Background material for the June 30, 2008 Government meeting

The following issues are scheduled for discussion at the Government meeting on June 30, 2008:

1. The draft guidelines for budgetary policy for 2009 and the planning period of 2010 and 2011 and on the main characteristics of the federal budget for 2009 and the planning period of 2010 and 2011.

The goals of budgetary policy

The budgetary policy for 2009-2011 is aimed at promoting the social and economic development of the Russian Federation and creating the basis for improved quality of economic growth.

The following are the main goals of the budgetary policy in 2009-2011:

1. Preservation of budgetary policy as the key instrument of macroeconomic regulation. Medium-term budgetary policy must be aimed not only at sustaining a balanced budget, but at ensuring balanced development of the economy as a whole.

2. Enhancing the role of the budget in stimulating the long-term growth of the economy and raising living standards. Making the budget more stable in the context of an unpredictable global economy.

3. Creating tax incentives for more investment in human capital, including in the spheres of education, healthcare, and the speeding innovation-driven development of the country. Making the tax system more effective. The accelerating processes of globalisation of the world economy call for the integration of the Russian tax system into international tax regulations.

4. Improving the effectiveness of budgetary spending. Reforming and optimising the budget sector. Implementing measures to improve the quality of government services and boost labour productivity in the public sector.

5. Establishing a sustained long-term pension mechanism.

6. Implementing the public-private partnership mechanism. Ensuring maximum effectiveness of the development institutions created. Increasing the financial transparency of the entire public sector.

I. Recent years have seen a widening gap between aggregate supply and demand. In 2007 the aggregate demand increased by 14% - that is, almost twice as much as the economy's capacity to meet it.

Domestic demand is driven by: a comparatively soft monetary policy, accelerated growth of federal budget revenues, large-scale consumer crediting, decrease of the inflow of household saving deposits, growing foreign borrowing by the private sector, and the fact that wages have been growing faster than labour productivity.

The still high oil prices and capital inflow increase the gold and currency reserves, which rose by $173 billion last year and by an additional $71 billion in the first five months of this year. This growth increases money supply in the economy, part of which is removed by the budget and the Bank of Russia instruments. In 2007 the Bank of Russia withdrew 314 billion roubles from circulation. As a result, interest rates in the economy remain low (negative in real terms). The average annual rate on one-day interbank loans in 2007 was 4.3% and in the four months of this year, 3.8%.

As a result, money supply growth exceeds the targets. The growth of money supply (M2) at the end of last year was 47.5%, while at the same time non-inflationary growth of M2 last year amounted to 36%, according to the Russian Finance Ministry estimate.

The growth of money supply owes much to the increased lending activities of banks. Lending to enterprises is growing at a higher rate than before. In 2007 it increased by 52% and as of April 1 of this year, the annual growth amounted to 68%. This process is accompanied by a slowdown in the dynamics of savings deposits.

The percentage of households facing bank loan debts of the total debts in the economy was 25% at the start of the year, 5.1% of which were mortgage loan debts. That share hardly changed by the end of March of this year, with mortgage loan debts increasing to 5.5%. Among enterprises, the biggest bank loan debts have been incurred by trade, the processing industry, and construction.

One important reason for the growth of loans in recent years has been foreign lending by enterprises and banks. The private sector external debt increased from $262 billion at the beginning of 2007 to $413 billion at the beginning of this year. The consolidated external debt of the Russian Federation as of January 1, 2008 was $460 billion and the gold and currency reserves stood at $476 billion.

Along with the soft monetary policy, the weakening of budgetary policy has been a key factor behind the growth of aggregate demand. Federal budget spending in 2005-2007 increased by 18% on average, including corporations, and by 14.2% not including state-owned corporations, whereas the economy was growing at a rate of 7.3% a year. In 2008 spending will increase by an additional 16.9% from 2007 in real terms, without taking state-owned corporations into account. The average annual rate of growth of budgetary spending in 2009-2011 will amount to either 7.7% or 5.9%, according to expected cash implementation, while the average growth rate of GDP will be 6.4%. The average growth of spending in the period between 2005 and 2011 will be 12%, compared with 7% GDP growth.

