8

5 8 Socul services fc* «cccmad of cxtnbud geUry

mcL Pension fund

H18 9.0 Ш8 15.76 Ooveraroeiil s«viccs for «-*.f,n.f economy incL

, «_ 2"5 >6,6 «4 5J 7« 4.4 4753 46,3luvcsnaMJB 315 j 7 ' fjj 40,j

CompcnsjQon for рсхжз gip 313 17 J 1 3 3 , l

Subsidies for iraporwas 1900 to Ч '1900 18^

For ICCOUDI ol accrtDudgcQcy funds

794 44 794 7,7

ел-4

7 other functioas

7 1 Otbef cxpcndnures

7 2. Ejcpendtture for foreign ecooomic tctivities

7 J Expeodttmes for servicing of mlenul debt

7 4 Expenditure! for serving of govermasnl^s

7,5 Subvention» for ocbcr levels of sttte

»dmmistnnoti from budget of republic

8 OW expenditureSUBSIDIES LESS REPAYMENTS1. for other fevek of italc »dnUnCtr*Uon2. For cutcrpnsci

2.1 £ГИЕ budget

2,iCredia by CB

TOTAL EXPENDITURES & SUBSroEES. LESSREPAID

INCOMES & SUBSIDIES, fcsa EXPENDIES &SUBSIDIES. REPAYMENTS DEDUCTED

Ш FINANCINGL lule

1 Through otbcr kveb of *Ше »dmnustr»tion

2. Through Ceolrd Bint (ael)

2.1 f 01 ftie purpose ID cover budgci dcficu (net)

2.2- for the Govemniail, incLfor con veil toofor rave*tHJCQl

prospecting

fof fegeocrWiOQ of [be TO

2. Extcrnil fin*acm| (net) mcL

credits £ru)ldlortdiis repaid

deUyed piyaK-aa

of tbe deUyed debt.

1184228

417

120

120

29956290731

876п804

6.6 246

1.3 24Й

2,3

0,7

0,7

1.7

XI5.0 40

0.2 64.9 340,4 344.5

1,4

1.4

0,20.0ОД0,2

737Ё

-41714177

1912

1912

1108

77

105

600

2265

2502-3741

29551025

78S

18063

40,8

-23,123,1

10,6

106

6,1

4.5

04

0.6

0 1

3,3

12,5

139-20,7

16.4

5.74.4

2293

350

49

49

49

12.7

1,90.3О.Э

0.3

2412

1001

13,4

5,5

1430

473

417

120

120

56294737

910106804

120S3

-2820

11.0

4,6

•4,1

1.2

1Д

О

a-G-

S'

Ft?*™ ЗЛ. RECONSTRUCTION OF GOVERNMENT INCOME AND EXPENDITURES IN RUSSIAN FEDESATION I. 1993

Ис

I

Fcdcn)

budgoi

Ыа.

roubtct

Loc*J

L TAX REVENUES

1 Екххяс Wf. Uxci on profits

t 1Л»ассве DUE од phy»cW person!

1.1 T*x on profit! of eoleipnset

1- D&hi OotK /of locul шятасе fuadl

it. Tttt employed

fund

GDP

5472 3,4

5472 34

support fund

of mind Могу beddi шрцч«ди

igci fend

4- Т*ш oo

4. 1 Т «id on prupcny

4-i Ttt oo орелшош

5-3- Lxxa>« cbvge for producaoo

5.4. RoytJry for ало of dcpoais ud aatoral lesoiuces

5-iEbdo«lon4 foriegCAcnnoe of ibe mutenJl • raw nulcrub b*se

5,6. ProcoMi* for dx ftmd of re (alia on of pn£et

6. Txi on foretgn tnde

6J- Export duty

6J- CKfaer proce«di of fomgn есовопис колом6. 4- Proceeds fiomfnoeoDoIy of jexport*

7 Mbcraxe*

7 1. GovcnuDUtt duly

7 J. Otbci nxci 4 cfa»rgei

&, Exu»-bwdgct«y fuadf

8.1 b^dhmd*

& - RJkD fiflBarene fund

g-3- Fandi of uamoang icgoUaon и foe] power cooipbai

8-4 Funds of financing regnlanop ш

roubic,

60

GDP

15690 9.7

43*8 2,7

11302 7.0

66 °-°

°-°

II

41

36

8908

7251

899

248

310

200

6716

8881783

19

4O26

37

37

00

00

0,0

54

*4

0.6

ОД

од

0,1

4.1

04

u0.0

24

Op

0.0

82O

546

173

1

5523

4O2O

878

29

596

0

0

91

91

1018

94

924

04OJ

ОД

0.0

3,4

24

04OJJ

04

00

0,0

0.1

0,1

0.6

0,1

0.6

<&

t- %let OOP

15Я7 9 6

487 OJ15060 9J

10213 63J434 14

628 0.44«7 OJ

1298 0.8

99O1 6,1

3246 2,0

812 042597 1.6

974 0.6

budget

Ып.

rouble*

21162

43S8

16774

15613

487

15126

10213

2434

628

487

1364

897

546

314

37

14431

11271

1777

29

844

310

200

6807

Ш1783

110

4026

1055

131914

9W2

3246

812

2597

974

*ODP

no2,7

10 J

46

OJ

9J

6.3

15

04

OJ

0.8

0.0

0,6

03

OJ

0,0

8.9

W

1.1

0,0

04

oa0.1

*a04*713

1.09858

0.06778

U

0.7

0.1

0,6

6,1

2.0

04

1.6

06

%of

toud

45.9

94226

21 1

07

2O4

138

3J

OS

07

1Д

00

1Д

0.7

04

0.0

19415Д

2.4

0.0

04

04

03

9Д

U

2,4

0.1

54

1.4

ОД

1Д

13,4

4,4

1,1

»'>Г?i

^tf

Й->!

to^Э?

