Correction of the budget rule and optimization of the “pie”: what else was discussed at the breakfast of Sberbank

The current parameters of the budget rule require revision – along with cost optimization, this can become a source of financing for the current needs of the treasury. This was stated by the Minister of Economic Development Maxim Reshetnikov during the Sberbank business breakfast at SPIEF-2023.

According to him, the amount of additional expenses that need to be provided is not yet entirely clear, but discussions about their prioritization cannot be avoided. The need to finance new needs can force us to make “really tough decisions when we cut something” (refusal to finance a number of expenses – Vedomosti). There is another way – “when we reduce everything frontally and then add something” (we are talking about budget sequestration – Vedomosti), the minister noted. Most likely the government will have to go the second way, as it is politically easier, he pointed out.

“The second source that we will discuss is the budget rule. We will return to it anyway, because in the parameters that we agreed on a year and a half ago, we will not go any further,” the minister stressed.

In early 2022, the fiscal rule was suspended. The mechanism was launched again in January 2023, but with new parameters. They provide that in 2023-2025. basic oil and gas revenues will amount to 8 trillion rubles annually, and from 2026 this amount will be indexed by 4%. If the actual income for each month turns out to be higher than the level of basic oil and gas, then the Bank of Russia will use the surplus to buy foreign currency and send it to reserves. Otherwise, they will sell the currency from the National Welfare Fund in order to get rubles. At the end of last year, the Ministry of Finance excluded the euro, yen and pounds sterling from the NWF currencies. Now up to 60% of the fund will be in yuan and up to 40% in gold.

The old budget rule was tied to stock quotes for Urals, but with the imposition of sanctions, this has become irrelevant. The main principle of the new rule is the calculation of oil and gas revenues based on a certain level that would minimally react to external changes, Siluanov noted earlier. In addition, the new budget rule distributes the dependence of oil and gas budget revenues. Raw budget revenues now depend not only on prices, but also on the volume of production and export of hydrocarbons.

The Ministry of Finance resumed operations for the purchase / sale of foreign currency as part of the updated budget rule from January 13. In June, sales of yuan will increase – from June 7 to July 6, the Bank of Russia, on behalf of the Ministry of Finance, will sell Chinese currency on the Moscow Exchange for 74.6 billion rubles, or 3.6 billion rubles. in a day. A month earlier, this volume was 40.4 billion, or 2 billion rubles. in a day.

“Will there be an increase in taxes?” German Gref, head of Sberbank, asked Finance Minister Anton Siluanov, who also took part in the business breakfast. “Will there be an increase in costs?” he asked in response. “It seems that yes,” the head of Sberbank replied. “Then you need to understand who will pay for them,” because money “does not come out of thin air,” Siluanov said. Russia for a year and a half (from 2019 to 2022) increased federal budget spending by one and a half times – from 18 trillion to 29 trillion rubles, the Minister of Finance said.

Gref said that business expects an increase in the tax burden next year against the backdrop of rising budget spending.

Reshetnikov noted that the increase in the fiscal burden – “this will be the last one, since taxes are the most non-obvious topic.” “There are a lot of things there – there are taxes on consumption, there is a mineral extraction tax, on commodities and so on, all this will have to be looked at,” he said. It is necessary to look at it more broadly “and get into the economy, including natural monopolists, because there is only one pie,” the minister added.

One of the options to ensure current spending is to increase the budget deficit, but then inflation and rates will rise – the population and business will ultimately pay for this, the finance minister explained. Another option is to increase taxes, “they will also pay for this – I don’t know what taxes, we can discuss – both of them,” Siluanov said. The most effective solution, according to the Minister of Finance, is to raise funds for additional expenses from the current “budget pie”. “Let’s make it so that those expenses that we have today, either transfer them to later, or we will postpone and include what we need. This is the most correct, but the most difficult. This is less feasible, as practice shows, unfortunately, but this is how it should be done,” he stressed.

Earlier, First Deputy Prime Minister Andrey Belousov told reporters on the sidelines of SPIEF 2023 that prioritization of budget expenditures is necessary. The main priorities are the technological agenda, public commitments (including social spending – Vedomosti), support for exports, small and medium-sized businesses and some investment spending. According to expert estimates, 10-15% of expenses could be optimized, the First Deputy Prime Minister said.

According to preliminary data from the Ministry of Finance for 5 months of this year, federal budget revenues decreased by 18% compared to January-May 2022, to 9.82 trillion rubles. Expenses increased by 27% to RUB 13.23 trillion. The federal budget deficit reached 3.4 trillion rubles. (against its surplus of 1.59 trillion rubles for the same period a year earlier).

According to the budget law, budget revenues in 2023 are planned at the level of 26.13 trillion rubles, expenses – 29.056 trillion rubles.

The main reason for the decline in revenues was a sharp decline in oil and gas revenues compared to last year’s dynamics to 2.85 trillion rubles. (almost -50% compared to the comparable period in 2022). In the structure of oil and gas revenues, the main drop occurred in revenues from the mineral extraction tax on oil – more than 46% in nominal terms. The reason for the fall in “raw” revenues to the budget was a significant decline in oil prices. Since December 2022, Western sanctions on the supply of Russian oil, including the establishment of a price ceiling, have come into force, as a result of which the price of Urals oil has significantly decreased.

According to experts, in general, federal budget revenues will be at the level of the budget law – overplanned non-oil and gas companies will compensate for the loss of revenues from the sale of oil and gas. The costs, according to analysts, may be in the range from 31.6 trillion to 35.9 trillion rubles.

Earlier, Vedomosti wrote that the authorities expect extra non-oil and gas revenues to go to the budget. One of the key points on which further decisions will depend is the assessment of the flow of non-oil and gas revenues (NNG). In general, participants in the budget process, in particular members of the government commission on budget projections, agree that there will be excess revenues, but opinions differ on their magnitude, a source close to the government told Vedomosti, the information was also confirmed by an interlocutor close to the Kremlin, and a source, familiar with the discussion.