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Moscow Times
June 21, 2004
Social Spending Takes a Back Seat
By Oksana Yablokova and Francesca Mereu
Staff Writers

Despite President Vladimir Putin's promises to make fighting poverty a priority, the breakdown of next year's $100 billion draft federal budget shows a different picture.

Spending on defense, law enforcement and national security will rocket by 19 percent to swallow up close to one-third of the budget, while education, health and social security's share of government spending will fall to just over one-tenth.

In his state of the nation address to lawmakers last month, Putin said his main objective for the upcoming years was to raise ordinary Russians' living standards.

But the draft budget approved by the Cabinet on Thursday shows that security-related spending will continue to grow at the expense of social expenditure.

With a combined budget of 908 billion rubles ($31.3 billion), defense, law enforcement and national security will account for 31.1 percent of the 2.92 trillion rubles ($100 billion) of total government spending.

Meanwhile, the share of education, health and social security in the budget will fall from 13.3 percent to 11.5 percent.

Education spending will be hit particularly hard, falling 20 percent year-on-year.

Law enforcement and national security spending will rise 19 percent to 388 billion rubles, from 326 billion rubles this year, while defense spending will reach 519 billion rubles, also up 19 percent on this year's spending of 435 billion rubles.

The draft budget, which is due to be finalized by August, calls for spending cuts in real or absolute terms in health, education and social security.

Spending on education will fall from 122 billion rubles to 101 billion rubles, a cut of 20 percent in absolute terms.

Spending on health, which is bundled together with sports in the draft budget, will rise by just over 1 billion rubles to 49.7 billion rubles in 2005, while social security payments will rise by 3 billion rubles to 154.5 billion rubles.

Some analysts said they see a clear contradiction between the budget and the goals outlined in Putin's address, while others said poverty reduction could be achieved by helping businesses to create jobs.

"The only conclusion to be drawn here is that the real policy has nothing to do with the presidential address and the goals stated in it," said Georgy Satarov, head of the Indem think tank.

"One cannot combat poverty and raise living standards of the country's people without starting to spend more on them," Satarov said.

Yevgeny Gavrilenkov, chief economist at Troika Dialog, said that the money allocated for social expenditures this year is roughly the same as last year.

But even with modest social spending, the government could still fight poverty by creating a good business environment, he said.

"Fighting against poverty does not mean offering people free services, but creating conditions under which people can earn more money, i.e. to create more jobs. This is the only way," he said.

"We'll see if the government is able to do that," he added.

Natalya Orlova, chief economist at Alfa Bank, said the most important thing was "how the money is distributed, not how much is spent."

"Clever distribution of social expenditures could help in the fight against poverty," she said.

But Satarov said that targeting social security payments was not a proven way of combating poverty.

"There is no confirmation of it yet, and we might never see one," Satarov said.

Oleg Shein, a State Duma deputy with the nationalist Rodina bloc and an expert on social and labor policy, said that the government's policies were hitting the poor, not fighting against poverty.

"Our government is fighting against poverty by reducing people to poverty," Shein said.

Shein said the first stage of the fight against the poor will be on July 2, when the Duma is expected to give a first reading to a Kremlin-backed bill to replace health, transportation and other benefits for socially vulnerable sections of the population with non-indexed monetary payments.

The bill caused fierce protests throughout the country last week, with thousands protesting against the measures in Moscow and around the country.

With large pro-Kremlin majorities in the Duma and the Federation Council, the budget is likely to be signed into law by the president by the end of the summer.