•с

3J•**-*

13

Lft

8.5

86-CXbex

TOTAL TAX REVENUES

NON-TAX PROCEEDS

1. В*Ьпсед of btt4get Йв»пгая by Ьердшщ of • ye*r. шсдЩцц for coverage of

21210

2. Ьсосае of Ccatnl B*ik

3. latre» of cre itt fnototi for other cooatnct

4. Other koa-ux pcvrauiet

CAPTTALDiOOMES

1 Inrota: from упу

TOTAL INCOMES

SUBSIDIES

1. froa otfaa lc>cU of (с

1.1 Sebvcaaom foe l

1Л- Sttbadict for Рслиов fuadi

TOTAL INCOMES 4 SUBSIDIES

GOVERNMENT ЕХРЕНБГГШЕЗ i SUBSIDIES LESS REPAYMENTS

L Oovenmicat expenses

1. ООУСПШЮ! icrvicct of jeoeiW deupumoo (govcnuiieiit bopes, uitbontvi ляЛ

2, for defence

3 for lew enforcement uilbonact, mdn

5 tocul i раЫк cefwxx, lad.

5 1

5 L Culture, tru,

5 J HttJdi CMC & phy»£kl caltuic

5 4 yoacb pottcy ргорышис

5 5 Socul вшгыизс

5 6 Sabodiet far Ре-пяоо fiuul

57 Chernobyl Si SoBipAli

5 8 Alli/WKac«( & coaipciuituxu for duldrc*

5 9. Socul KTvk^ci for KXtHiad of exmbudjcUry &uidl,iacl.

Socul uuarui^e fond

Employaiciil fend

Fun4 for юсЫ МрроЛ of

&. Gevenaeu icrviuct tot n*aoe*l ccoaoay, lod.

CaupenMOca for

2042

360

249

66

23927

23927

36465

658

14

7210

2513

85

894

3191

51

13S6

341

563

210

359

362

6473

332

1860

2O9

1321

U

ОД

од

ooH.7

14,7

ZLS

0,4

OJ>

4,4

0,1

0,6

2,0

OO

CU

CU

0,3

0,1

02oa

4,0

ОД

1.1OJ

03

23208

174

1098

11847

0,1

0,7

153

24733

4296

4296

4296

2907.9

26972

818

111

49

12413

5599

706

4815

17

595

8

663

0,2

15Д

2,6

2,6

2,6

17J

16.6

OJ

O.I

00

7 6

3.4

0.4

3,0

0.0

04

0.0

0.4

325

1948

25449

25449

359

359

359

25808

19807

13647

13647

10387

2597

628

35

5024

ОД

1Д

15,7

15,7

ОД

од

од15.9

12Д

м

8,4

6,4

1,6

0.4

0.0

3,1

325

1948

69 667

174

2042

360

!347

319

74109

X

X

s

X

74109

78589

1476

' 14

7210

2624

85

943

28892

51

6955

1047

5388

п805

X

370

663

13647

10387

2597

628

35

23344

332

I860

209

1321

од1Д

43,0

0,1

U

од03

од«5,7

45.7

48,4

0.9

0.0

4.4

1,6

0.1

0,6

173

0.0

4J

0.6

3.3

о.о0.5

од0,4

8,4

6,4

16

0.4

0,0

14,4

ОД

1.1

0.1

03

0.4

2,6

94,3

од

23

0.5

13

0,4

100.0

100,0

95,4

13

0,0

83ЗД

0.1

1.135.1

0,1

8.4

и6.5

0.0

1,0

0,4

0.8

16.6

12.6

ЗД

0.0

2&J

0,4

2J

0.3

tos

|ОS;

S1

gt-i

Б1

1,6

sи'ч

1930for accoonl of extrabu dietary fan it, lacj,

road fan is

RAD fend

fund for fiaaivni regulation IB foci -power complex

fun 4 for finaiwati regulation ш

7

7 1.

7.2, Expend) torci for foreign economic acaviaei

7 .3. Expenditure! for «e/vicuig of infernal deb!