The next important cause of the growth of aggregate demand is wage increase, which has been occurring faster than labour productivity growth - about twice as fast recently. From 2004 to 2007, spending by the federal budget and the consolidated budgets of Russian regions on wages increased by an annual 29.7% in nominal terms. The wage fund in the economy as a whole over the same period has been increasing by 35.1% every year. The share of the wage fund in GDP increased from 23% in 2004 to 24% in 2007, and will reach 27% in 2011.

In March of this year, the average wage in the economy was 16,000 roubles, with an average of 46,000 roubles in oil and gas extraction and 15,000 roubles in the processing industry.

The combined effect of all the above factors pushes up internal demand in the economy, which leads to a growth in prices and imports.

Imports in physical terms increased by 30% in 2007, while exports increased by a mere 7%.

As of June 16 of this year, the consumer price index was 8.3%, compared with 5.1% in the same period of the previous year. Along with rising prices on imported food, monetary factors play a growing role. Over the first five months of this year, their contribution is estimated at 2.7%, compared with 2.3% in the same period of the previous year, and at 7.5% in 2007, compared with 6.2% in 2006.

During the first five months of this year, inflation in Russia (7.7%) was lower than in Latvia (8.5%) and Ukraine (14.6%). To slow down the growth of prices, the Bank of Russia tightened monetary and lending policy this year. Since the beginning of the year, the refinancing rate has been raised three times (the total increase amounts to 0.75%), the requirements for commercial banks to make deductions in favour of the mandatory regulation fund, as well as the averaging coefficient of the capital requirements, were increased twice. In light of the latest decision, due to take effect on July 1 of this year, capital requirements will have increased by 1-2.5% for various positions.

The implementation of these measures and last year's high base have slowed the growth of money supply. In addition, the diminishing inflow of private capital is making itself felt. Considering the time lag of the impact of the dynamics of money supply on inflation, the current rate of growth of M2 will impact the price growth towards the end of the year.

The inflation forecast for the current year is 10.5%. Considering the actual dynamics of prices since the beginning of the year, that seems to be hardly a realistic target. In the following years, if the inflation targets of 7.5% in 2009, 7% in 2010, and 6.8% in 2011 are to be reached, the monetary policy must be tightened and additional increases in budget spending should be prevented, since the additional non-oil and gas budget revenues are more connected with high inflation and, if spent (in the form of indexation of current obligations or new obligations), the "inflationary spiral" sets in.

The preservation of the current trend may rapidly increase the current account deficit, making the Russian economy potentially vulnerable to external factors.

At present, the Government of the Russian Federation and the Bank of Russia face the task of reversing the trend of accelerating inflation and harmonising money supply with the monetary policy targets.

In these circumstances, budgetary policy should become an important instrument of restoring balanced development, thus contributing in a major way to curbing inflation.

II. To ensure long-term budget stability and strengthen its role in the development of the economy the horizon of budgetary planning must be lengthened.

By August 1 of this year, the Finance Ministry, together with the agents of budgetary planning, will develop the first long-term Budgetary Strategy for the period through 2023.

The goals of long-term budgetary planning are ensuring sustained growth of the economy by thoroughly evaluating all the alternative variants of the fiscal and budgetary policy, by promptly identifying the main threats to budget stability, by balanced handling social problems, and greater transparency of Government decision-making, by fitting the principles of performance-based budgeting into the budgetary cycle and the system of social and economic development.

The sources of imbalances may be both on the side of revenue and on the side of expenditure commitments. The signs of a slowdown in the extraction of hydrocarbons and a drop of the share of that sector in budgetary revenue may significantly diminish the summary budgetary system revenues in percentage of GDP. On the other hand, the aging of the population calls for a substantial increase in social benefits, while it is necessary to increase the amount and quality of spending on healthcare, education, and science if the innovation investment scenario is to be implemented.

Long-term budgetary planning will make it possible to formulate long-term priority goals and tasks of budgetary policy whose achievement will require the mobilisation of budget resources.

These tasks should mark a real step towards more effective budgetary spending while curtailing unreasonable growth of such spending.

It is necessary that as early as this year, every subject of budgetary planning develop a long-term programme to enhance the effectiveness of budgetary spending containing a full inventory of the current commitments and a renunciation of inefficient spending, optimisation of the workforce, increased energy efficiency, and liquidation of bottlenecks in the economy.

