Government approved draft budget for 2015-2017; fiscal deficit is planned at 0.6% GDP in next three years

RUSSIA ENERGY / FINANCE - In Brief 19 Sep 2014 by Marcel Salikhov

The Government finally approved draft version of the federal budget for 2015-2017 submitted by MinFin. According to the document, receipts of the federal budget will total 15,1 trln RUB in 2015 (19.4% GDP). Expenditures will reach 15.5 trln RUB. Deficit is planned at 0.6% GDP in 2015. It is assumed that GDP will grow 0.5% in 2014 and 1.2% in 2015.

The bottom line is that the Government remains committed to conservative budgetary planning and doesn’t plan fiscal loosening to support the economy. Expenditures are formed on the basis of ‘budget rule’ which sets oil price forecast ($96/barrel for 2015-2017). Another good news is that there will be no increases in VAT rates and introduction of sales tax. In recent months there were a lot of talks about increases in taxes but the Government hasn't decided to take that step. The most controversial was re-introduction of sales tax that was abandoned in 2004 due to low efficiency. It is a welcome step as sales tax would have been new inflationary shock and new 'headache' for CBR.

From expenditures side, main beneficiary of the budget is the Army. Defense expenditures will grow 21.4% next year, to 3 trln RUB (4% GDP). Expenditures for 'national economy' aimed at helping sanctioned companies and sectors will also be largely increased (+22.7%). Such increases will be supported by decreases in social expenditures that are continued to be transferred on the regional level. Probably regional authorities will be given new authorities to increase their tax base.

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