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. Last Updated: 07/27/2016

Kudrin Says State Spending To Grow

The government will lose nearly half of its planned revenues this year but will still increase spending by about $14 billion to support the economy and people's incomes, Finance Minister Alexei Kudrin said Wednesday.

Later in the day, Prime Minister Vladimir Putin told a government meeting that spending on Russia's four national projects -- health, education, housing and agriculture -- would continue to receive priority in spending.

Budget revenues will drop by 42 percent to 6.3 trillion rubles ($176 billion) this year, Kudrin told reporters after a meeting at the Federal Treasury. Spending will be increased by 500 billion rubles to 9.5 trillion rubles, pushing the deficit to 8 percent of gross domestic product, he said.

The figures are based on the assumption of an average oil price of $41 and a 2.2 percent drop in GDP this year, he said.

The current budget -- based on $95 oil -- has a surplus of 1.9 trillion rubles. The Finance Ministry expects to submit the revised budget to the Cabinet by March 8, Kudrin said.

The 500 billion rubles in extra spending will be part of a larger 1.5 trillion rubles worth of anti-crisis measures funded by the budget. The biggest portion of the anti-crisis money, 380 billion rubles, will go toward filling the state pension and compulsory medical insurance funds, he said.

The Reserve Fund will provide up to 2.7 trillion rubles to plug the deficit, while the National Welfare Fund will add another 255 billion rubles, Kudrin said.

Regional governments will receive at least 290 billion rubles, with half of that amount in three-year loans, he said.

Measures to support the economy will include allocating money to make sure airlines don't suspend flights, raise unemployment benefits and create jobs, he said.

The government has offered more than $200 billion in emergency funding since September to inject liquidity into the banking system and help companies refinance Western loans.

Kudrin warned against the further expansion of spending this year. "If that happens, we will not get the economy to grow but, on the contrary, will get demand and the economy to shrink," he said, Interfax reported.

As another way of filling federal coffers, state corporations Rosnano and the Housing Maintenance Fund will return to the budget 164 billion rubles that they do not plan to spend this year, Kudrin said.

Putin, in stating that the national projects remain a spending priority, said they had helped raise life expectancy and the birth rate. "It would be a mistake to waste the progress that we have made," he said.

Revenues will fall not only because of cheaper oil but also because of the shrinking collection of value-added tax, said Alexandra Suslina, a researcher at the Economic Expert Group, a think tank.

Last year, oil and gas taxes accounted for about 40 percent of budget revenues, while the VAT made up a quarter. VAT is gaining a bigger role now that oil prices have dived, Suslina said, praising Kudrin for resisting a drive by the government's fiscal liberals and big business lobbyists last year to slash the tax by a third starting in 2009.

"It is absolutely justified that he stood up in defense of the tax like that," she said. "He was right in not letting them reduce it, putting off the issue for later."

Kudrin said last week that the government would get back to discussing the VAT future in April.

Suslina and Danila Levchenko, chief economist at the brokerage Otkritie, noted that collection of the profit tax would also decline because of potentially smaller profits and the government's decision to slash the tax beginning this year.

Levchenko said he thought the budget figures would be revised repeatedly throughout the year, with expenses growing further.

President Dmitry Medvedev ordered prosecutors Wednesday to prevent any misuse of government bailout funds. "Of course, there are those who wish to use these resources in an improper fashion," he said in a meeting with top prosecutors.

Prosecutors are watching the activities of 70 banks that receive state aid, Prosecutor General Yury Chaika said at the meeting, state television Vesti-24 reported. Several criminal investigations are already under way, he said.