7 4 Едрсп^шла focicmcmg of govcnuacat'f external debt

7_5 Subvention* fcirofbcrleveU of м»»е administration from budget of republic

7 6. Subvcaaaa* for federal budgcl lo finance {talc progranuuc

S- O(b=r exo>-b»Jgcruy fandi

SUBSIDIES LESS REPAYMENTS

1 for oCbcr Ic-rtdi of яла: kduumuraaoo

Z. For caccrpnsct

3 incomple»c tiamife/ of incomes by CB

4 For

[Cpald

5 for OS

TOTAL EXPENDrrURES A SUBSIDIES. LESS REPAID

INCOMES ± SUBSIDIES, lesi EXPENDIES & SUBSIDIES. REPAYMENTSDEDUCTED

1 I. Through Ccen-al Bant (n«)

for me purpose Ю covcj defku (uei)

fDrconvemoK

for invcHinr-iM

for enterprise* of foci -power complex

1.Z Sale» of *есчТО«

1Л. IMF1* оЫш

1 4. Sale of precious meul* oat of Ibc Government*' reserve

2. External fijiincrag (ud) met

crcdiarepud

AS REFERENCE;

GDP

1734

1582

60

1.11.0

0,0

5024

2272

162

1948

642

3,1

1.4

0.1

1Д

0.4

193О

5024

2271

162

1948

642

12964

5262

6171

989

450

1,2

3.1

1.4

0,1

и0.4

8,0

3.2

3.8

0.6

0.3

хз6.12.8

0,1

2,4

0.8

15.7

6.4

7.5

1 2

0.5

92 0.1 92 0.1 0.1

3293

76

2334

322

-450

180

630

511

39758

-15831

15831

12631

9860

8960

300

400

200

185

1451

1185

3150

4950

-1800

2,0 586 0.40.0

1.7 586 0.4

0.2

-0,3

0,1

0.4

OJ

24,5 27558 17,0

-9.8 1471 0.9

9*

7,8

6.1

5.5

ОД

ОД

0.1

0.1

0.9

0,7

W

ЗЛ

-1.1

"36 0.7 изб 0.7 1,40 °.0 3803 23 4.6

X

3420 2,1 4Д

322 0,2 0.4

-450 -0,3 -0.5

180 O.I ОД

630 0,4 0,8

511 OJ 0.6

"807 12Д 82392 50.8 100

6001 *.? -8283 -5.1 -10.1

162300


index, amounting to 12.6% GDP in 1992, provides more valuable information thanthe budget deficit calculated by the Ministry of Finance.

Table 3.2 shows a reconstruction of the consolidated budget of the RussianFederation for 1993. First, the analysis shows that the rather high level of taxcollection was maintained. In 1993 the share of taxes and revenues in extra-budgetaryfunds of GDP amounted to 43% of GDP. The share of government's revenues was at45.7% GDP. Revenues of extra-budgetary funds remained at the 1992 level some16% GDP.

Expenditures of budgets and extra-budgetary funds amounted to 48.3% GDP,while expenditures including loans, net of repayments were at 50.3% GDP. Thefederal budget deficit reached 9.8% GDP, and the deficit of government finances -3.6% of GDP.

4. National Debt

Until 1993 it is difficult to discuss the internal public debt A majority of thedebt consisted of the loans taken by the government from the Central Bank. This partof debt was not reflected in any official agreements. It was not until 1993 that a clearstructure was imposed upon the whole volume of the government debt.

In spite of the considerable volume of the governmental borrowing in 1992 and1993, the problem of internal debt service not yet become too serious. This can beexplained by the fact that a majority of the internal financing of the federal budgetdeficit was provided on the account of credit from the Russian Central Bank, withinterest rate several times lower than the refinancing rate of the Central Bank (usually10% annually). As a result, the real value of internal debt was not growing as quicklyas could have been expected.

Russian internal debt is peculiar in one respect; on several occasions, just priorto price liberalization, during the period of the most severe goods shortages, the Stateundertook to repay its debt in durable consumer goods (cars, washing machines,refrigerators, etc.). Such loans included, e.g. the purpose loan in 1990, purposedeposits, "Harvest-90" cheques, etc. The level of relative prices for such goods rosesharply after prices liberalization on 1st January, 1992. As a result, a major part ofdebt turned out to be considerably indexed and the indexation has continued untilpresent. The problem concerning repayment of this debt (about 2% of GDP in 1993)had been the source of acute social conflicts, before relevant decisions were made asregards the general conditions of payment.

At the beginning of 1994, external government debt amounted to 35 trillionrouble (about 22% GDP in 1993) and budget expenditure allocated for debt servicingwas 0.6% of GDP.

By the end of 1992 the Russian external debt amounted to 110.5% billion USD(104.4% GDP), or 743 USD per capita (5 times more than the value of a similar indexcalculated in the USSR in 1980). In 1993 and 1994 Russian external debt amounted to112.81 and 119.3 billion dollars, respectively. Along with the growth of the nominalvalue, the share of debt in GDP decreased from 104.4% in 1992 to 42.9% in 1994.


SinelnAov A, K. Reznikov

5, Financing the budget deficit

The budget deficit in the union and in Russian in 1991 was financed on theaccount of the federal Bank as well as from foreign credit. As has already beenmentioned, credible information is lacking as regards governmental quasi-budgetaryoperations and with respect to the foreign economic activity of the governments in1991. For this reason, financing of the budget deficit can only be discussed startingfrom 1992.

In 1992 the federal budget deficit reached 23% of GDP. The deficit wasfinanced from external credit (12.5% of net GDP) and Central Bank credit (10.6% ofGDP). As has already been mentioned, we must adopt a cautious approach as regardsthe value of foreign financing, due to differences between the current rate of exchangeand the parity of the purchasing capacity of the rouble. Credit granted through theRussian Central Bank includes both credit granted to the government in order to coverthe budget deficit and credit which was officially not included into the 1992 budgetand which was allocated for the support granted to the enterprises implementingschemes providing for the conversion of military production (0.4% GDP), investment(0.6% of GDP), prospecting (0.1% of GDP), and the replenishment of current assetsheld by enterprises (3.3% of GDP).

