BOFIT Viikkokatsaus / BOFIT Weekly Review 2018/20

Prime minister Dmitri Medvedev's initial assessment of president Putin's May Decree is that implementation over the next six years will cost about 25 trillion rubles (€360 billion). The bulk of this spending is already incorporated into federal budget planning, but Medvedev estimated that supplemental spending of around 8 trillion rubles is still needed (a nearly 10 % increase in the estimated total federal budget expenditures over the next six years). In other words, extra annual spending would average 1.3 trillion rubles (an increase of €19 billion or about 1 % of GDP).

The daily business paper Kommersant reports that the finance and economy ministries have sketched the costs for the 13 national projects to be created for implementing the May Decree. The largest expenditures would go to roads (an average of 1.4 trillion rubles a year), demography (600 billion rubles), infrastructure (300 billion rubles) and digital economy (220 billion rubles). The biggest annual spending increases are planned for healthcare (220 billion rubles a year), roads (210 billion) and digitalisation (170 billion). The May Decree did not mention defence, but spending under the recently accepted 2018–2027 armaments programme is estimated at 19 trillion rubles, or an average of 1.9 trillion rubles a year.

It is still unclear where the money to fund supplemental spending on national projects will come from. In principle, money should be raised by increasing either non-oil revenues or cutting spending in other budget categories, since under the new budget rule all revenues from oil price exceeding the target of just over $40 a barrel should be set aside as savings. Additional revenues are hoped to be raised e.g. through higher economic growth or improved tax collection. Raising the retirement age has been suggested as one way to save in spending.

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