Prime Minister Dmitry Medvedev holds a government meeting


Dmitry Medvedev states the need for the creation of the national budget website. Medvedev said: “Our people have the right to know how the state funds are spent, how the federal budget is formed and how the federal budget funds are spent.”

Transcript of the meeting:

Dmitry Medvedev: Good afternoon everyone. Please take your seats.

Esteemed colleagues, before we start discussing the agenda, I’d like to say a few words about a series of events that I have held with a big group of government members in the Far East. They were useful and, in my opinion, very interesting.

In the last few years the government has made a considerable investment in the development of our Far East. We have spent almost 305 billion roubles in the past five years just on the relevant targeted programme. We will spend another 73 billion roubles for the same purpose this year and another 43 billion in 2013. These are big sums and should produce the expected results. Ministers must continuously follow up on the effectiveness of this spending and personally visit the regions involved. I have given them a number of instructions to this end. Many of them have to do with the development of transport, which is critical for the Far East.

I’d also like to tell you about my decision to hold a large separate meeting on regional aviation. This issue is very important for Russia. Air travel between our regions is very poor and becoming worse with every passing year. We must adopt serious, effective programmes to improve this.   

I’d also like to return to a number of issues we discussed some time ago, in particular, the transfer of the Defence Ministry’s facilities to municipalities. I issued an instruction to complete the elaboration of relevant methods. Finally, on July 2, these methods were endorsed and I hope they will change things for the better.

In addition, it is necessary to reduce the number of documents required for the use of land for the construction of social facilities, housing and infrastructure. This is a difficult subject – there are many complaints and reprimands. We must prevent government decisions from being brought to the point of absurdity in the regions. I’d like to emphasise to the Defence Ministry and other departments that this work must be properly organised.

The law on government and municipal public services came in force on July 1 as well. I hope that now people will spend much less time queuing for documents in order to receive childcare benefits or a permit for construction. All other documents, or basic documents, must be requested and obtained by officials themselves, without any applications. Of course, this mechanism will have to be improved before it becomes effective, but I hope that the authorities, which were unable to make the necessary technical preparations for this, must ensure inter-agency cooperation in any way possible until they adopt an adequate algorithm because the law has come into effect.

Now, regarding today’s agenda, we must approve the main guidelines of the budget policy for three years as well as the key parameters of the federal budget. We are guided in this by the priorities formulated in basic documents, including budget addresses and priorities that ensure macroeconomic stability, and a balanced and sustainable budget.  

The efficient use of budget mechanisms in order to modernise the economy and promote innovation-based economic development remains a priority. Special attention will be paid to transferring the budget into a programme (we have agreed on this) and to the development of government public services. Work to improve inter-budget relations and ensure the transparency and openness of the budget process will continue.

As in past years, we are forming a socially oriented budget and we will fully meet our commitments in education, healthcare and welfare services, and of course, we will continue our work to make social assistance more targeted and to strengthen social protections for maternity and childhood – we will support families with children, and naturally, we will support people with disabilities and focus on improving our pension system. 

I want to add more detail on some areas. First, experts consider next year’s budget to be harsh, and not without reason. And not because we are sequestering spending in any significant way but because we are accurately assessing our revenue and will distribute it efficiently based on the budget rule regulating the limit of oil and gas revenue. Without a doubt, this is a new approach and a serious financial instrument that will make it possible for us to minimise the dependence of the budget system on volatile hydrocarbon prices and maintain domestic stability; it will make it possible for us not just to add cash to the Reserve Fund and the National Welfare Fund, but also if necessary (and it can happen) to have additional funds for implementing state programmes and all current social obligations.   

In 2013, budget receipts are expected to reach 12.3 trillion roubles, and spending is expected to be 13.4 trillion roubles. So we expect a budget deficit of 1.5% of GDP, however we can expect to balance the budget by 2015. Ultimately, this will depend on the overall situation in global economy and the situation in our domestic economy.

The second point I’d like to make is that among seven key guidelines for the government that I listed in our first meeting I included the target-programme principle of budget formation. We must agree and adopt 18 state programmes by the end of 2012. We are to adopt the remaining programmes in the first six months of 2013. We must make every effort to introduce amendments in the Budget Code and, starting in 2014, begin forming and implementing the federal budget in a programme format.

Third, regarding  budget funding to support social policy. These allocations will grow and will exceed 4 trillion roubles in 2014. The government should make every effort to make healthcare accessible and good quality, and it should be free. We should completely transition to insurance-based delivery and payment of medical services and develop competition in this area. In 2013, spending on healthcare will exceed 500 billion roubles. State spending on healthcare will not go down in the coming years. And, of course, we should continue to modernise the education system to improve the accessibility and quality of educational services. I’d like to stress that school education has been and will continue to be free. Now and then we hear strange arguments on this score: we have no plans in this respect, nor should we.

