Russian State Budget
|oil and gas|
|Non-oil and gas|
|SOURCE: "MAIN RESULTS AND TRENDS OF BUDGET POLICY 2008-2010"|
From 2000 through 2005, Russia’s federal budget showed surpluses each year. Tax revenues tripled between 1999 and 2002. Following the tax reform of 2001, which established a flat 13 percent income tax rate, income tax revenues increased annually through the early 2000s. The 2001 reform also reduced the corporate tax rate from 35 percent to 24 percent, and in 2004 the value-added tax was reduced from 20 percent to 18 percent. Although some 32 percent more income tax money was collected in 2005 than in 2004 and the Federal Taxation Service campaigned to eradicate unreported salaries, in 2006 an estimated one-third of wage payments still were unrecorded. Tax revenues for 2005 were US$153 billion. In 2005 the budget showed a surplus of US$51.1 billion, based on revenues of US$176.7 billion and expenditures of US$125.6 billion. The budget for 2006 called for US$197 billion in revenues and US$144 billion in expenditures, a surplus of US$53 billion. In the first eight months of the year, the actual budget surplus was US$56 billion.
As of 2007 Federal Budget revenue from taxes on oil and natural gas equalled 5 percent to 6 percent of gross domestic product, versus 2.5 percent a few years earlier. At that time, the US Department of Energy estimated that oil and gas account for about 20% of Russia's gross domestic product. On 27 May 2008 Russian President Dmitry Medvedev, who used to head the energy giant's board of directors, said Gazprom contributes around 20% of the federal budget's revenues. "Around 20% of federal budget revenue comes from Gazprom, whose capitalization has increased 46 times since 2000," Medvedev said, describing the company's role as "exemplary." Gazprom's market capitalization then stood at $362 billion.
Russia's revenue from sale of oil and gas reached a peak in 2008 and will likely decline in future, Deputy Prime Minister and Finance Minister Alexei Kudrin said 22 August 2008. According to figures released in mid-2008 by the State Committee for Statistics, Russia’s revenue for the first half of 2008 amounted to almost 4.4 trillion rubles, about US $176.5 billion at current exchange rates. Expenditures totaled almost US $120.9 billion. Overall, the Russian government was projected to spend almost US $278.6 billion under the 2008 full-year budget. By one analysis, the share of military-security outlays for all of 2008 was projected to approach 40 percent of this total.
The Russian federal budget expenditures were to increase by 38 percent, from $261 billion in 2008 to $360 billion in 2009, reducing the $50 billion dollar budget surplus of 2007, and catching up to total projected revenues by 2010. From only $34 per barrel in 2006 and $55 in 2007, Russia’s 2008 budget predicts that oil will cost $95 per barrel in 2009, descending to $88 per barrel by 2011.
By 2008 more than €90 billion in oil and gas revenue resided in a stabilisation fund that would help Russia weather an eventual downturn in commodity prices. The government funnels oil companies' profits above $27 a barrel into an inflation-fighting stabilization fund, which stood at $76 billion at the end of June 2006. But the profits thus taken out of the oil and gas industry meant that the companies were low on cash to grow their businesses.
In early 2007 one analyst predicted that the rapid growth of world commodity prices was expected to be replaced by their decline. The Urals oil prices, after growing by more than 2.5 times in the previous three years, were expected to go down to US$50 per barrel in 2010. The production and export of hydrocarbons would lag economic growth in Russia, and thus the share of the oil and gas sector in the country’s GDP would plummet from 23% in 2006 to 13% in 2010. Accordingly, the size of the resource rent in the sector would drop almost by half from 19.1% of GDP in 2006 to 10.6% in 2010). A sharp reduction of the relative weight of the oil and gas sector will significantly reduce the total budget revenue. Recent tax reforms led to an increased tax burden for both sectors and eased the burden for other sectors. As a result, in 2006 the tax burden on the oil sector was twice that on the rest of the economy, and on the gas sector it was 1.5 times higher. Accordingly, the drop in oil and gas revenues cannot be compensated by other sources, so the total federal budget revenue would drop by 5.4% of GDP in 2007-2010. Up until now the size of disposable oil and gas revenues varied depending on the prices. Under the new rules, such revenues are fixed at 3.7% of GDP and are thus constant over time and independent of oil and gas prices.
There are different groups within the government that support different long-term objectives for state spending. There have been a few publicized disagreements on the approach under Putin, since higher oil revenues have always smoothed the issue. With a new spending phase impending, there were likely to be more frequent competition among conflicting demands. When there is not enough tax revenue to satisfy both, there could be greater friction and instability within the government. Within OPEC countries, the classic “curse of high oil” scenario is that panic usually sets in when the oil price dips.
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