The authorities expect the receipt of above-planned non-oil and gas revenues in the budget

The authorities have begun discussing options for the actual implementation of the federal budget in 2023. One of the key points on which further decisions will depend is the assessment of non-oil and gas revenues (NNGD). 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.

Two points of view dominate, the interlocutor close to the Cabinet specified: “Incomes will be much higher, or there will not be a sharp deviation.” The first option assumes that revenues will exceed the plan by at least 1 trillion rubles. Another, more conservative estimate, which the Ministry of Finance adheres to, implies that the deviation will be several hundred billion at best.

The representative of the Ministry of Finance, in response to a request from Vedomosti about forecasts of income for the year, offered to familiarize himself with the performance data published on the website of the ministry. Vedomosti also sent a request to representatives of the Ministry of Economy and the Kremlin.

At the end of 2023, according to the budget law, the Ministry of Finance expected that 17.2 trillion NIS would go into the treasury. This is 1 trillion, or 6%, more than the budget actually received in 2022. Non-oil and gas revenues in 2022 turned out to be similar to the same indicator in 2021 – 16.2 trillion rubles.

Non-oil and gas revenues for January-May 2023 amounted to almost 7 trillion rubles, which is 9% higher than the same result last year, the Ministry of Finance reported.

Oil and gas revenues amounted to 2.9 trillion rubles. for the first five months – this is 2 times lower than a year earlier. Thus, in total, the budget received 9.8 trillion rubles. of all revenues, which is 19% less than in January-May 2022. Budget expenditures amounted to 13.2 trillion, which is 27% more than last year. The deficit, therefore, is at the level of 3.4 trillion (a surplus was recorded in this period a year earlier).

As the Ministry of Finance clarified in a press release on budget execution for the first five months of this year, the dynamics of the receipt of the largest non-oil and gas revenues of the federal budget normalized after a temporary reduction in January and entered a steadily positive area, including to the level of 2021 “as less subject to statistical base effects.

“In general, the volume and trajectory of non-oil and gas revenues in January-May 2023 indicate some excess of the dynamics laid down during the formation of the budget law,” the ministry said in a release.

The dynamics of the execution of federal budget expenditures is also gradually returning to a normal level after accelerated financing in January-February of certain contracted expenditures, the Ministry of Finance said in a statement.

The ministry reminded that in 2023 the amount of expenditures will be formed based on the maximum amount of budget assignments approved in the budget law, and the amount of excess non-oil and gas revenues if they are formed during the year (in accordance with the norms of the “budget rule”).

This year, the transitional period before the full resumption of the budget rule continues, but the volume of budget expenditures is still not unlimited. Control, according to the Budget Code, is carried out according to the following formula. Budget expenditures cannot exceed the sum of projected non-oil and gas revenues, basic (or target) oil and gas revenues, which are set at 8 trillion rubles, the expected balance of budgetary and interstate loans, public debt service costs and a special supplement, which is set at 2.5 trillion rub. in 2023

The main reason for the increase in non-oil and gas revenues relative to the plan is the higher-than-expected rates of economic recovery. The Ministry of Economy estimates GDP growth at 1.2% this year, according to the macro forecast updated in April, while last year, during the budget process, the agency expected a decline of 0.8%.

But besides this, other sources of replenishment of the treasury are assumed. The main one is a one-time fee from excess profits. It will be paid by companies whose arithmetic average of profits for 2021-2022. is more than 1 billion rubles. In total, about 10,000 organizations, including banks, will fall under the windfall tax, but oil and gas companies are exempted from it. The Ministry of Finance expects that it will bring 300 billion rubles. Although the levy is formally introduced from next year, businesses will start paying it “up front” this year – companies are entitled to a 50% discount on the amount of the tax for early prepayment.

Another source is fees from fertilizer producers. The Ministry of Finance last year introduced a one-year customs duty, the mechanism of which assumed that companies would pay to the budget if the cost of their products exceeded the cut-off level ($450/ton). In total, it was expected to collect 120 billion rubles. this year, but in five months the budget received only 5 billion, Vedomosti wrote. The authorities plan to fine-tune or change the mechanism, but still collect from the “fertilizers” an amount closer to expectations.

Non-oil and gas budget revenues in 2023 are still going to 17.4-17.7 trillion against the plan of 17.2 trillion, plus the amount that can be collected from a one-time fee – it is unlikely to exceed 200 billion rubles, said the chief economist for Russia Bloomberg Economics Alexander Isakov. In May, the treasury received 1.5 trillion NNGD – the same amount as in April, he recalled. At the same time, non-oil and gas revenues last month turned out to be 300 billion higher than the seasonal norm, Isakov believes. It is possible that these revenues are above the norm – half of the 565 billion rubles. dividends that Sberbank promised to pay, but it is possible that the money came from other sources, the economist added. Income from Sberbank was not taken into account in the estimates of income for the year, Isakov made a reservation.

Non-oil and gas revenues have room for some excess of planned indicators due to positive economic dynamics, the recovery of production and demand, Natalia Vashchelyuk, chief analyst at Sovcombank, agreed. The dynamics of oil and gas revenues until the end of the year is likely to be better than in the first half of the year, but the gap from the planned indicators may remain, she added. In general, revenues will be at the level of the values ​​of the law on the budget: 26 trillion rubles. – overplanned non-oil and gas companies compensate for the loss of income from the sale of oil and gas, Vashchelyuk explained.

NNGD’s revenues are higher than expected under the plan, due to the active recovery of economic activity, Kirill Gorbunov, an analyst at Ingosstrakh Investments, agreed. Seasonality indicates an increase in absolute income in the remaining months, but the amount of income for the year may be slightly lower than planned, the economist continued. The lack of oil and gas revenues will be compensated by the fiscal rule, non-oil and gas revenues growing along with nominal GDP, windfall tax, damper adjustment, more active OFZ borrowing when placing linkers and floaters that are in high demand, etc., the expert listed. There are no doubts about budget sustainability this year, Gorbunov summed up.

Budget expenditures, despite statements by the Ministry of Finance that unusually high spending in January-February will be offset by a slowdown in the coming months, such a cooling is not yet shown, Isakov said. The seasonal norm for May was supposed to be 200 billion rubles. lower than the actual execution of expenditures this month, based on the planned values ​​of the federal budget for the year of 29.1 trillion rubles, he calculated. To date, we can expect expenses for the year in a fairly wide range: from 31.6 trillion, if spending returns to normal in the remaining months, to 35.9 trillion rubles, if the pace continues, he added.

Relying on historical seasonality in spending forecasts makes little sense now, says Dmitry Kulikov, director of ACRA’s sovereign and regional ratings group. If we evaluate the possibility of growth in spending for individual purposes, it will not be surprising that they will increase by another 1 trillion rubles relative to the budget law. At the federal level, the deficit may reach about 3% of GDP, which will be explained more by the execution of the expenditure side, and not by the shortfall in revenue, he added.

Exceeding the planned deficit in a particular year or even over a three-year horizon, as a rule, does not affect fiscal sustainability in general, especially if the country has a relatively deep domestic market, and the state has liquid balances, Kulikov continued. With regard to Russia, it is important to look at longer-term plans, whether adherence to the budget rule will be maintained, the well-being of the industries that are the main taxpayers, the stability of the structure of tax rates and duties, collection and, in general, the potential for economic activity, the economist concluded.