The Government is building up budget resources ahead of the next electoral cycle.
The State Duma is expected to approve in the first reading a government-proposed bill aimed at strengthening the country's budget system tomorrow. The document cancels or suspends many of the Budget Code provisions - in particular, the rule whereby a large chunk of oil and gas revenues goes straight into special funds instead of the budget. Now, for the next three years, oil and gas money will be placed at the disposal of the government. Experts have no doubt that these changes signal the start of financial preparations for the electoral cycle of 2011-2012. Notably, some of the experts interviewed by NG aren't ruling out the possibility of an early election.
The draft law on the introduction of amendments to certain legislative acts concerning the adoption of the law on the budget for 2010 and the planning period of 2011 and 2012 made its way to the State Duma last Friday. The Duma Speaker, Boris Gryzlov, urged for the bill to be fast-tracked. The Finance Ministry has confirmed for NG that it has in fact initiated the changes. "This is happening because the revenues and duties of the oil and gas sector have gone down", a source at the Ministry willingly divulged. "The separation of the Stabilisation Fund made perfect sense when there was a budget surplus, but now that we have a budget deficit it's much more convenient to accumulate money in a single account - put it directly into the budget." According to our source, the draft law is currently pending before the government. He's confident that it will be passed by the end of the year.
Just yesterday, the State Duma Budget Committee recommended that the deputies approve it in the first reading on Wednesday. Deputy Finance Minister Tatyana Nesterenko called on Duma members to finish the debate on the law as soon as possible. According to our information, the law will most likely be passed on Friday. So, in 2010, Mr Putin's government will be playing by entirely new budget rules. Even just a cursory look at the document submitted by the Cabinet makes it perfectly clear that the main goal is to concentrate all the country's financial resources in the Federal Budget and loosen control over how the money thus accumulated is spent.
To this end, the "sacred cow" of the Putin era, the pumping of windfall oil and gas profits into special funds is meant to be given up. As most readers probably recall, Russia first created a Stabilisation Fund, which was initially untouchable. Later, on the eve of the 2007-2008 electoral cycle, the Stabilisation Fund was divided into the Reserve Fund and the Fund for Future Generations, later renamed the National Welfare Fund.
Now, the government wants to put money directly into the budget. The Cabinet says quite openly that the Reserve Fund will be the main source for covering the budget deficit in 2010 and that role will be assumed by the National Welfare Fund in 2011-2012.
Since it will no longer be receiving oil and gas revenues, the fund may very well cease to exist by the end of the above-mentioned period. It's also possible that the renunciation of the so-called oil and gas transfer to the budget from the funds will relieve the executive branch of its obligation to disclose how exactly the money is being spent. At least, these are the conclusions that can be drawn from the fact that the draft law proposes suspending the Budget Code provision to that effect until 2012.
Officially, the government formulates the draft law's main task as follows: it has been prepared "to satisfy the need to suspend certain provisions of budgetary legislation on the use of budget oil and gas revenues for the timely implementation of additional measures to support the economy, the labour market and the social sector, and to implement social security measures." It's noteworthy that the Finance Ministry refused to answer NG's questions: Are the amendments submitted only temporary? Are the Reserve Fund and the National Welfare Fund just going to be tossed aside as useless?
The Duma deputies were more forthcoming about the question and explained that the government's amendments to the Budget Code were "prompted exclusively by the elections". As a Duma deputy from the United Russia Party aptly quipped while commenting on the virtual liquidation of the National Welfare Fund, "Apparently, by the time of the elections, universal welfare will have already been achieved." On a more serious note, he said: "Massive spending lies ahead in 2010-2012, and the economic situation is incredibly rough, but elections will still have to be held." In his opinion, "The government will finance the more vulnerable sectors, which just serves as more indirect proof that Mr Putin will run in the presidential election." After ensuring the electoral success of his party, naturally.
Deputy Chairman of the Duma Budget and Taxes Committee, Sergei Shtogrin, is even more candid: "It's time to figure out what to do with the reserves and be efficient about using the current revenues, not to put them in the securities of the British or US governments, but to use them competently to ensure that they work inside the country." A Communist Party member, Shtogrin opines that the existence of two separate funds proved that the money transferred there had a clear purpose: "Everybody, and first and foremost the pensioners, could see that the money was there and earmarked for pensions. The existence of the National Welfare Fund guaranteed a timely payment of pensions to prevent a repeat of the situation we saw in the 1990s, when unemployment was rampant and pensions were delayed by months." Now, the government's powers to spend public money are set to be expanded. Director of the International Institute for Political Expertise Yevgeny Minchenko has also noted a strengthening of the financial block in the government.
Other measures envisaged by the draft law, which will concentrate resources even more, only confirm Mr Minchenko's view. For one, the Cabinet will now have the right to reconsider investments into legal entities approved by the budget law. This means that both state corporations and private companies may have money that was allocated to them by the budget taken back if the Cabinet opts to do so.
NG's experts say that the main challenge facing Mr Putin's government is the requirement to meet the extremely costly promises made to dramatically increase pensions, including pensions for Soviet-era pensioners. Even when the new twist in the pension reform was under discussion, many were doubtful that the state really had enough money. The law simply substantiates all these doubts, since it is clearly aimed at concentrating resources.
Nikolai Petrov, a member of the Carnegie Moscow Centre's scientific board, doesn't think an early presidential election is out of the question: "The Finance Ministry's plans to borrow 18 billion in the external market haven't been crowned with success yet. So instead, it's seeking ways to finance the deficit. As for the deputies, they have very little say in how the money is actually spent, even now. The money spent to increase pensions can be seen as good PR. Neither the government nor the Prime Minister are giving any indication of how they intend to proceed on the matter." According to the expert, this may suggest that when faced with such massive budget spending, the Kremlin may resort to holding a snap election: "In this country, you don't even need any particular excuse for that."
Ivan Rodin, Roza Tsvetkova