One of the key problems of long-term budgetary policy is ensuring a balanced pension system in meeting the challenge of ensuring decent and socially fair pensions. The replacement coefficient of pensions has dropped from 31.2% in 2000 to 24% in 2007.

The main factors affecting the pension system in the long term are demographic: the growing number of pensioners, the shrinking working-age population, and the growing life expectancy.

The solution of the pension system problem calls for a comprehensive approach, including measures to bring down inflation, develop the financial market, stimulate non-governmental pension provision, and enhance the financial awareness of the population.

Along with meeting the challenge of the growing demographic load and improving the quality of human capital, making the country's economy more competitive through modernisation will be an important task in the coming years. In 2007, the Government of the Russian Federation began forming state-owned corporations to boost innovation and the scientific and technical sectors, which are essential for making production more effective and Russian products more competitive. Every development institution has its own specialisation, and together they form a system of comprehensive support for investment and innovation projects and support for those projects that are highly significant from the social and economic points of view. At present, a legal framework has been provided for the activities of each of these institutions.

However, significant problems remain, most notably the lack of transparency in the use of money by state corporations, lack of direct supervision of the activities of state corporations on the part of federal government bodies, lack of criteria for assessing their performance, and lack of long-term planning in some state corporations.

It is necessary to tighten control of effective use of government resources; this increased control would upgrade institutional development and the quality of economic growth and make the whole public sector more transparent financially.

The regions of the Russian Federation are also recommended to introduce a 15-year budget planning horizon. Long-term financial plans (budgets) must be oriented towards the end results of social and economic development of the corresponding region of the Russian Federation. In addition, the forecasts of budgetary revenues and expenditure must be tied to the parameters of comprehensive planning of the social and economic development of the regions of the Russian Federation.

Conditions of the country's social and economic development for drafting the federal budget for 2009-2011.

The draft federal budget for 2009-2011 was calculated on the basis of the forecast of the main social and economic development indicators of the Russian Federation and the forecast for the period through 2011.

Budget forecasts for 2009-2011 take into account the expected drop of the price of Urals crude from $92 per barrel this year to $72 per barrel in 2011. The world economic situation, which to a large extent determined the high rate of growth in the former years, is becoming less of a factor: from 2.7% (out of the 7.2% GDP growth) in 2004 and 2.6% in 2005 to 1% in 2009. From 2009 to 2011, the annual GDP growth will be 6.2-6.6%, compared with the 7.6% growth expected this year.

Investments in basic assets in the medium-term will grow by an annual 10-15%. Household incomes will continue to grow rapidly, by 7.9-10.0% a year, between 2009 and 2011.

The average wage in the economy in 2009-2011 will grow by 11.2% a year in real terms, and pensions, by 12.1%.

These increases will help to reduce poverty in the country. The share of people with incomes below the living minimum in the total population will drop from 12.3% in 2008 to 10% in 2011.

The slow rate of growth of the physical volume of exports and the predicted drop in world energy prices will diminish the cost of exports from $459 billion to $451 billion in 2011. At the same time, rising living standards and incomes of enterprises will stimulate imports, which will increase by 56.7% to $468.1 billion in 2009-2011. As a result of such foreign trade dynamics, the annual growth of gold and currency reserves will slow down by 2011. At the same time, the account of transactions with capital and financial instruments will strengthen and the surplus of crossborder movement of private capital will increase. The net inflow of private capital in 2011 may be between $95 and $105 billion, compared with $30 billion in 2008.

The exchange rate of the rouble to the US dollar in 2009 is estimated to be 24.9 roubles per dollar, in 2010, 26.2 roubles to the dollar, and in 2011, 27.5 roubles to the dollar.

The inflation targets are 6-7.5% for 2009, 5.0-7.0% for 2010, and 5.0-6.8% for 2011. A drop in inflation to the upper, and even more so, to the lower benchmark spells a significant decrease in the basic inflation (4.1% in 2009 and 3.9% in 2010-2011, according to the scenario) as a result of tighter monetary policy and neutralisation of inflationary expectations among the population and economic agents in the market.

The increased gap between the growth of consumer prices and the basic inflation level is due primarily to the significant growth of prices (tariffs) on the products (services) of natural monopolies and housing and utilities services. Household tariffs on housing and utilities services on an annual basis will grow by 19.7% in 2009-2011, including by 25% for power, 31.7% for natural gas, and 13.3% for railway passenger carriage.

