The state Duma will consider the budget for 2016 in the first reading

MOSCOW, November 13. The state Duma will consider on Friday, 13 November, the budget for 2016 in the first reading. This budget pretends to be the most rigid and uncompromising over the past decade. Deputies have said repeatedly that many budget items will challenge and in the first and second reading.

Not coincidentally, even before consideration of the budget in the first reading, Prime Minister Dmitry Medvedev held a meeting on amendments for the second reading, when traditionally considers the funding of specific programmes and activities. It is the Prime Minister reminded that the first reading of the budget in 2016 is on Friday the 13th. “I Hope that all goes well. However, we should discuss some bifurcation”, he said.

According to the document, the expenditure budget next year will amount to 16 trillion 098,7 billion, revenue of 13 trillion 738,5 billion rubles, the deficit – $ 2 trillion to 360.2 billion, or 3% of GDP. In the baseline scenario for 2016, the budget, next year’s GDP growth at 0.7%, inflation is projected at 6.4%, while the average annual oil price of $50 per barrel. The average annual exchange rate used in the budget for 2016, is projected to be 63.3%.

Risks and insurance

The budget for 2016 is fundamentally different from a similar document that was drafted in 2014. Next year, the government draws up the annual budget, not reviewing the forecast 2017-2018. Also for next year cancelled the effect of budget rules, according to which the maximum level of expenditure shall be determined on the basis of the average for the previous three years the price of oil.

Forecast revenues of the Federal budget is formed based on the changes of tax and customs legislation. In particular, take into account decisions about the conservation in 2016, the rates of export customs duties on oil at the level of 2015, as well as increasing the tax on extraction of minerals for gas and gas condensate to Gazprom. In addition, the revenue forecast for 2016 reflecting the additional revenues from management of Reserve Fund and national welfare Fund in the Federal budget and increase to 90% profit share of the Bank of Russia, payable to the state Treasury.

As the main source of financing of deficit of the Federal budget was the Reserve Fund. To cover the deficit from the Fund in 2016 it is planned to spend 2,137 trillion.

The newspaper “Kommersant” reported that the Ministry of Finance of the Russian Federation on the eve of discussion in the state Duma the Federal budget has assessed the key risks of its implementation worth more than 1 trillion rubles, and therefore the Reserve Fund will be exhausted at the end of next year, not in 2017, as anticipated in the draft budget. The Ministry believes somewhat overstated the Outlook on the price of oil, gas and volumes of extraction and oil export.

Before the parliamentary hearings, when lawmakers and lobbyists try to increase expenditures of the budget, the Finance Ministry traditionally assesses the risks of lower revenues.

The loans in RMB

Hoteistitania traditionally been the main source of financing the budget deficit. However, their ability will be severely limited: in the domestic financial market due to declining demand from the financial sector and the risks of deteriorating terms of borrowing on external debt markets – due to the ongoing sanctions against Russia.

In 2016 the net raising of funds on the domestic and foreign financial markets is planned in the amount 393,2 billion rubles, while net public internal debt of the Russian Federation will amount of 300.0 billion rubles, and net possibilities of raising funds on the international capital market is estimated at $1.5 billion.

In particular, the financial authorities have already announced plans to place government debt securities denominated in the yuan among Chinese investors in the middle of next year for about $1 billion.

Controversial moments

The hottest debate on the budget was about social issues. First of all, actively discussed the fate of the indexation of pensions in 2016. In particular, the most rigorous was the proposal to make a one-off indexation of pensions by 4%. But then, the budget has laid the possibility of a second indexation of pensions, the amount of which will be determined depending on the state of the Russian economy.

The second contentious issue in the preparation of the budget became “freezing” of pension savings the third year in a row. Saved by the transfer to the Pension Fund of Russia, funds in the amount of 342,2 billion roubles will go to the reserves budget. The Finance Ministry expressed the hope that they will be able to keep it until the end of next year, and then decide on the most effective use. However, social unit already talked about the fact that these funds may be spent in the second half of the year on doindeksatsii pensions to the level of actual inflation.

Another issue that caused loud arguments, was associated with changes in the tax regime for the oil industry. In particular, it is about the proposal of the Ministry of Finance on filling budget-2016 by changing the order of calculation of the tax on mineral extraction (met) for oil. These innovations would allow to receive an additional 600 billion roubles in 2016. But the proposal has met with strong negative response both from oil companies and from other ministries – Ministry of economic development and the Ministry of energy.

As a result, the Finance Ministry came out with other adjustments of the tax regime. On the one hand, offered once to increase by 2016 the export duty on oil in comparison with the level that is now set for next year: instead of decreasing to 36% to maintain it at the level of 42%, this will give the budget of 200 billion roubles. On the other hand, the Ministry of Finance proposed to amend the procedure for calculating met on gas, which will bring another 100 billion roubles of additional revenues.

The opinion of the deputies

Dmitry Medvedev in mid-October reported that all decisions on the draft budget for 2016 was taken as the result of lengthy and heavy discussions, including with representatives of “United Russia”. However, apparently, the debate will continue in November. So the representatives of “United Russia” stated that they intend to legally record a second indexation of pensions in Russia in 2016, in addition to those already provided for in the February by 4%, as well as to find funding for indexing scholarships to needy students in 2016.

In turn, the faction “Fair Russia” will vote against the adoption of the draft Federal budget for 2016, said yesterday the party leader Sergei Mironov. According to Mironov, the government proposes to Fund the state Treasury from the pockets of the middle class and the poor. In late October, first Deputy head of the Duma of just Russia Mikhail Yemelyanov said that the faction will present a first reading of your alternative, an option budget.

LDPR declared that will not support the government’s proposed budget for 2016. According to the representative of the party, first Deputy Chairman of state Duma Committee on budget and taxes Sergey Kutasova laid down by government controls are manual control, life on the situation and the inability to foresee what will be the income and, respectively, what would be the costs.

The KPRF deputies also criticized the draft budget for 2016. According to its representatives, the government unjustifiably complains about lack of resources: in fact, in Russia a lot of money – they are funds that are not used.