There is money, but you hold on – Newspaper Kommersant No. 170 (7371) of 09/15/2022

The adoption of the budget for 2023-2025, which continues to be finalized by the government, in the last stage, may take place against the backdrop of a change in short-term trends in the macroeconomics. On Wednesday, the Bank of Russia confirmed a steady growth in inflation expectations, which will limit the possibility of a new reduction in the key rate. In the coming weeks, obviously, the summer deflation will run its course. The main thesis of the last meeting on the budget in the White House is caution in stimulating GDP growth. Requests for additional “anti-crisis” government spending are unlikely to be satisfied – the budget will remain conservative in this respect, although the budget policy is expected to be soft until 2025.

On Wednesday, the government held one of the last meetings on the draft budget for the next three years: it, as Prime Minister Mikhail Mishustin explained, was devoted to decisions on the last remaining “forks” and the instructions given by the Kremlin on September 12. Then the draft budget will be re-submitted at a meeting with the president, the White House budget committee will pass and, after technical revision, will be sent to the State Duma, which will begin its consideration in October.

The essence of budget negotiations, with the exception now rather theoretical (see “Kommersant” dated September 13) discussions about the details of the fiscal rules for the period up to 2025 are not disclosed. Since, based on the open part of the meeting, it was about additional (to the version of the Ministry of Finance of June-July 2022) federal expenditures and incomes, an increase in effective tax rates for non-commodity and, possibly, part of commodity exports should have been discussed.

It is known about the discussion of additional taxes on the export of coal and fertilizers, the correction of taxation of exports of the chemical industry is not ruled out. According to industry calculations, we can talk about additional budget revenues within 0.5% of GDP.

However, already at the beginning of the meeting, the Prime Minister rather harshly stated his position on the issue of rising costs: “In the current conditions, it is especially important to be careful in forecasting, not to rely on unrealistic assumptions in assessments and to accept new spending obligations based on opportunities, not illusions. “. Overall, “cautious expansion of fiscal stimulus” in the 2023-25 ​​budget.

The White House does not deny that budget rules for the next two years will be adopted at estimated oil prices that balance the budget at a level significantly higher than $60 per barrel, and a low oil deficit at this price will form only by 2025, that is, the budget policy for the coming years will be soft. Recall that the de facto level of federal spending was similar in 2021, when “pandemic” spending and stimulating GDP growth were already significantly higher than in 2019.

The main point of the Prime Minister’s speech was that its further mitigation — for example, based on ultra-high energy prices in the winter of 2022-2023 and the Russian Federation’s quick exit from recession — as well as forced financing of economic restructuring by the budget, carries high risks, Bely the house intends to avoid them.

In addition to the intention in the context of the indefinite duration of the military operation of the Russian Federation in Ukraine and the prospects for the development of sanctions pressure on the Russian Federation of the “collective West” to preserve the reserves of the NWF, short-term conjuncture is likely to influence budget decisions now, although it has no direct relation to the three-year economic prospects . Mikhail Mishustin described the macro situation at the meeting as follows: “The dynamics of gross domestic product and investment are better than expected. The unemployment rate is at its lowest. Inflation is slowly declining. But most importantly, there is a revival of domestic, primarily consumer demand.” Meanwhile, the short-term aspects of this more or less stable picture may look like an argument in favor of greater fiscal conservatism in September-November 2022.

Thus, on Wednesday, the Bank of Russia confirmed on the eve of the meeting on the key rate on September 16 that the August growth in inflation expectations is not an accident: a survey in September showed its continuation, despite deflation (rather ending: a weekly increase in prices, according to Rosstat, made up from 6 to 12 September 0.03%, deflation is mainly fruits and vegetables, and the end of the frontal price decline is a matter of weeks). Observed inflation estimates rose from 20.5% yoy to 21.5% (expected from 12% to 12.5%). A steady rise in inflation expectations against the backdrop of declining annual inflation in the absence of currency fluctuations is an unusual situation that can be explained, among other things, by an increase in the cost of consumer import balances and a reduction in the range of retail products. However, in August as already wrote “Kommersant”there were also signs of a fall in domestic demand, and it is not known how this trend will be superimposed on the supply deficit in the coming months.

In fact, the problem of the White House with the budget for 2023-2025 looks similar: on the one hand, a sharp change in the terms of trade and the need for the economy to invest in structural adjustment require an expanded fiscal stimulus, on the other hand, the reduced output potential raises the question of to what extent such the stimulus will be pro-inflationary (and will require an increase in the Central Bank rate), painful.

The gap between under and over stimulus is shrinking sharply, and it is risky to go too far in the budget. Conservatism and the continuation of the 2020-2022 budget policy look the safest in this situation.

Moreover, in the public opinion at the beginning of 2023, with a high probability, demand, fueled by the soft budget policy of the past years, will certainly look for industrial players both too weak and, in other respects, overheated. In many ways, we note that these paradoxes are the consequences and inertia of all processes in the economy in the summer of 2022, and the effective protection of the financial markets by the Central Bank and the Ministry of Finance, which smoothed out the effect of sanctions and thereby extended its acute phase into the first half of 2023. As a result, in any case, the budget will be adopted in a situation in terms of macro indicators that is somewhat more alarming than in July-August.

Dmitry Butrin