The parameters of the federal budget for 2009-2011 are based on the above parameters of the forecast of the country's social and economic development.

Federal budget revenues in 2008 will amount to 9 trillion roubles (21.2% of the GDP), expenditure will amount to 7 trillion roubles (16.6% of the GDP), and surplus will amount to 2 trillion roubles (4.6% of the GDP). In accordance with the expected federal budget implementation in 2008, and considering carry-over balances, the expenditure will amount to 17.6% of the GDP. In addition, this year the banking system is collecting revenues from Nanotechnologies Corporation and the Fund for Housing and Utilities Reform in the amount of 0.8% of the GDP. Such a substantial gap between the planned and actual budget expenditure produces a significant impact on the monetary policy and the economy as a whole.

In the coming years, revenues will diminish in relative terms (19.6% of the GDP, 18.7% of the GDP, and 18% of the GDP in 2009, 2010, and 2011, respectively).

In 2009, expenditure will account for 18.1% of the GDP and will drop to 17.6% of the GDP and 16.9% of the GDP in 2010 and 2011, respectively. As a result of such revenue and expenditure dynamics, the federal budget surplus will drop from 4.6% of the GDP in 2008 to 1.1% of the GDP in 2011.

As of the beginning of June of this year, the Reserve Fund amounted to 3,060.94 billion roubles. By the end of the year, it is likely to be 3,500.0 billion roubles (8.3% of the GDP). Its volume at the end of 2009 is expected to be 4,499.8 billion roubles (9.3% of the GDP), and at the end of 2010, 5,569.0 billion roubles (10% of the GDP).

The size of the National Welfare Fund as of the beginning of June of this year was 773.93 billion roubles, and it is expected to increase markedly, topping 2 trillion roubles (5.8% of the GDP) by the end of the year. At the end of 2009, the Fund will amount to 2,466.8 billion roubles (5.1% of the GDP), and at the end of 2010, 2,663.2 billion roubles (4.8% of the GDP).

Budget revenue policy

Federal budget revenues will amount to 9,518.3 billion roubles in 2009, which is 1.2% less than in 2008 in real terms. On the whole, real revenues will grow by 3.6%, or by 1.2% annually between 2009 and 2010. By comparison, the average growth of real revenues in 2006-2008 was 9.1% (27.4% in the whole period).

In relation to the GDP, budget revenues will drop from 21.2% in 2008 to 19.6% in 2009 and 18.0% in 2011. This is mainly due to the shrinking oil and gas revenues. The oil and gas revenues of the federal budget will drop from 10.1% of the GDP in 2008 to 5.8% of the GDP in 2011. The share of oil and gas revenues in the total federal budget revenues will drop from 47.4% in 2008 to 32.3% in 2011.

Oil and gas revenues are falling because the oil and gas sector's share in the GDP is diminishing as a result of three fundamental factors.

1. There are signs of a long-term trend of slowdown in the extraction and export of oil. While from 2000 to 2007 the extraction of oil was growing at an average annual rate of 6.2%, the forecast for 2008-2011 is 1.4%, and the average growth of oil export will be 0.4% in 2008-2011 versus 8.7% in 2000-2007.

The estimate of non-oil and gas federal budget revenues in 2009-2011 is 12.1% of the GDP.

2. The current and predicted strengthening of the rouble as a result of objective macroeconomic conditions, such as the preservation of high prices for Russian exports and growing influx of foreign capital, substantially diminishes the budget revenue from oil and gas (which is either "pegged" to the cost of exports or is proportional to the exchange rate of the dollar, like the mineral extraction tax for oil).