Programmes for improving the material and technical situation and reorganising many facilities will be implemented. The approaches and attitude to education and people working in this sector ought to change. A lot has been done here, many projects in this area have been concluded: nevertheless in 2013 spending on education will total practically 550 billion roubles.

Fourth, another very important issue that concerns millions of our people – raising the wages of specialists working in education, science, healthcare, social services and culture. I’d like to stress that this is being done with funds from budgets of all levels, and these decisions will be implemented. It is necessary to transition to an efficient employment contract with salary terms and the social package dependent on the quality and volume of work.

The fifth point that I’d like to make is that while we have a relatively small budget deficit, the non-oil-and-gas deficit remains rather high, although thanks to our budget rule and approaches to budget formation, it will equal 10.1% of GDP in 2013, and 8.6% of GDP in 2015. However, all this shows that Russia’s economic dependence on global energy prices continues, therefore the three-year budget priority remains the financial support for large-scale economic transformations and forming a new growth model. The ultimate objective of this model is to secure an adequate position for Russia on the international market not only as a supplier of energy and raw materials but also as the holder of intellectual property rights.  

The priorities include programmes for the modernisation of our economy and its structural transformation, the transition to high-tech production, as well as programmes for the development of transport infrastructure, education and science. The key condition here is comprehensive funding of competitive research and development. Budget allocations should be channelled for the development of Russia’s science potential and the creation of intellectual property. In 2013, funding of civil science will equal 320 billion roubles.

The sixth point that I want to highlight is the implementation of measures on state support of small and midsize businesses. Planned allocations amount to almost 22 billion roubles, and comparable figures, a bit more, in 2014-2015. It is necessary to provide access to financial resources for small and midsize companies that will lead this economic modernisation.  

I also want to note that the next budget period coincides with the beginning of the state programme of agricultural development and regulation of agricultural markets. The budget allocations for the relevant programme will amount to roughly 145 billion roubles in 2013. As far as Russia’s accession to the WTO is concerned: we plan to include allocations in the 2013 budget for the most vulnerable agricultural and other economic sectors.

Eighth. Currently we are transitioning to the next stage of development of inter-budget relations, including subsidising state programmes according to the principle: “one programme – one subsidy.” We must handover functional powers to regions and fix their sources of incomes, thus increasing the responsibility of regions for inefficiency in executing their current authorities or the newly transferred authorities. 

Ninth. Our defence, security and law enforcement spending is growing considerably. Its share of total spending is very significant – practically one third. Budget allocations will be channelled to both the development of the Armed Forces and modernising the military-industrial complex of the country, to raising salaries and pensions of servicemen, other individuals and the further improvement of military service in this country.

And finally, the last point I want to touch on in my opening remarks: to ensure an open budget process we need to create a national budget website offering accessible information on the budget process to all interested people. Materials on budget receipts, every level of budget spending, budget deficits, budget surpluses, on meeting financial liabilities should be informative and understandable for the public at large. Our people have the right to know how the state funds are spent, how the federal budget is formed and how the federal budget funds are spent.

Now let’s begin our discussion of the first issue – drafting guidelines for the budget policy and the main parameters of the federal budget for 2013 and for the period of 2014-2015. Mr Siluanov, the minister of finance, please go ahead.

Anton Siluanov: Mr Medvedev and colleagues, here are the guidelines for the budget policy and main parameters of the federal budget for 2013 and for the 2014-2015 planning period.

These parameters have been formed to reflect the decisions taken by the budgetary commission, which discussed the main parameters of the federal budget for the upcoming three-year period and established its levels with due account of the budget rules, which Mr Medvedev mentioned in his opening remarks and which the State Duma discussed in the first reading today. The State Duma was unanimous about it except one party. All parties supported the concept of our proposal with regard to budget rules, which we believe is crucially important for the further development of the budget policy.

I will be using an iPad presentation during my remarks, so please make sure you are using yours, too. Slide 2 shows key macroeconomic indicators that were used in preparing the federal budget. Importantly, here we can see the difference between the price of oil that we have in our macroeconomic forecast (the third line), and the price that we have derived based on our budget rules. Therefore, tough budget restrictions that are laid out for the next three years are due to applicable budget rules. In fact, the rules show that the price of oil under these rules will amount to $92-$94 per barrel in 2013-2015, which is slightly above current prices. We do not really know what oil prices will be like, but nevertheless we have to remove risks from the federal budget.