In 1993, the situation as regards the financing of the budget deficit changedconsiderably. The share of external financing was reduced from 54% to 20% of thetotal financing. The change was to a considerable extent caused by a real growth ofthe exchange rate of rouble as well as by a related reduction as regards the estimatedvalue of external borrowing in USD. Internal financing amounted to 7.8% of GDP,including Central Bank credit for the government - 6.1% of GDP, sale of securities -0.1% of GDP, IMF credit-0.9% of GDP, sales of gold and currency assets - 0.7% ofGDP.

6. Composition of budget revenuesIn 1990 legal bases were laid for tax reforms were created and RSFRS adopted

the Union laws on the personal and enterprise income taxes and their application. Ingeneral, the main directions of the tax reform implemented in Russia conforms withthe directions followed in the reform implemented in the Eastern Europe. The reformincluded the transformation of the tax on profits and turnover tax and the mechanismfor the collection of proceeds from foreign trade, modification of the personal incometax by the introduction of tax returns, modification of the social insurance system, etc.

In 1991, main sources of budget revenue included the tax on profits, turnovertax, tax on sales, income tax levied from the population, proceeds from foreigneconomic activities and non-tax revenues.

The law on the enterprise tax provided for a tax amounting to 22% of profitpayable to the budget, as well as a tax not exceeding 23% of profits payable to thestate budgets within the Union, to autonomous republics and for local budgets. Thetax was to be levied from enterprises belonging to all sectors of the national economy(except for certain groups of payers to whom different tax rates applied). 1991 was the


• *first year of appHcation of the profit tax, instead of the deductions payable to the]budge which had been calculated for each enterprise sep^lIyTMe^whiie, unifiedtax rates in 1991 could not be effectively applied, due to the rigid prices Which we»*

mamtamcd for a V U H ( range of commodito, mamfafory шсПшоп of government'orders and then implementation in the production plans of enterprises. Under euclPcircumstances, the financial situation of enterprises could evolve in two differentdirections. This differentiation of the financial condition resulted from the-:'a(urmustrative control over prices and decisions made by authorities. The first trendincluded further rapid reduction of imposed mandatory tasks and the acceleration ofprice liberalization, permitting an equalisation of enterprise profitability, Tbe secondtrend meant the granting of tax preferences to certain entities, on the basis о Е arbitrarydecisions made by the government and its economic authorities.

Practice has shown that in 1991 neither the Union government, nor the Russiangovernment had a sufficient degree of political decisiveness to liberalize prices andthe economic activity of state-owned enterprises. The arbitrary policy based onsubsidies and tax preferences was not introduced at a large scale. These facts areexplained by the fact that the disintegration of administrative control over the nationaleconomy, in particular control over prices and implementation of governmental tasks,sharply accelerated due to the dissociation of the Union. As early as in mid-1991 thestructures of the Union government stopped to operate, while the Russian structureshad not yet taken over the necessary functions. As a result, the activities of enterprisesand their financial results were less dependent upon the state-approved plan for 1991than could have been expected by the end of 1990.

In 1991 the tax on profits in RSFSR was levied depending on the administrativesubordination of enterprises. Depending on the particular situation, taxes were leviedaccording to the Union law or to the Russian law. Russia, having preserved the 45%rate of tax on profits, reduced it for the enterprises subordinated to the republic downto 38% in order to provide incentives for enterprises to switch over to the Russianjurisdiction. Under the Russian law the entire revenue from tax on profits was to betransferred to RSFSR budgets. *

In general, in 1991, Russian budget revenues from tax on profits amounted to7.1% GDP, estimated revenues to the budget of former republics of the USSR - 8.2%of GDP, which corresponds to 28% of budget revenue net of extra-budgetary funds.

According to the law regulating the enterprise tax, all enterprises manufacturingand selling products which were subject to turnover tax, constituted payers of theturnover tax. Tax rates were defined as a percentage of the value of sales subject totax or as a fixed amount per unit.

As regards products for which industry wholesale prices and enterprisewholesale prices could not be specified, the tax was calculated on the basis of thedifference between wholesale and retail prices, taking into account trade andwholesale discounts. In practice, in 1990-1991, over 90% of turnover tax wascalculated using the method based upon the difference between wholesale and retailprices that were centrally fixed. As has already been mentioned, this mechanism wasutterly destroyed by the relaxation of price control. For this reason, during the entire


S. Suwlntkov & К. Reznikov

1991, revenues from turnover tax continued to fall. Their volume in the consolidatedbudget of the former USSR amounted to 6.3% of GDP, or 21% of the budgetrevenues.

The USSR law on citizens' income tax, adopted in April, 1990, came into effecton 1st July, 1990. Even though the law introduced a general personal income tax(with a progressive scale and the rninirnum 13% rate), it also provided for differenttax scales for various categories of payers. The largest group of tax payers includedpersons receiving salaries under employment contracts.