3. The forecasted drop in oil prices from $92 per barrel in 2008 to $72 per barrel in 2011. 

Structure of federal budget revenue
(in % of GDP)

	2008	2009	2010	2011
Total revenue	21.23	19.58	18.68	17.96
of which
Profit tax	1.52	1.41	1.36	1.34
Unified social tax	1.18	1.21	1.24	1.28
VAT	2.88	3.68	3.63	3.63
Excise	0.36	0.37	0.37	0.39
Mineral extraction tax	3.46	2.40	2.09	1.87
Customs duties	8.18	6.75	6.10	5.54
Oil and gas revenues	10.06	7.49	6.52	5.80
Non-oil gas revenues	11.17	12.09	12.16	12.16

The main changes in tax legislation:
1) Tax on the profits of organisation:
• in taxing profits to take into account all the economically reasonable expenditures of the organisation on training, medical care, and pensions of employees within socially reasonable limits;
• the cost of purchasing licenses to use subsoil resources must be taken into account in determining the base of the profit tax over a period not exceeding 2 years;
• providing further incentives to increase capital investments in basic assets by changing the composition of amortisation groups. Renouncing the case-by-case award of amortisation in favour of tax amortisation computation by group.

2) Excise

Amendments will be introduced to the Tax Code that would differentiate excise rates for oil products to lower excise on higher equality and ecologically safer engine fuel.

3) Tax on the mining of minerals

To make the tax on the mining of minerals more effective, considering the cost of one tonne of oil extracted, the non-taxable minimum taken into account in calculating the price coefficient under Clause 3 of Article 342 of the Tax Code of the Russian Federation is to be increased from $9 to $15 as of 2009.

4) Tax on the incomes of individuals and the unified social tax

In order to implement the goals of demographic policy, it is necessary to increase deductions from the tax on the income of individuals made available to taxpayers with a dependent child, i.e. parents, including adoptive parents and guardians, from 600 to 800 roubles beginning in 2009.

Simultaneously, the current cap of 40,000 roubles on the income to qualify for such deductions is to be abolished.

The cap on the income beginning from which the taxpayer is eligible for a standard tax deduction from the tax on the incomes of individuals is to be increased from 20,000 to 40,000 roubles beginning in 2009.

5) Value added tax

An important measure to improve the value added tax is relieving social services from taxation beginning in 2009.

The amendments will be aimed above all at creating a situation in which services are exempt from tax regardless of whether they are provided by a state (municipal) or a non-commercial organisation.

6) Taxation under special tax regimes

In order to make the special tax regimes more focused it is necessary, in preparing amendments to the Tax Code, to:

• define more clearly the criteria for identifying the regions of entrepreneurial activities. A simplified taxation system and taxation through a single imputed income tax should be applied to small businesses;
• introduce several amendments to the provisions of the Tax Code that regulate the use of a simplified taxation system on the basis of a patent;
• diminish the amount of report paper work submitted by taxpayers, with tax declarations to be submitted only from the results of the tax period, in order to ease the administrative load. This would reduce the amount of paperwork for tax payers who use a simplified taxation system by four times and for tax payers of the single agricultural tax by two times;
• for the purpose of objective determination of taxable incomes with respect to the single tax on the imputed incomes, a procedure of its determination by types of entrepreneurial activities should be developed on the basis of sectoral studies.

Budgetary expenditure policy

The forecasts of federal budget allocations for 2009-2011 are based on the strategic priorities formulated in the policy statements by the President of the Russian Federation and the Prime Minister of the Russian Federation as well as in the Budget Address of the President of the Russian Federation On the Budget Policy for 2009-2011:

• creating a national innovation system by developing fundamental and applied science, supporting major research and technical projects and cutting-edge technologies, and creating incentives for innovation activities;
• increasing investments in human capital, including the development of education and healthcare;
• developing infrastructure, above all transport, telecommunications, and energy;
• enhancing the effectiveness of government institutions by improving the court system and law enforcement bodies, reforming state administration and the civil service, and supporting civil society institutions.

Ensuring the country's defence capability and the security of its citizens remains an important task.

Meeting these priorities requires a reorientation and more effective use of the resources not only of the federal budget, but of the whole budget system of the Russian Federation, as well as institutional reforms and focused measures of state regulation.

In addition, the proposed main items of federal budget expenditure ensure, in accordance with the basic principles of budget legislation, fulfilment of both earlier and proposed new decisions pertaining to the current and newly assumed expenditure commitments of the Russian Federation.

The total expenditure of the consolidated budget of the Russian Federation will increase by 1.45 times in nominal terms and by 1.2 times in real terms between 2008 and 2011, while the structure of expenditure reflecting the volume of financial support of the main functions and powers of public executive bodies will remain largely stable.