The next slide shows a key of federal budget figures. As we see, fiscal rules and three-year budget projections show a decrease in the budget deficit from 1.5% of GDP in 2013 to almost zero in 2015. Importantly, we will manage to reduce the non-oil-and-gas deficit that Mr Medvedev mentioned in his remarks from 10.6% this year to 8.6% of GDP in 2015.

The fourth slide shows budget figures with regard to the GDP. We see that total revenues in 2013 will amount to 18.8% of GDP, spending will total 20.3% of GDP and the deficit will run at 1.5%. In other words, we can see that spending is even a little higher than before the crisis. As we were implementing anti-crisis measures, we increased social support to certain social groups and businesses. Therefore, our goal now is to achieve pre-crisis budget figures and reduce the non-oil-and-gas budget deficit, which has run fairly high in the post-crisis period.

The next slide shows nominal gains in federal spending. We see that the growth in 2013 will amount to 642.2 billion roubles. At the same time, the level of spending will not change in real terms in 2013 as compared with 2012, but will increase slightly in 2014-2015. Nevertheless, we see that this increase in spending has already been taken in account in the 2013 federal budget law... However, in order for us to be able to include this increase and the bulk of expenses in these indicators, we need to carry out appropriate structural reforms.

We see that it will be difficult to include public regulatory commitments into the current budget, but it must be done as we proceed with the implementation of structural reforms. This is exactly what will help us achieve a balanced budget; therefore it makes no sense to consider increasing budget spending.

This is exactly what slide six shows. We can streamline only the numbers shown at the top of the column that include our spending commitments, such as subsidies to the economy, investments, government purchases and other operating costs.  We cannot cut spending that shows in the lower parts of the columns that includes wages, salaries, social benefits, public transfers and budgetary funds.

What does this slide tell us? In 2011, the amount of spending that we could reconsider or revise stood at 30.1%, whereas in 2013 it is down to 23.9%, and in 2015 to 23.1%. These calculations include the proposals on streamlining spending which we discussed with you at the budget commission. Had we not carried out the optimisation, the amount of the costs that are not subject to cutting would be much greater. This is shown on the slide by the red dotted line: in 2015, 85.8% of spending would be strictly conditioned, and we wouldn’t be able to implement new measures. Therefore, this slide tells us that any additional spending should be financed from the funds saved during structural reforms within the existing significant amount of budget commitments.

The seventh slide shows our spending structure under budget classification sections. This structure includes proposals for streamlining budget spending. We see that the bulk of the spending goes to national defence, national security and social policy. Budget cuts are in place for education, healthcare and physical culture and sports. Why is that? In education, this is due to the completion of co-financing of regional programmes to increase teachers' salaries. I am talking about the 20-60-40 billion rouble programme.

A number of other programmes end here – for academic personnel and priority research; in healthcare there is a gradual transition to financing within mandatory medical insurance; that’s how budget expenses are cut and why insurance premiums go up. Allocations for national projects, on wages to the base level also end in the coming three-year period.   

Why are there cuts in physical education and sport? Because the Olympiad and Universiade preparation activities are winding down; they were included in the 2012 and previous year’s [budget].  The general structure for expenses is also presented on the eighth slide. Please look at this; it’s about the cost structure. The largest volume of expenditures, as we said, is for the social policy and for providing defence and security. In fact our priorities are the priorities of the Russian Federation when the federal government is responsible for the issues of the national defence and security. Meanwhile the issues of healthcare and education lie within the competence of the constituent entities. While we say they are cut in the federal budget, the consolidated budget forecasts an increase.  

Let me give you some numbers. Education expenses in the consolidated budgets of the regions in percentage points of the GDP for the current, 2012, year are 4%, next year they are planned to reach 4.2% of GDP. If this year’s expenses on healthcare in the consolidated budget are 3.6% of GDP, next year the number will go up to 3.7%.  We can see this in the other sectors as well since the majority of expenses on state social priorities has been transferred to the constituent entity level, and it is there that resources are concentrated for these purposes, and it is there that expenses in those areas will grow.

The ninth slide shows the volume of investment expenditure. This issue is on today’s agenda. It should be noted that we based our calculations on the volume of investment stipulated for the coming three years, 2012-14.  We have indexed the investment volume for 2015 using a deflator index, however, the total volume remains the same with the exception of a 5% cut on procuring goods, works and services for state needs in accordance with Vladimir Putin’s election articles. 