The RSFSR law on the application of the Union law on the citizens' income taxmanaged to a certain extent to reverse the discriminating nature of the union law asregards persons employed in certain sectors of economy. Such sectors were givendifferent treatment as regards the ownership structure and the progressive tax rates.The rmnimum income exempt from taxation was raised, and the maximum tax ratewas set at 50%.

Revenue from national income tax in the consolidated budget of the formerUSSR in 1991 amounted to 3.3% GDP or 11.3% GDP.

In general, in 1991 the share of tax revenues in the GDP of the former USSRamounted to 28.1%. Taking into account deductions for the economy stabilizationfund and the pension fund tax revenue accounted for 3.7% of GDP. Together withnon-tax revenues, budget system revenues accounted for 39.6% of GDP.

The tax system implemented in 1992 is based on the package of the RSFSR taxlaws adopted by the end of 1991. The Act on the principles of the tax system in theRussian Federation plays a very important role amongst Acts belonging to thispackage. It specifies the structure of the tax system, distribution of tax proceedings asregards the level of administration (federal taxes, taxes levied by the republics of theRussian Federation, territories, regions and autonomous administrative units and localtaxes), rights and responsibilities of tax payers.

In 1992 the tax technique was constantly amended by way of instructions issuedby the Ministry of Finance and the Taxation Board of the Russian Federation. Themost significant amendments were introduced in the Act on the introduction ofchanges and addenda lo the Russian tax syfUem, dated July, 1992, and the Act onintroduction of changes and addenda to certain tax laws of the Russian federation,dated December.

As a result of such major and minor changes introduced into the tax laws andregulations determining taxation methods, the share of budget revenues wasconstantly changing. Similar, rather sudden variations were recorded in the tax systemstructure (Figures 6.1., 6.2.).

The most serious change introduced into the tax system in 1992 was the

introduction of value-added tax and excise tax instead of the turnover and sales tax.Value-added tax in Russia is paid by all legal entities and citizens involved inentrepreneurial activities. &&&Tumovers connected with realization of goods, worksand services, including realization of the goods inside the enterprises themselves (if

and cxpcnucN are not transferred to the cost value) and their employees, are



subject to taxation. &&&In industry the difference between the tax calculated onproducts supplied to customers and the tax paid to the suppliers of material resources,fuel, works and services, constituting the cost of products sold is payable to thebudget. In 1992 it was not permitted to deduct the tax paid to suppliers of basicfactors and intangible assets from the tax liability towards the budget

In 1992 revenue from value-added tax amounted to 11.7% of GDP (22.4 % ofbudget revenues), i.e. 5.4% of GDP more than the revenue from turnover tax in 1991.

Simultaneously with value-added tax, excise tax was introduced, constituting anad valorem tax levied at different rated depending upon the product group in question.Excise tax was imposed on spirits, tobacco goods an a number of durablecommodities. Excise tax is collected when the goods are sold in retail trade networkand is defined in terms of a percentage of the price of sale (i.e. as opposed to VAT,excise payer transfers to the budget a specified part of the price of sale which includesexcise). Similar to the situation as regards VAT, imported goods were exempted fromexcise charges until 1993. Revenue from excise tax in 1992 amounted to 1.2% GDP(2.4 % of total budget revenues).

Similar to the situation in 1991, the tax on profits is paid by all enterprisesconstituting legal entities. Taxable profit consists of profits from product sales andincome from other operations, less cost of such operations. Profits from the sales ofproducts are equal to revenue from the sales of products (less value-added tax andexcise), minus production and sales cost included in the cost value. In 1992 revenuesfrom the tax on profits amounted to 8.7% GDP (17.6 % of total budget revenue).Thus, the share of tax on profits in GDP was maintained approximately at the 1991level (8.2% of GDP).

In 1992 basic principles governing personal income tax did not undergo anyserious changes in comparison with 1991. Revenue from the tax on profits in theRussian budget system amounted to 2,4% GDP (4.8 % of total budget revenue).

The four types of taxes described above accounted for 78% of republic and localbudgets revenue and for 48% of the revenues of the Russian budget system. Apartfrom that, contributions to extra-budgetary funds should also be accounted for, as wellas the following taxes included in the budget system:

- Tax on enterprise property which is levied on the balance of property cost,adjusted for depreciation. In 1992 the tax rate was determined by legislativeauthorities of republics, territories and regions of Russia at 1%.

- Contributions to road funds of the Russian Federation, including the tax onroad users (0.4% of the volume of marketed products), tax from vehicle owners(rouble per one horse power unit), tax on acquisition of automotive vehicles (formotor cars - 40% of the cost of a car without VAT), tax on sale of fuels and lubricants(federal tax - 18% of the sales amount, territorial - 7%).

- Taxes that regulate use of natural resources, including payment for land (landtax on land-owners and land-users, imposed as a fixed payment per unit of land. Landtax rates in agricultural areas are specified on the basis of the cadastre assessmentwhich varies in different regions. Land tax rates in cities and settlements are specified


5. Sintlnikov A. K. Reznikov

by relevant authorities); payments for the discharge of polluting substances into the airand water (the amount of such payments is determined together with authorised limitsof pollution per unit of discharge; if the limit is exceeded, the rate is raised fivetimes); payment for the water used by enterprises, taken from water systems (theserates are differentiated according to the types of water systems); payment for the useof natural resources (payments for the rights for prospecting and mining, deductionsfor regeneration of raw materials base, charges for issue of licenses, oil and gasextraction excise).