The structure of expenditure of the consolidated budget of the Russian Federation is dominated by the outlays for financial support of public services in the sphere of education, healthcare, culture, housing and utilities (about 34%), followed by social policy, including transfers to off-budget funds (about 20%), defence and security (about 17%), support of the national economy, including the development of infrastructure (about 16%), and national issues (about 9%).

To assess the overall volume of budgetary outlays in some socially sensitive areas, above all public health and education, it is necessary to take into account the expenditure of government off-budget funds as well as already established or proposed tax benefits. The total spending of the federal and regional mandatory medical insurance funds in 2008 is forecast at 1.2% of the GDP, and the amount of tax benefits in the sphere of healthcare and education at 0.2% of the GDP. If these are factored in, the total volume of budgetary resources devoted to healthcare and education is estimated to reach 7.7% of the GDP in 2008-2011.

The share of federal budget spending (not including transfers to the budgets of the regions of the Russian Federation) in the consolidated budget of the Russian Federation in 2008-2011 will be about 52%, as in previous years, which corresponds to the main principles of legislation on the delimitation of powers and allocation of revenue sources (with due account of the need to redistribute part of the financial resources among the regions of the Russian Federation).

According to the report on the implementation of the consolidated budget of the Russian Federation for 2007, the share of federal budget expenditure in the total outlays for national security and law enforcement is 77%, for social policy, including transfers to off-budget funds, 66%, and general state functions, 62%. National defence is financed solely from the federal budget. The share of the federal budget in the consolidated budget expenditure on the national economy has increased substantially in recent years (from 19% to 44%). As for social expenditure, the bulk of the cost of healthcare (84%), education (81%), culture (78%), and housing and utilities (76%) is supported by regional and local budgets. The social functions of the federal budget are mainly implemented through financial support of the key areas and programmes of nationwide significance (higher and, to a significant degree, secondary professional education, hi-tech medical assistance, and very important cultural institutions) as well as through inter-budgetary transfers to the regions of the Russian Federation, including targeted transfers (subventions to finance the exercise of "delegated" powers in the sphere of social security, subsidies for the implementation of priority national projects, support for agriculture, and the implementation of the federal targeted programmes).

Overall federal budget spending is expected to grow by 1.5 times in nominal terms and by 1.2 times in real terms in the period between 2008 and 2011, while its share of the GDP is expected to diminish beginning in 2009 to the 2008 level.

Main parameters of federal budget expenditure in 2006-2011
 

	2006	2007	2008	Projection
	Report	Report	Law	2009	2010	2011
Total expenditure, bln roubles	4,284.8	5,986.6	7,021.9	8,810.4	9,791.6	10,706.0
% of GDP	15.9	18.1	16.6	18.1	17.6	16.9
Interest-bearing expenditure, bln roubles	172.8	143.1	179.9	205.5	241.4	308.0
Non-interest-bearing expenditure, bln roubles	4,112.0	5,843.5	6,842.1	8,604.9	9,305.3	9,862.6
Increase on the previous year
Bln roubles		1,701.8	1,035.3	1,788.5	981.2	914.4
% (in nominal terms)		39.7	17.3	25.5	11.1	9.9
% (in real terms)		24.8	6.1	16.7	3.9	2.4

 

The overall amount of federal budget spending was determined in accordance with the requirements set by the Budget Code of the Russian Federation:

• oil and gas transfer - 5.5% of the GDP in 2009, 4.5% in 2010, and 3.7% of beginning in 2011 (Article 96.8 of the Budget Code of the Russian Federation, including carry-over provisions);
• deficit financing sources - not more than 1% of the GDP (Article 94 of the Budget Code of the Russian Federation);
• provisionally confirmed expenditure (not distributed in the current budgetary cycle) -- not less than 2.5% of the total expenditure in the first (2010) and not less than 5% in the second (2011) year of the planning period (Article 199 of the Budget Code of the Russian Federation).

In accordance with the provisions of the Budget Code of the Russian Federation and the Regulations On Drafting the Federal Budget and the Budgets of State Off-Budget Funds of the Russian Federation approved by the Decree of the Government of the Russian Federation of December 29, 2007, the federal budget allocations for 2009-2011 were for the first time made in the "sliding three-year" format, separately for budget allocations for current and proposed expenditure commitments, in accordance with the principle of unconditional fulfilment of assumed expenditure commitments envisaged by the budget legislation.

