The Ministry of Finance has outlined ways to move away from expansionary budget policy

In the “Main Directions of Budget, Tax and Customs Tariff Policy for 2024–2026”, published on Thursday, the Ministry of Finance formulated its priorities for the upcoming three-year period. The main message of this program document: in 2024, the current expansionary budget policy will continue (with a gradual, however, departure from the anti-crisis agenda), but already in 2025 it will be normalized: budget rules will work in full force, and the country will finally begin to “live according to means.”

The main directions of fiscal policy are part of the budget package, which will be submitted to the State Duma by the end of this week. Typically, this document does not contain big news, but it is important enough to understand the fiscal course that (at least on paper) the government intends to follow.

Let us recall that during the “military sanctions” years of 2022–2023, in terms of the economy, the authorities had to act in two directions.

First — maintaining financial stability, which was ensured through the suspension and then easing of budget rules (which do not work well during periods of crisis), as well as through balancing monetary policy (situational changes in the key rate, expansion of settlements in rubles, “sovereignization” of the financial infrastructure ).

Second direction action became an expansive budget policy. IN “Main Directions” The Ministry of Finance reports that the size of the budgetary (otherwise known as fiscal) impulse in 2022–2023, taking into account “off-balance sheet” measures, corresponds to 10% of annual GDP. The agency explains that this impulse is transmitted to the economy by influencing business activity and inflation through three channels: income, credit and expectations. Together they increase domestic demand, the “credit intensity” of the economy and the confidence of economic agents in the government’s fiscal policy. Let us recall that in order to find money for such an impulse, the White House first of all had to spend current additional oil and gas budget revenues instead of accumulating them, and also “get into” the liquid part of the National Welfare Fund, from which the deficit is still being financed.

The Ministry of Finance “in directions” warns that in 2024 the expansive nature of budget policy will remain, but in 2025 the department intends to achieve its normalization. Normalization means a return to “full” budget rules: when only basic oil and gas revenues are spent on expenses (additional ones are accumulated in the National Welfare Fund) and at the same time a zero structural primary balance is achieved (with basic oil and gas revenues taking into account the balance of budgetary and interstate loans and adjusted for such so-called quasi-fiscal operations – such as budget loans and investments in financial assets of companies). This year, the structural balance will be minus 2.7 trillion rubles, in 2024 – minus 1.6 trillion, and in 2025, according to the Ministry of Finance, it will finally be zero (in other words, the country will “live within its means”) .

It is interesting that now the need to normalize budget policy (this goal was a priority of the Ministry of Finance even before the military operation) is also explained by the current overheating of the economy.

“The recovery in business activity turned out to be more dynamic, which, as full employment was achieved in the labor market, led to signs of overheating,” the department complains.

Domestic demand is growing faster than industrial productionwhich accelerates inflation. The Ministry of Finance, which worries in the document that accelerating price growth “has a painful impact on the least protected citizens,” is confident that the normalization of fiscal policy by 2025 will help return inflation to the target of 4%.

In 2024, the Ministry of Finance promises to continue the process of gradually shifting the emphasis from the anti-crisis agenda to achieving national goals. There are four immediate priorities on which financial resources will be concentrated. This includes social support for those in need, defense, new regions, technology and infrastructure. Nominally, a tax increase to finance these tasks is not expected after the difficult decisions for business already made this year regarding a one-time payment from excess profits and “exchange rate” export duties. The Ministry of Finance carefully talks about “adjusting” taxation, primarily in the oil and gas sector – about reducing the oil price discount to increase the tax base from $15 per barrel in 2024 to $6 in 2026, about reducing the fuel damper and increasing the mineral extraction tax rate on gas, which is equivalent to an increase tariff.

Vadim Visloguzov