Fig. 6.1.: Structure of the tax revenues, increment

Fig. 6.2,: TAX REVENUES in % of GDP

О 20,00

0,00

'Total tax revenues, % GDP, increment —X—Total tax revenues, % QDP, by month

The reconstruction of the government finance system in 1992 (Table 3.1) showsthat revenues of the budget and extra-budgetary funds accounted for about 45.5% ofGDP. This corresponds approximately to the level attained in 1980-1985, i.e. during aperiod which was relatively good as regards the state finance. 1991 levels areconsiderably exceeded. In 1992, tax revenues of the budget of the republic and local

budgets amounted to 28.3% of GDP.

CASE Foundation -66-

Uutlget Crbii In

As regards 1992, the following trends can be discerned with respect to the taxrevenue structure: decrease of the share of tax on profits (from 11% of tax revenue inthe fust quarter to 8%, with an increasing total, in the third quarter), the decrease ofthe share of tax on profit after its growth during the first six months of the year,decrease of VAT revenue starting from the third quarter (maximum VAT revenue wasrecorded in November-December 1992), regular decrease of the share of excise taxduring the entire year, increase of the share of taxes on property and foreign trade,which in figures 6.1, 6.2 are included in "other taxes".

As a whole, such a dynamics of tax volume and structure can be considered as aproof of success attained by the tax policy implemented during the first year of radicalreform. Tax revenues, even though they were not sufficiently stable in time, allowedto ensure a high level of budget expenditures, which were very difficult to reduce dueto their rigidity, especially under the current political situation.

On 1st January, 1993, VAT rate was reduced from 28% to 20% for all goods(works, services) except food products (and goods subject to excise tax) and productsused for children, for which the rate amounted to 10%, The list of VAT preferenceswas cut and made more specific. Starting from 1st February VAT was imposed ongoods that were imported into the Russian Federation. The VAT credit procedure andthe terms of its settlement were changed. As a result, the volume of proceeds fromthis tax diminished considerably.

In 1993, preferences for the tax on profits were changed (tax exemption whichso far had only covered production-related investment was extended to cover alsoinvestment which was not directly production-related). A procedure was introduced,regulating the payment of additional interest charged on the difference betweenadvance payments related to the tax on profits and the actual amount of tax payable.Interest rate was equal to the re-financing rate applied by the Central Bank.

In spite of the reduction of the VAT rate, tax proceeds in January, 1993 werequite high, due to the fact that it was charged at the previous-year rates. Nonetheless,1993 marked the beginning of a noticeable decrease of VAT share in the total volumeof tax revenues of the consolidated budget and the accompanying growth of the shareof other taxes (tax on profit, income tax and other).

Apart from that, the composition of taxes levied in 1993 did not undergo anyessential changes and the main tax laws remained virtually unchanged. As has alreadybeen mentioned, a gradual decrease of the share of tax revenues in GDP was recordedin 1993. The process concerned practically all kinds of taxes. In 1993, tax revenuesamounted to 24.6% of GDP, tax on profits was at 41.8% of the budgets, tax revenues(10.3% of GDP), VAT- 28.1% (6.9% of GDP), income tax - 10.9% (2.7% of GDP),excise - 4.5% (1.1% of GDP). '

Extremely low tax revenues were recorded in the first months of 1993. Thesituation began to improve in April - May, though in comparison with 1993 figures,the share of collected taxes in GDP over the first six months of the year declined from28% to 21-22%. The most significant change in the composition of tax revenues thatoccurred in May 1994 (fig 6.1,6.2) resulted from the above-mentioned change in theclassification of budget revenues. In the beginning of 1994 the share of VAT slightly


5. Sinelmkov & К. Reuiikov

grew (from 39% in 1993 to 42% in January 1994), which was due to the broadeningof the taxable basis by including all resources received from other enterprises as wellas some other changes.

The slight growth of personal profit tax revenue (by 0.3% of GDP) was causedby changes in the taxation basis - the income received by the population. Moreover, inthe beginning of the year, the budget received income tax calculated on the basis ofannual tax returns.

Since the increase of enterprise wage expenditure was exempted from the tax onprofit up to the level covering six minimum wage rates, the share of the tax on profitfell to 36% in January, 1994, as compared to 42% in 1993.

In general, changes in tax revenue composition recorded in 1994 wereinsignificant. Tax revenue of the Russian budget amounted to 22.3% GDP. Tax onprofits - 34% of tax revenues (7.6% of GDP), VAT - 26% of tax revenues (5.8% ofGDP), income tax - 12% (27% of GDP), excise - 5% (1% of GDP).

The dynamics of tax revenues in 1992-1994 cannot be explained purely in termsof changes introduced into the taxation technique. Taxes collected during the entireperiod were affected by numerous macro- and microeconomic factors. Besides, if in1992 it was quite difficult to trace such influences without undertaking specialin-depth studies, due to an extreme instability of tax law and by-laws, in 1993, underconditions of relative legislative stability, the downwards trend as regards taxrevenues in the federal and local budgets manifested itself vividly. In winter andspring, 1994, the trend continued, while in the summer it was reversed, with a certainimprovement in the amount of collected taxes. The most important factors that affectthe dynamics of tax revenues are listed below:

- A high rate of inflation in Russia resulting in distortion of taxation basis andtax rates with respect to practically all taxes. Inflation was also causing inflationarydevaluation of tax revenues in the period from the date when tax liability arose untilthe date on which the tax payment reaches the budget.

