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. Last Updated: 07/27/2016

New 3-Year Budget Passes First Reading

The State Duma on Friday approved in a first reading the 2008-2010 budget, which will slash the hefty surpluses of recent years.

The government is moving to a three-year budget cycle from next year to ensure a smooth transition after the parliamentary election in December 2007 and the election of a successor to President Vladimir Putin in March.

"This is the budget of the diversification of the economy and lower dependency on oil and gas," Finance Minister Alexei Kudrin told the Duma.

The Duma will review the budget in two more readings, but few changes are expected. The bill will then go to the Federation Council, which will submit it for a final signature by Putin.

The ruling pro-Kremlin United Russia faction is widely expected to do well in December's elections.

Finance Minister Alexei Kudrin had earlier said the dominance of United Russia ensured a prudent budget policy.

The budget sees the external public debt, at $46.8 billion by the end-2007, falling to $43.7 billion in end-2010 while domestic debt will rise to 2.7 trillion rubles ($104.2 billion) in end-2010 from 1.8 trillion in end-2007.

The 2008-2010 budget proposal whittles the surplus down from 998.7 billion rubles ($38.56 billion) planned for this year to zero in 2010, and assumes that the price of Russia's main export, oil, will fall gradually.

The three-year budget will also deal with the widespread practice of public institutions delaying their expenditure due to bad planning and flooding the economy with cash at the end of each year when they close their books.

The debate in the parliament mainly concentrated around calls to spend windfall revenues stashed in the $113.7 billion stabilization fund, Kudrin's brainchild and an eyesore for millions of underpaid pensioners.

Under the new budget law the fund will be split next year into a Reserve Fund, amounting to 10 percent of gross domestic product and covering budget shortfalls when the oil price is low, and a National Welfare Fund.

Two main opposition parties -- Communists and remnants of the nationalist Rodina faction, which control only 56 seats in the 450-strong Duma -- mounted little resistance to the proposal.

"This proposed budget will further degrade our country," Communist party leader Gennady Zyuganov said. He proposed spending the windfall on subsidizing mortgages and loans to enterprises instead.

Vladimir Zhirinovsky, leader of the ultranationalist Liberal Democratic Party, which uses opposition rhetoric but votes in favor of Kremlin policy, said half of the Reserve Fund should be spent.

"This money should go to housing, salaries, pensions, family subsidies and roads," Zhirinovsky said.

Kudrin, the Cabinet's leading fiscal hawk and a close ally of President Vladimir Putin, said the criticism of the draft budget amounted to criticism of Putin's policy. "Our government does not make key decisions without the president," Kudrin said.

"Shame on parties proposing decisions which can lead to increased risks for our country, which is so dependent on oil and gas."