:: Russia - 2010 Budget Protects Social Outlays

The government on Thursday approved a draft budget for 2010 that sees deep cuts in key areas while dramatically boosting social spending.

In total, a list of 56 federal programs received 30 percent cut in funding, including a 57 percent decrease in a program for transportation infrastructure and a 70 percent cut in spending on rural development.

Instead, the government will focus on social spending, devoting a whopping 70 percent of the budget to welfare programs. And a planned 36 percent increase in pensions will mark the biggest rise in retirement subsidies in the country’s history.

“We chose to increase the deficit rather than cut expenses, as it would, first of all, lead to a sharp drop in the level of social support for Russians, as well as the suspension of anti-crisis measures and development programs,” Prime Minister Vladimir Putin said at the Cabinet meeting Thursday.

The 2010 draft budget foresees a deficit of 3.2 trillion rubles ($100 billion) in 2010, or 7.5 percent of gross domestic product. The figure is expected to drop to 4.3 percent in 2011 and down to 3 percent the next year.

“A deficit at this level will not do any harm to the country’s macroeconomic stability,” Putin said of next year’s budget. Budget revenues will total 6.6 trillion rubles, while expenditures will amount to 9.8 trillion rubles.

To cover the deficit in 2010, 1.7 trillion rubles will be taken from the Reserve Fund, which will almost exhaust it, and 681.7 billion rubles will be taken from the National Welfare Fund. The Finance Ministry also plans to borrow 844.1 billion rubles in Russia and issue 649.7 billion rubles of eurobonds next year. (Story, Page 5.)

Among key new budget priorities are federal programs for the development of nuclear technologies, digital television and the economy of Ingushetia, Putin said. “The Ingush economy and social sphere need our additional support,” he said, singling out no other region.

Putin demonstrated his support for the republic on Thursday by visiting the convalescing leader of the region, Yunus-Bek Yevkurov, in the hospital, where he wished the Ingush president a happy birthday and gifted him a ceremonial dagger.

“Here’s a gift for you. True, it wasn’t made in the Caucuses, but it’s a pretty thing,” Putin said at the hospital. Yevkurov was wounded in an assassination attempt in Ingushetia, a restive southern region plagued by terrorist bombings and kidnappings.

Overall expenses in federal programs, which are designed to spur development in socially important sectors, fell to 700 billion rubles from the 1 trillion rubles previously planned. Funds for the federal transportation program fell to 219.6 billion rubles from 507 billion rubles, and spending on rural development programs dropped to 7.7 billion rubles from 24.1 billion rubles.

“The expenses on national defense and security remain almost in full as planned,” Putin said at the Cabinet meeting. The budget for federal security programs, however, has been cut by 14 percent to 81.8 billion rubles, the government said on its web site.

“A few hundred billion rubles will be spent on anti-crisis measures next year, “Finance Minister Alexei Kudrin told reporters after the Cabinet meeting. The government reserved 250 billion rubles for bank capital injections, and another 10 billion rubles for loans to single-factory towns. But overall funding of anti-crisis measures will account for 0.8 percent of spending, down from 9.1 percent, according to the draft budget.

Oil will continue to fund a large part of expenses, standing at 30.1 percent of spending in 2010, which is expected to increase to 36.4 percent in 2012.

State coffers will also benefit from additional revenues of 96.1 billion rubles from increased excise taxes and duties, including 63.8 billion rubles from excise duties on beer.

The Finance Ministry will be negotiating all the budget expenses in detail for the next two months. By Oct. 1, it has to submit the budget to the government.

Putin told all ministries on Thursday to present their optimization programs to the government before Nov. 1.

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