- The condition of payment and settlement relations in the national economy.

Value of enterprises' defaults as regards the settlement of their budget liabilitiesstrongly depends on the value of unsettled debt (bad debts incurred by enterprises),because insolvency of enterprises directly affects the solvency of their creditors andtheir relations with the budget.

- Adaptation of economic agents to the tax system and its changes. Minimizationof taxes and contributions to extra-budgetary funds constitutes one of the prioritygoals of an enterprise. Methods used for income under-estimation and over-estimationof expenses can be divided into the following groups: accounting methods allowingmaximum delays as regards the recording of earnings and the fastest possiblerecording of expenses; utilisation of preferential treatment granted by the law; use ofdiscrepancies in the tax laws; unlawful tax evasion.

Budgetary non-tax revenues in 1992 amounted to ca 0.6% of GDP; in 1993 -2.3% of GDP. This growth is mainly due to such sources of income as the profit of

CA5E Foundation - 68 -


the Central Bank transferred to the federal budget and a certain growth of proceedsfrom privatization.

7. Composition of budget expenditureAn analysis of the expenditures of the Russian budget in 1991 is also hampered

by the dissociation of the USSR and lack of the necessary statistics. In accordance tothe official statistics the Russian budget expenditures, taking into account theexpenses related to the prices of agricultural products, granted from the Central Bankresources, amounted to 30.4% GDP. Including Pension Fund, expenditures reached37.2% of GDP. At the same time expenditure on the national economy was at 10.1%of GDP (27% of budget expenditure), expenditure on social purposes - 14.7% of GDP(39% of the budget - including Pension Fund).

In our opinion, however, these figures aie not very informative nnd wouldrequire an additional consideration and evaluation of expenditure of consolidatedbudgets of the former USSR republics. In 1991 such expenditure 48% of GDP(estimate of GDP of the former Union republics - 2100 billion rouble). At the sametime budget expenditure amounted to 40.5% GDP, the expenditure of the PensionFund - 7.4% of GDP. Amounts spent on the national economy, without expenses onthe subsidies related to prices of agricultural products (4.7% of GDP) amounted to12.9% of GDP, social purposes - 9.8% of GDP, defence - 4.9% of GDP.

As has already been mentioned, no analysis of 1992-1994 budget can beperformed without taking into account the over-estimated assessment of thoserevenues and expenditures that initially had been determined in terms of foreigncurrency. Considering this, expenditures of the consolidated budget and loans, net ofrepayments, in Russia in 1992 amounted to 66.9% of GDP (Table 1.3.2).

Expenditure on the national economy reached 26.3% of GDP, including importsubsidies - 10.5% of GDP, expenditure on non-budgetary funds - 4.4% of GDP. Inperforming an assessment of import subsidies we took into account import operated inexchange for funds left abroad by exporters (101 million USD), import financed fromthe foreign currency reserve of the Republic (606 million. USD), import financedfrom foreign credit, to be repaid by the government (7.1 billion USD in the fusthalf-year period; 8.8 billion USD for three quarters and 10.8 billion USD in the entire1992). As a result, subsidies to the prices of imported products amounted to 1600billion roubles, mostly financed from foreign credit.

Expenditure on government authorities in 1992 amounted to 0.6% of GDP,spending on law enforcement bodies - 1.4% of GDP, science - 0.6% of GDP,servicing of the national debt - 1.5% of GDP. Social expenses - 17.1 % of GDP(including those financed from the extra-budgetary fund - 9% of GDP), Subsidies, netof repayments made in 1992, amounted to 5.2% GDP.

In 1993 (see table 7.1.) the composition of governmental spending underwentconsiderable changes. The expenditure on the national economy largely decreased (upto 14.4% of GDP). This was mainly due to a decrease of import subsidies (to 1.2% of


S. SinflnJkov A. K. Rezrukov

GDP). Investment in the national economy, financed from the federal budget, alsodecreased (from 1.7% to 0.8% of GDP).

Table 7.1. Expenditures of federal budget of Russia in 1993 (economicclassification)

Current expenditures

1. Expenses for goods and services

1.1. Wages

1.2. Wages charges

1.3. Purchase of goods and services

1.4. Other

2. Payment of interest

3. Subventions & current transfers

3.1. for enterprises

3.2. for population

bin. roubles

27.585

20.029

1.898

633

788

18.149

1.439

4.678

3.716

628

3.3. for other levels of administration

3.4. other

CAPITAL COSTS

1. Purchase of equipment

2. Government investment

3. Overhauls

4. Capital transfers

5. Other capital costs

TOTAL EXPENDITURES

334

6.485

149

2.818

39

8

3.471

34.069

in % to total

81,0

58,8

5,6

1,9

2,3

53,3

4,2

13,7

10,9

1,8

1,0

19,0

0,4

8,3

0,1

0,0

10,2

100,0

Expenditure on government and administrative authorities went up by 0.3% ofGDP (to 0.9% of GDP), state social expenditure was up by 0.7% of GDP and reached18% GDP, including services financed from extra-budgetary funds - 8.4% of GDP. In1993 defence expenditure slightly decreased to 4.4% of GDP. Expenditure on lawenforcement bodies rose to 1.6% of GDP, expenditure on science remained at theconstant 0.6% GDP level.

