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Russian State Budget

oil and gas
Non-oil and gas
ExpendituresBudget surplus
(ex ante)

Chairman of the Committee of Civil Initiatives Alexei Kudrin believes that Russia has taken a course to reduce military spending. "If you look at the three-year budget, you will see that military spending is significantly reduced: within three years they will be reduced by more than 1% of GDP - this is a very significant reduction, thereby reducing the military spending," Kudrin said 25 November 2017 to journalists after the completion of the United Civil Forum, which was held in Moscow.

Russia does not plan to reduce military expenditure, said Russian Finance Minister Anton Siluanov in an interview with Bloomberg TV 13 January 2016. Russia has significantly strengthened its capabilities according to the Minister, in the absence of any measures at the current price of oil, the fiscal deficit could more than double. The budget deficit of Russia in 2015 year amounted to 2.6% of GDP. The Finance Ministry predicted this rate at the level of 2.8%-2.9%.

The Defense Ministry believe that any defense budget sequestration should occur only on the basis of the opinion of the Security Council of the Russian Federation, said Deputy Defense Minister Tatyana Shevtsova. She explained that the Defense Ministry proposes to change the approach to the creation and protection of the military budget, providing a basic set forth therein (minimally adequate) volume and expenditure for emergency purpose. "We believe that any solution to reduce this or that article of the defense budget must be justified in the light of threats to national security and to obtain the approval of the Security Council. This decision was supported by the Russian president," - said Shevtsova at a meeting with Russian journalists 20 January 2016.

The Russian defense spending will grow 0.8 percent in comparison with 2015, and will total some 3.1 trillion rubles ($50.1 billion at the current exchange rate), or 4 percent of GDP, according to the federal budget draft for 2016. In comparison, the 2016 US National Defense Authorization Act (NDAA) approved by the Senate in October, authorized $612 billion in military spending, including $38 billion in overseas contingency funding. According to the new Russian draft of October 2015, spending on social policies will increase by 6.4 percent in 2016 and will total $72 billion, or 5.7 percent of the country's GDP.

The military spending in Russias budget for 2016 will be cut but by less than 10%, Finance Minister Anton Siluanov told reporters on 25 June 2015. "It will be less (than by 10% which is foreseen for other sectors)", he said. The Minister added that his ministry proposes to reduce the military spending taking into account the decisions of 2015 and making them valid also in 2016-2018. "That means a reduction of ineffective spending on state programs. As for military spending the percentage of optimization of this program was lower this year but the sum that we managed to cut we also want to extract from the spending in the coming years," Siluanov said.

The record slump in oil prices threatened the Russian federal budget. During trading on 02 October 2014 the price of Brent oil dropped to $92.2 a barrel, marking the biggest fall since the 2008 crisis, when the price of oil was as cheap as $38.4 a barrel. The price of Brent had fallen by 19.9 percent since June 2014. Global crude oil benchmark Brent was trading on 12 December 2014 at a five-year low of about $63 per barrel, down from $115 in June.

The decrease in oil prices negatively reflects on the balancing of the Russian federal budget, since its profit percentage is linked to oil prices. According to the Ministry of Finances, the budget will be balanced only if oil prices reach the level of $96 a barrel of Brent. However, according to an alternative study by Citigroup, in order for the Russian budget to be balanced in 2014, Russia needs a price of $105.

January 23. / TASS /. The proportion of funds allocated for the purchase of new military equipment and weapons for the Russian army, in the structure of the budget of the Defence Ministry will increase each year and by 2020 will reach 70 percent. This was reported in St. Petersburg Deputy Defense Minister Tatyana Shevtsova on 23 January 2015. "The share of the state armament program in the structure of the Ministry of Defence budget from year to year: from 37% in 2013 to almost 59% by 2017. In the long term - until 2020 the ratio of the cost of the equipment and should be 30 to 70, which will contribute to systematic renovation and development of the armed forces, "- said the deputy minister. According to Shevtsova, in 2014 the Ministry of Defense expenditures amounted to 3.7% of GDP, or 19.2% of federal budget expenditures, in 2015 year the cost will rise to 4.6 and 23%, respectively.

From 2000 through 2005, Russias 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, Russias 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, Russias 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 countrys 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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