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Moscow News, June 27, 2004

Budget for 2005 Outlined
The governement's draft budget for 2005 reveals major changes in the budgetary system

By Mikhail Zadornov member of state duma budget committee

Mikhail  Zadornov (right)The government's draft budget for 2005 reveals major changes in the budgetary system. These changes point to an attempt to divide the budget into a basic section and a section containing new commitments made by the government. Only nine percent of budget expenditures are earmarked by the Finance Ministry to cover the government's new obligations, a sizable portion of which is made up of defense contracts.
The draft budget features a new classification that has reduced the 21 sections of the government's main economic document to 11. Another new element in the draft is a redistribution of a number of obligations between budgets of different levels. For instance, the federal center has taken upon itself all civil defense outlays, the upkeep of military commissariats, and care for the disabled. On the other hand, some responsibilities have been shifted onto the regions: maintenance of all kindergartens, vocational-technical schools, and some general-education schools - in all about 3,000 educational institutions that will need around 25 billion rubles in expenses.

Many regions will apparently face acute financial problems in the next fiscal year. That's because reform of the social security system transfers to regional budgets expenditures on benefits for pensioners and for veterans who worked on the home front during WWII - categories of people numbering 20 million who must be given monthly cash compensations.

Apart from that, there will be no single tariff scale next year, and each region will index the wages of state-paid workers - doctors and teachers above all - in accordance with its own resources, without any help from the federal center. This also applies to children's allowances...

Thus, the regions will have a whole series of new financial obligations, but they will get no additional sources of tax revenue. On the contrary, 1.5% of the revenues from taxes on profit and on the utilization of forest and water resources will be withdrawn from regional budgets and transferred to the federal budget.

Another issue of concern is the wages of state-paid workers. The salaries of employees of educational, cultural and social security institution are to be indexed from January 1 by approximately 15% to 17%. The salaries of servicemen, officials of law courts and prosecutors' offices are to be indexed according to the inflation rate - 10%. The salary indexation will be approximately the same for civil servants.

Money from the stabilization fund, which is reaching 500 billion rubles thanks to high oil prices, will begin to be spent next year. Prior to 2007, the fund's money will be spent only on paying the foreign debt and eliminating the Pension Fund of Russia's deficit. Plugging the holes in the PF budget is becoming an issue. If the state fails to cover the PF's expenses without taking cash from the stabilization fund, it means that the tax system does not provide enough money to cover the state budget's current expenditures. To my mind, it's necessary to deliberate once again interbudgetary relationships on and state spending priorities for 2005-2007.

How can we assess the upcoming changes in the budgetary process? It is good that we are creating clear-cut budgetary procedures and trying to evaluate federal and regional development programs. The big question is how competently the changes will be carried out, for they are in fact taking place at a time when the various government departments lack full coordination in their work. This is bound to cause organizational problems in the implementation of the 2005 budget.

I fear that the contemplated changes in the budgetary process might bring suffering on the populace.

 

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Moscow News

Budget 2005

Moscow News, June 27, 2004

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