Profil (Moscow): "No-hope budget "
The government has made its decision about the 2010 budget which, according to Prime Minister Vladimir Putin's promises, is to be "socially-oriented."
The government "intends to define the budget's policy priorities clearly and to reject secondary and less urgent expenditures," Putin said. Earlier, he said that "next year's budget will be distinctly social." Allocations to the Pension Fund will more than double, rising to about 6% of GDP (1.2 trillion roubles), while defence and other spending will not be reduced. This will result in a huge budget deficit of 3.2 trillion roubles (7.5% of GDP), while other expenditure, including state investments, will be cut.
Having a social budget is good but not during a crisis, it is costly and rather than generating revenue requires additional cash injections. Where will the funds come from if the economy does not start growing? However, demand must be stimulated not only by raising people's incomes, but also by investing in infrastructure, removing administrative barriers, making life easier for the entrepreneurs and helping give industries access to loans, which are now almost beyond their grasp, as was the case some ten years ago. By merely raising pensions and wages to public sector workers, we can only maintain the demand at the current level.
Russia can expect a mere 1% GDP growth in 2010. This is understandable, for the government has just realized what needs to be done in 2009 for the economy to start overcoming the crisis.
Andrei Klepach, Deputy Minister of Economic Development, admitted in an interview to RIA Novosti, that "we have lost time, half a year or even more." If the government had been more active, "we could have prevented the plunge in GDP, albeit not below 6%." Government officials admitted, off the record, that no one imagined the crisis would be so deep. They expected a decline, not a plunge.
Now the government will try to make up for lost time by injecting money into the economy as fast as possible. "Our only hope is the 4th quarter," officials say. In January through December, the government must spend 60% of the budget funds and nearly 75% of the "anti-crisis money."
Putin instructed state banks (Sberbank, VTB, Gazprombank, Rosselkhozbank and VEB) to issue 500 billion roubles' worth of loans under new guarantees within three months. However, it is hard to believe that the state banks and the Finance Ministry will fulfill their promises and carry out the Prime Minister's instructions in the second half of the year. It is impossible to inject two extra trillion roubles into the economy within several months. The bulk of the funds will probably not be used; it will have to be transferred to next year in order to continue the fight against the crisis and reduce, to a certain extent, the state deficit.
Adopting a social budget is clearly a populist measure aimed at preventing public protest against the government. Some analysts link this measure with the 2011 Sate Duma elections. That, however, looks doubtful from the economic point of view. Instead of drafting a clear anti-crisis plan of action, we will guzzle away the remaining reserves and return to the policy of massive foreign and domestic borrowing. The Kremlin officials probably hope that the crisis will resolve itself, the oil price will again rise to $100, and the measures adopted will suffice. These hopes are hardly likely to come true.
But there is something more unpleasant. What will the government do about its new social obligations in 2011 and 2012? The reserves will run out, and it is impossible to borrow as much as it may need to cover 75% of budget spending. The government will already have to increase the unified social tax. Then it will have to reform healthcare, education and the pension system in order to shift the burden, as much as possible, onto the shoulders of people and businesses. There will be a rise in taxes, the pension age will be raised, free healthcare will finally disappear, and free higher education will be reduced to a minimum.
All this will be our pay for Putin-led government's failure to be honest and tell the people that we cannot go on living as we lived before; we must start living within our means. The present government's problem is well known: it does not want to acknowledge its mistakes. The only thing that people are free to do in this situation is to hope for an oil price of $147 per barrel, or to take to the streets.
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SOCIAL BUDGET is an obviously populist measure aimed at preventing public protest against the government.
Pyotr Orekhin