In general, expenditure in 1993 amounted to 48.3% of GDP, expenditureincluding loans, net of repayments - 50.3% GDP. Loans net of repayments decreasedfrom 5.2% of GDP in 1992 to 2.0% of GDP in 1993.

CASE Foundation -70-


A study of the economic classification of budget expenditure in 1993 (table 7.1)shows a considerable share of capital expenditure* of the federal budget (19% of totalexpenditure), which in industrialised countries rarely exceeds 8-9%. A relatively smallvalue of subsidies and current transfers (14%) can be explained by the fact that amajority of such expenditure was aggregated under the item "other expenditure forgoods and services." The low amount of interest payment on the national debt wasjustified by arrangements authorising providing deferred servicing of external debtand defaults (in 1993, out of the total 31 billion dollars required for national debtservice, including mterest and principal, 20 billion dollars were deferred, and 9 billiondollars constituted overdue debt) as well as by extremely low mterest rate charged bythe Central Bank on credit granted to the Government, accounting for a major part ofinternal borrowing.

8, Perspectives for the budget po icyThe draft budget for 1995 was presented to the State Duma on 5th November,

1994. After discussion carried out in committees, the draft was rejected in the firstreading. A conciliatory commission was established in order to review the mainindices included in the draft. The draft was finally adopted on 23rd December, 1994after the fust reading, and sent to the Government for corrections. On 9th January, theMinistry of Finance presented Duma with its the reviewed comments on the draft, andon 25th January the Federal Budget for 1995 was adopted in the second reading. Thismeans an approval for figures concerning budget revenues - 175 trillion rouble(18.4% of GDP), expenditure - 248 trillion rouble (26.7% of GDP), and the maximumdeficit - 73 trillion rouble (7.7% of GDP).

The draft budget was prepared by the Government in the context of themacroeconomic programme for 1995. The main objective of the programme, inaccordance with the wording used in the report of Finance Ministry, is the completionof macroeconomic stabilization in spring-summer of 1995. Mean monthly rate ofinflation in 1995 must not exceed 2%.

To fulfil this objective, the Government proposed the following:

- to finance the budget deficit from new issues of government securities andforeign financing;

- to ensure low growth of net Central Bank credit granted to commercial banks;

- to ensure a positive real rate of refinancing, to develop credit auctions;

- to implement the policy of a decreasing floating rate of exchange of the rouble.

Today it is absolutely clear that inflation rates in 1995 will be higher thanprovided for in the programme. In January inflation amounted to 17.1 %. Nonetheless,the underestimated inflation rates and GDP volume taken into account in thecalculations performed by the Ministry of Finance allow to avoid the situation whichwas encountered last year, when unrealistic nominal amounts of budget revenues andexpenditure were approved. With real inflation rates at half the amount specified inthe programme, the nominal budget revenues that are much lower both in real terms


S, Sineln&ov &. К. Rezn&ov

and in terms of GDP share, will allow the financing of the nominal approved budgetexpenditure without increasing the deficit.

The financing of the budget deficit in 1995 constitutes a complicated problem.The budget provides for its non-inflationary financing, without using Central Bankcredit. Calculations are based on the receipt of external financing at 12.3% billionUSD and internal borrowing on financial markets at 41.4 trillion roubles. We believethat such a level of internal borrowing will pose problems, unless there is aconsiderable rise of the real interest rate which would lead to an increase ofexpenditure on the servicing of the national debt and suppression of the investmentactivities. Purchase of a certain volume (15-20 trillion roubles) of governmentsecurities by the Central Bank accompanied by an increase of the monetary base andpayment of the Central Bank profit to the budget.

Today the budget is performed on the basis of the Act on the financing ofgovernment expenditure from the federal budget in the 1st quarter of 1995, adoptedon 23rd December, 1994. Under this Act, financing is performed on the basis ofprojections for the 1st quarter, which have been presented by the Government toDuma, with taxes and financing received by the budget at 18 trillion rouble (includingCentral Bank credit - 5 trillion rouble).

Table of contents

1. Economic transformation and macroeconomic changes in Russia 31.1. Conditions of the budget crisis in Russia in 19914994 31.2. Economic policy in 1991 91.3. Economic policy in 1992-1993 11

1.3.1. Liberalization of prices and inflation processes 111.3.2. Banking system 151.3.3. Liberalization of foreign trade 161.3.4. Pnvatization 181.3.5. Agrarian reform 211.3.6. Budget policy 23Appendix 29

2. Organization of the budget system and the budget processes, characteristics of thebudgetary classification 423. Revenue, expenditures and deficit of government finance 544. National Debt 615. Financing the budget deficit 626. Composition of budget revenues ' 627. Composition of budget expenditure 698. Perspectives for the budget policy 71

Table of contents 72


crisiЖ ЮЖкsЭ - iep.ru · sergei sinelnikov & konstantin reznikov warsaw, may 1995....

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