OREANDA-NEWS. December 20, 2010. Mr Putin and Mr Kudrin discussed the federal budget over 11 months of 2010, as well as the public-sector in the Russian regions.

Transcript of the beginning of the meeting:

Vladimir Putin: Mr Kudrin, please tell us about the administration of the budget in December and your work with the regions.

Alexei Kudrin: Mr Putin, the administration of the budget is currently going quite well. Since the beginning of the year, the 11-month revenue of the constituent entities has increased by 13%, or 666 billion roubles year-over-year. Also, some tax revenue, which had fallen during the crisis, has now risen significantly. For example, income tax revenue increased 45% year-over-year. This increase yielded 434 billion roubles for the constituent entities. Excise tax revenue increased 34%. This yielded another 75 billion roubles for the constituent entities. Revenue grew steadily from individual income tax (6%) and property tax (10%). The constituent entities' revenue base is doing well this year.

Federal aid to the constituent entities over these 11 months and has already amounted to 1.283 trillion roubles.

Vladimir Putin: How is the Ministry of Finance responding to these positive developments in the public sector in the regions?

Alexei Kudrin: Of course, we asked the constituent entities to plan rather conservatively for this year. We evaluated the situation even more conservatively. Therefore, the constituent entities planned their budgets rather precisely, and now many jurisdictions have a surplus, which they will use in planning next year's budget.

Vladimir Putin: And are you somehow adjusting their fiscal relations?

Alexei Kudrin: This means that it took less money to balance the budget this year. But nonetheless, because of this line item, we had to allocate more funds in our effort against fire and drought. The result was a savings that we did not allocate in support of the most common and current solutions. These funds went to support the regions affected by drought and the fires. Consequently, we redistributed those resources and did not apply them to regular, ongoing support for the constituent entities.

Budget expenditures on average grew by 7%. Our budgets are currently mostly in surplus. There were only 15 regions with budget deficits. Last year, at 11 months, there were 24. The loans that the constituent entities took out last year have been partially repaid this year, partly due to these additional revenues. We can say that during this year and next, the key burden that the constituent entities assumed in the form of loans last year will gradually dissolve.

Therefore, we consider this a positive development. But there is one indicator that makes us a bit anxious – investment in the regions. Over 11 months, the constituent entities reduced investment by 9%, i.e. by 71 billion roubles. Given all of these additional revenues, the running costs, which include inflation and tariffs that still have to be paid, the is still pressure on.

As of January 1, the constituent entities will have to pay higher insurance premiums for their state employees. Therefore, starting in January, some constituent entities will have to maintain a certain margin of safety to easily pay for the public sector and administer the routine indexing of wages next year, something which wasn’t done this year. So I think that the surplus that will accumulate by the end of the year will be needed early next year for the insurance premiums and the indexation of wages to maintain a stable social payment schedule.

Given the problems in a number of constituent entities, we will draft a regulation on the use of the funds to balance the budget, to help particularly needy constituent entities, where there are projects that were unable to be completed as planned because of the crisis.

We see constituent entities that we will be able to assist by putting key social facilities into operation later this year. These include, above all, the Arkhangelsk Region – by the end of the year, we plan to put a new medical centre into operation and upgrade the region's cancer centre with new medical equipment.

Vladimir Putin: Four hundred million roubles?

Alexei Kudrin: Four hundred, even 409 million roubles. We will also offer assistance to the Kaliningrad region with heating and fuel for the winter, now that we have identified this problem.

At the Molot plant in the Kirov region, something you consistently monitor, the restructuring of the tax burden remains a last resort. We eventually decided to provide the plant with 77 million roubles thereby eliminating the tax burden – and it will not even need restructuring. We'll just write off the plant's debt so that it can start a modernisation program.

The Republic of Ingushetia requires 170 million roubles in subsidies. The design and construction documents for the new development programme in Ingushetia also need to be completed.

These are precisely the issues that we will have time to solve at the end of the year due to the current surplus. We have submitted the requisite draft orders to the Government.

Vladimir Putin: Alright. And how do you rate the administration of the federal budget as a whole?

Alexei Kudrin: In this case, the administration of the federal budget has overshot the projected income. Well, it was higher than projected in February, when we made the additional assessment for this year. We will gross an additional 225 billion roubles. But I always misspeak when we talk about additional revenue when we have a budget deficit.

Vladimir Putin: I know.

Alexei Kudrin: The deficit remains high, and we need to deal with it during our transition out of the crisis. Any deficit in Russia more than 2% is considered excessive. This year, an increase in additional revenue will reduce the deficit from our last assessment of 4.6% to about 4.3%. But nevertheless, it will still remain quite high.

Vladimir Putin: You know that the forecast for the budget deficit by your colleagues from other departments is more favourable – from 3.5% to 3.8%?

Alexei Kudrin: Yes, and I believe they are mistaken. We even thought that it would be 5.3%. Taking into account the revenue, it's closer to 5%, but given the fact that the ministries and departments will save or not spend all the funds – we estimate about 180 billion roubles in total – all these measures yield an estimate of 4.3%.

Vladimir Putin: Mr Kudrin, who named you the best finance minister in the world?

Alexei Kudrin: Euromoney magazine.

Vladimir Putin: This is the expert community's assessment for the year.

Let's see the results of your discussions with your colleagues – who's better? The Finance Ministry or the Economic Development Ministry? Who will be more accurate?