The Ministry of Finance to review implementation of tougher rules regarding fiscal discipline
The RF deputy Minister of Finance, Ms. Oksana Sergienko, in her presentation given at the conference Moneymarket in Moscow briefed that the RF Ministry of Finance plans transition to the formation of non gas and oil budget balance which will require either to cut budget expenses or to raise revenues by way of tax hikes.
Ms. Sergienko noted that the Ministry of Finance is proactive in reviewing proposals made by experts designed to return to tougher rules regarding fiscal discipline, ie: determine average oil price, for example, for the last 10 years (for Russia it’s 50 bbl/USD), and revenues above this average price level direct to the saving funds.
To our opinion, this initiative of the Ministry of Finance corresponds to the requirements of the conservative approach to determine acceptable level of their expenditure which ensures budget stability.
It’s obvious that currently oil and gas transfer which value is tied to the GDP doesn’t sufficiently ensure fiscal discipline at the safe from the budget balance point of view level. As a result, in order to increase efficiency of the current procedure for the use of volatile revenues directed for financing budget obligations, it seems expedient to add a rule restricting budget receipts obtained from the distribution of proceeds from extraction tax and export duty on crude oil as a factor with puts on hold the growth of federal budget expenses at the planning stage.
In other words, the value of gas and oil transfer should be restricted not by the volatile proportion to the GDP but by threshold amount of oil price fixed for the period of budget planning (i.e. for three years). All oil proceeds above the fixed threshold amount (its amount can be set parting from average for the upcoming three year period oil price in conservative scenario of socio-economic development of the Russian Federation) should be directed to the oil and gas funds (Reserve Fund and National Wellbeing Fund) in compliance with the terms and conditions for the remittance of funds. Financing of budget deficit should be exercised by the resources of the Reserve Fund solely in case of shortfall of budget revenues resulting from the fall of the oil price below certain level stipulated in the macro forecast which served as a bases for calculation of main federal budget parameters.
To our mind, this approach ensures budget stability, by way of stabilizing the level of public revenues at the stage of budget planning.
I.А. Sokolov – Head of Budget Policy Lab, PhD (economics)