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. Last Updated: 07/27/2016

Yeltsin's Budget Lowers Spending

The government presented to parliament on Wednesday a revised 1993 budget that calls for lower government spending, reduced subsidies for state enterprises but higher taxes on energy and agriculture.


Finance Minister Boris Fyodorov warned parliament to adopt the 40 trillion ruble ($37. 7 billion) budget quickly or risk civil unrest.


"If normal financing of budget-dependent sectors fails to start, we are bound to have strikes", Fyodorov said at a news conference.


The 40 trillion ruble budget is exceptionally low by Western standards for a nation of 150 million, partly reflecting the low value of the ruble to the dollar relative to purchasing power. The budget represents, however, about one-third of Russia's gross national product.


Fyodorov said that the budget showed the government was not pursuing a policy of shock therapy, but rather one of gradual change.


"What shock therapy can we talk about if the budget deficit is being planned at around 10 percent of GNP and most of the subsidies are being maintained? " Fyodorov asked.


This is the second time this year the government has submitted a budget to lawmakers. The first one, approved in principle by parliament in late March, was largely considered a temporary spending plan.


The new document was revised to take into account the country's inflation rate, the plummeting ruble and a renewed effort by the government at tighter monetary policy.


Fyodorov said that more stringent government controls on spending would help it control the ruble. He said the government would try to keep the currency within the range of 1, 000 rubles to the dollar for the next month to six weeks. After that, he expects the currency to fall again. The ruble, which has steadied in the past month, traded Wednesday at 1, 060 to the dollar, unchanged from Tuesday.


On the revenue side, the budget assumes a new 3-percent excise tax on the sale of coal and a 4-percent tax on agricultural products. Government subsidies to the two industries had placed the largest strains on the budget.


The budget also envisions higher excise taxes on oil and gas.


Employers, however, will get something of a tax break. The plan envisions a reduction of their contribution to the pension fund from 28 percent of an employee's salary to 21. 6 percent. Fyodorov said the fund had a surplus of 430 billion, which will not be needed immediately.


The new spending plan calls for a deficit of 12 trillion rubles ($11. 3 billion) or about 10 percent of gross national product, compared with a deficit in 1992 that hit 20 percent of GNP. In many Western countries, the deficit is usually between 2 and 5 percent of the GNP.


"You can't look just at the numbers", said one Western economist. "Of course a deficit of 10 percent of GNP is too high, but what's important is the direction they are heading in".


The plan attempts to rein in government spending, calling for a 15 percent cut in ministry budgets. Fyodorov said new laws that call for additional spending would be repealed in line with President Boris Yeltsin's decree last month freezing spending. Credits to other former Soviet republics are to be limited to 800 billion rubles ($754 million) and Fyodorov said these would be provided with interest rates that reflect those in the commercial markets. The government will also reduce its subsidies for imports.


But he added that spending for the republics within Russia would not be cut. Yeltsin is seeking the support of the independence-minded republics for a new constitution.


The budget earmarks only 3. 15 trillion rubles for payment on the country's huge foreign debt.