On April 20, Prime Minister Vladimir Putin delivered a report to the State Duma on government performance in 2009. Although he spoke like a doctor proposing a cure for the country's economic ailments, his sore throat made him sound like he needed a doctor himself. He told the audience how his government had cured the crisis-ridden economy and promised to invest another 460 billion roubles in healthcare over the next two years.
As for the more disappointing news for the voters, the prime minister preferred not to emphasise that. The recession is not over yet, Putin admitted, but we are past the worst of it. The global economy is reviving and Russia is showing growth too. Banks are once again increasing the availability of credit; the volume of loans is expected to increase by 5% to 10% in 2010, Putin said. Last year's high budget expenditures helped support living standards: the average income increased by 2.3% in 2009. There is a plan to raise pensions by nearly 50% this year by taking on additional expenditures.
However, Putin said the average income was not the government's only concern. He proposed a revised version of the Healthcare national priority project. In his words, the government will spend 460 billion roubles in 2011 and 2012 to improve the country's healthcare system. The money will be split into three parts: 300 billion roubles to repair hospitals (30% of all medical establishments are dangerously dilapidated or badly in need of repairs) and buy new equipment; 136 billion to increase the salaries of medical personnel and improve conditions for patients staying in hospitals, and 24 billion roubles to introduce modern information systems in healthcare.
The prime minister was clearly eager to talk about healthcare. However, he devoted as much time to a much more boring issue: effective budget spending. The two issues are in fact closely interrelated. In 2005, financing the healthcare national project came from oil's super-profits: the government therefore did not have to take it from other projects. The new initiative requires a tax increase. Starting in 2011, employers will have to pay 5.1% of their payroll funds as a compulsory medical insurance premium, up from the current 3.1%. This increase will produce the 460 billion roubles in two years. But taxes cannot be raised forever, and oil profits have been nearly used up at this point.
"We cannot afford a 6% budget deficit anymore, but need to cut it to 3% by 2012," Putin said. To attain this, the Finance Ministry drafted a programme to increase the cost effectiveness of budget spending until 2012. In other words, the plan is to cut spending. As this is impossible to do in one stroke, [Finance Minister Alexei] Kudrin drew up an entire reform plan. As of today, only 10% of expenses go into federal targeted programmes, where the money is spent for specific purposes. Now the ministry wants the 2012 budget to be comprised almost entirely of large government programmes adopted for several years ahead.
Each would cover a whole sector, for example, healthcare, or transport, or high technology. The money flow will be controlled by the ministries which will have the authority to redistribute the allocations within one programme. The ministers will have more freedom but fewer opportunities to ask the government for more money. It would be easier to control expenses, which is what the ministry is trying to achieve.
The most controversial part of the budget reform, politically, is a bill regulating government-financed institutions adopted by the Duma last week. Starting in 2011, Russia's federal enterprises will be divided in two groups: penitentiaries, mental hospitals and defence design bureaus will be entirely financed from the budget, while other institutions, such as schools and hospitals, will become "autonomous." This means they will either have to sell their services or compete for available government financing. In other words, the government will no longer finance schools, but will instead finance tuition for students. A school must first prove that it can do it better and cheaper than other schools.
The change is fraught with risk – suffice it to recall the replacement of social privileges with monetary benefits in 2005. This is probably the reason why the reform was postponed until after the parliamentary and presidential elections in July 2012, for regional and municipal institutions which constitute the majority of the public sector. It is essential to keep voters happy, for the president and the prime minister alike.
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Words can heal. Vladimir Putin talked to lawmakers about his efforts to keep the nation and its budget healthy.
Andrei Litvinov