Gaidar Institute and the RANEPA Prepared Joint Comments on Draft Federal Budget in 2016.

In 2016, further reduction of the total volume of federal budget revenues to 17.5% of GDP from 18% of GDP in 2015 which is much below the level of budget administration in 2014 (20.3% of GDP) is planned. It is to be noted that a decrease in the revenues takes place due to reduction of oil and gas revenues in a situation of falling global prices on oil.
At the same time, non-oil and gas revenues are quite stable. The total volume of expenditures which is to grow somewhat on the basis of the results of 2015 to 21% of GDP from 20.8% in 2014 will, on the contrary, slightly fall to 20.5% of GDP in 2016. In 2016 the budget deficit will remain at the level of 2015, that is, 3% of GDP; nearly all the deficit volume (about 2.7% of GDP) is expected to be covered by means of the Reserve Fund.
Generally, the draft federal budget presented by the Ministry of Finance and submitted by the Government to the State Duma is fairly justified in terms of general parameters. With lack of responsible and quite conservative fiscal policy, the draft budget could be much worse and become the source of serious budget risks and, eventually, macroeconomic risks, too. However, the draft law has some disadvantages as regards individual measures related both to revenues and expenditures.
As regards tax measures, a more justified approach would consist in a switchover to accelerated implementation of a “tax maneuver” in the oil industry (for example, a transfer of the severance tax rates initially planned for 2017 to 2016), rather than its partial “freezing” (under the draft law the export duty rate on oil will remain at the level of 2015). Also, growth in a tax burden on the oil industry due to the severance tax ensures influx of additional revenues to the budget without putting on a halt the recovery of the Russian oil refining industry (that is an economic objective of the “maneuver”) and even speeds it up a great deal.
As regards expenditures, some negative changes in the planned dynamics can be identified both in the aggregate program structure and by functional classification. It is to be noted that in terms of correlation of “productive” and “nonproductive” expenditures the planned reduction of expenditures in nominal terms on education and healthcare causes concern (which justifies a decrease in expenditures on the New Quality of Life aggregate program line) with insignificant growth – though below the forecasted rate of inflation – in expenditures on national security, national defense and federal issues.
Also, it is noteworthy that the Government has at its disposal broader and unutilized set of instruments for funding the budget deficit by means of commercial loans in a situation of a relatively small volume of the state debt (by the end of 2015 it is planned to amount to 15.6% of GDP). In such conditions, they may spend less resources from the Reserve Fund (taking into account uncertain prospects of improvement both of the macroeconomic situation and the global prices on energy commodities) and borrow more in rubles on the domestic market (attraction of foreign loans in the current foreign economic situation may be complicated).