Changes in the fiscal policy in 2019-21: Minfin’s view

RUSSIA ENERGY / FINANCE - In Brief 15 Jul 2018 by Marcel Salikhov

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Ministry of Finance published its traditional draft version of “Main directions of the fiscal policy of 2019-2021” (ONBP). The documents sets general overview of fiscal policy measures in the next three years. It also contains estimates of effects of changes in the policy. The general conclusion is that fiscal tightening will continue based on increased taxes. It will lead to increased state participation in the economy while significant privatization is not even planned. The state will mildy increase debt levels to finance infrastructure investments. The ideology of the fiscal policy rests on conservative approach and preservation of the fiscal rule. The rule basically says that oil & gas revenues above the base oil price ($40/barrel indexed at 2% per annum) go to the National Welfare Fund (NWF). Expenditures excluding costs of servicing the debt can exceed revenues (excluding those that go to the NWF) by 0.5% of GDP ( so called “primary structural surplus”). That's the basic construct. At the same there are several policy steps planned that increase taxes: Increase of VAT rate from 18% to 20% from 2019. Minfin expects that it will bring about 2 trln RUB of extra revenues in 2019-21. Completion of tax manever in oil & gas sector. It will bring about 850 bln RUB of oil & gas revenues in 2019-21. Increase in the retirement age. According to Minfin, it will bring 352 bln RUB in 2019 by decreasing the transfer from the budget to the PFRMacroeconomic forecast assumed in ONBP Source: Ministry of Finance, Ministry of economic developmentAs we have stated earlier, the basic idea of these policy changes is that extra revenues from increased taxes will be spent to increase inve...