The tenth slide shows the budget manipulation used to calculate budget parameters. This has already been discussed with the budget commission and is presented here for reference. Here you can see numbers indicating an increase in budget allocations, primarily to implement the зresident’s executive orders, on additional decisions for the long term taken in the current year as well as proposals on streamlining expenses related to both the realisation of the pension reform, the transition to <inaudible> on a number of social benefits, deferring some expenses to later periods, cancelling subsidies on certain positions of the constituent entities, and a number of other issues that we feel are necessary to implement in the short term. Well, in fact, Mr Medvedev, we have to prepare draft legislation on a number of issues for the draft budget to be propped up by prepared legislative acts or projects agreed upon by the Russian government as it goes to the State Duma for approval.  

What are our immediate tasks? First of all, as financial resources are distributed by the Finance Ministry to the respective ministries and agencies, it is crucial to ensure the concentration and allocation of funds to priority tasks, primarily the president’s decrees and laws, as well as ongoing obligations or obligations undertaken by the state. If we see that we lack funds for extra expenditure obligations, colleagues, then we need to prioritise expenses, i.e. the necessity to identify priorities which would mean shedding some other, less important tasks.

The next task, as we see it, is submitting proposals to the Government of the Russian Federation on amendments in legislative and other regulating acts to ensure the realisation of proposals on streamlining the expenses of the federal budget and the budgets of the state budget funds (foundations). We have already discussed this budget prioritising at the budget commission as suggested by the Finance Ministry. But each ministry should independently determine their priorities for the coming and following years, which expenses can be deferred and which can be expedited. This is why we wait for the legislative acts to be prepared which could either stop or specify the expenditure obligations currently in effect, to fit into the budget parameters approved by our budget commission. That’s why we believe that extra money, extra funds should be allocated exclusively to the reforms that have to be prepared today and should be realised as soon as next year.

We are now in a completely different situation: we cannot increase the budget by a trillion roubles every year as we did before. On the contrary, we are in a situation where we have to cut, streamline our budget obligations so as to decrease risk and cut that large non-fuel related deficit we spoke about at the beginning of today’s government meeting. 

When preparing federal targeted programmes for major construction projects, the non-programme facilities of the Federal Targeted Investment Programme, we have to be guided by the priorities approved by the government.  Andrei Belousov will make a report in the investment component. We really have a situation where the amount of investment expenditures approved by the Ministry for Economic Development is several times bigger than the budget parameters. But our tasks will be to identify the priorities among those expenditures or among the current expenditures and to include those priorities in the redemptive distribution of those limits of the budget commitments that we will present to you after today’s government meeting.    

The next task, we believe, in the investment area is the need for a greater application of the project principle of realising investment expenditures, i.e. not to provide the complete funding for an investment when it can be financed, where private investors can be attracted and where loans, not budget funds, can be used. Unfortunately, we have not used these kinds of mechanisms enough of late. We think this is the right approach, and it will allow us, among other things, to save budget funds. 

The next task as we see it is the necessity to design road maps for institutional changes that will correlate the implementation stages with the transfer to the new wage systems when developing state programmes aimed at increasing the efficiency of education, science, culture and healthcare. In other words, we first have to implement the reforms and then increase the financing. We can quote the Budget Address where a need for a transition to the effective contract is stated, and that transition should be related to specific structural institutional changes in the social sphere aimed at increasing the efficiency of expenditures in those areas.

And, Mr Medvedev, we really have large reserves: if we look at the number of employees in the budget sector, we have the largest employment per 1,000 people. I can quote some numbers: in Russia there are 107.9 people per 1,000 employed whereas in the developed countries this number ranges from 30 to 90, and in the emerging economies from 30 to 60. The same is true for the number of students per teacher, the number of doctors per 1,000 people: we still have reserves that can be used to increase efficiency and labour productivity with regard to the budget. This is what we should focus on now.  

Dear colleagues, the budget, the budget parameters have been compiled with the budget rules in mind. The task facing us today is to cut budget risks that are related to international economic activity.  These risks can be decreased only without recourse to increasing expenditures, by limiting ourselves in expenditure commitments. Changes in budget strategy are needed for that. I think it’s better to do it today rather than tomorrow when the external economic situation will be unclear, and tomorrow we’d have to cut through living flesh as they say.  That’s why I believe that taking into account the limits of budget commitments that will be done after the government meeting, it is necessary to review the volume of funds that each ministry has, to determine priorities, to include the major tasks that should be solved by the government of the Russian Federation, and to present to the government proposals on correcting the expenditures.

Dear colleagues, since our budget has been set according to the budget rules and we have expenditure limits, I think there are no grounds to hope that any extra expenditures can be added within the framework of the discussion procedure. And I believe that you should fit your goals into the limits of the budget commitments that will be presented to you within the framework of the budget parameters that are being discussed by the government today. I would ask you to approve these parameters and use them when identifying expenditure priorities. Thank you.

Dmitry Medvedev: Thank you, Mr Siluanov.


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