The calculations of budget allocations for current expenditure commitments were based on updated budget allocations approved for 2009 and 2010 by the Federal Law of July 24, 2007 On the Federal Budget for 2008 and the Planning Period of 2009 and 2010 (elsewhere, the Federal Budget for 2008-2010). In accordance with the new main parameters of the forecast of the social and economic development of the Russian Federation and calculations for 2011, with due account of the decisions made when introducing amendments to the federal budget for 2008-2010 (Federal Law of March 5, 2008 and the Draft Federal Law On Introducing Amendments to the Federal Law On the Federal Budget for 2008 and the Planning Period of 2009 and 2010, passed in June of this year in the first reading by the State Duma).

The total allocations from the federal budget to meet current expenditure commitments in 2009 are set at 7,795.0 billion roubles, at 8,329.1 billion roubles in 2010, and at 8,511.5 billion roubles in 2011.

These include funds for the implementation of decisions adopted earlier and included in the federal budget for 2008-2010 aimed at improving the provision of pensions and social security of the population, sustained growth of remuneration of federal public sector employees and the salaries of servicemen, improved quality and accessibility of education and healthcare, the solution of the housing problem, implementation of the demographic programme, infrastructure development, economic restructuring, development of scientific and natural resources' potential, and ensuring the defence capability and security and enhancing the effectiveness of the state.

In accordance with the forecast of the volume of non-oil and gas revenues of the federal budget and the requirements for the size of the oil and gas transfer, the sources of deficit financing and provisionally approved expenditure as well as calculations of budgetary allocations to meet current expenditure commitments established by the Budget Code, the total amount of resources for financial support of expenditure commitments incurred in the current budget cycle is estimated at 1,015.8 billion roubles in 2009 (11.5% of the total volume of expenditure), 1,218.0 billion roubles in 2010, and 1,659.2 billion roubles in 2011 (12.4% and 15.5%, respectively, of the total volume of expenditure, not including the provisionally approved expenditure).

Inter-budgetary relations

The system of inter-budgetary relations that is in place has ensured sustained growth of the incomes of consolidated budgets of the regions of the Russian Federation. The consolidated budget incomes of the regions of the Russian Federation have doubled between 2001 and 2007, from 1,322 to 4,837 billion roubles.

Thanks to the established structure of revenues in the system of measures that stimulate the conduct of a responsible financial policy, sustained and timely implementation of expenditure commitments of the regions of the Russian Federation and municipal entities is practically ensured in full. The accumulated arrears of consolidated budgets of the regions of the Russian Federation diminished substantially over the past five years, from 128 billion roubles to 42 billion roubles, or from 8% to less than 1% of the revenues. Arrears on wages to public sector employees have been paid nearly in full. Eighty regions of the Russian Federation have no arrears.

To stimulate the governments of the regions of the Russian Federation to increase the revenue base, the methodology of distributing the bulk of financial assistance to the budgets of the regions of the Russian Federation - subsidies for the levelling of fiscal capacity - has been adjusted to make sure that the amount of financial support does not diminish for those regions of the Russian Federation whose fiscal capacity has grown due to tax revenues. In addition, beginning in 2008, the amount of subsidies to equalise the budget resources of the regions of the Russian Federation has been determined proceeding from the minimum level of fiscal capacity of the regions of the Russian Federation, ensuring the necessary guarantees to the regions of the Russian Federation in meeting their expenditure commitments.

The size of subsidies aimed at levelling the budget sufficiency increased by 92% in the period between 2001 and 2008.

Budget discipline has been improving, and the number of violations of the Budget Code of the Russian Federation by the executive bodies of the regions of the Russian Federation has substantially dropped. The budgets of the regions of the Russian Federation are generally balanced.

Debts of the regions of the Russian Federation as a share of the GDP dropped from 2.5% in 2000 to 1.4% in 2007.

The growth of budget revenues of the regions of the Russian Federation has made it possible to pay increased salaries to public sector employees. The share of expenditure on wages and salaries in the budgets of the regions of the Russian Federation was stable - not more than 22% - from 2001 to 2007.

Now that the regional budgets have sufficient financial resources, the task facing them is more effective use of budget assets, which will be tackled in the following areas:

• continued growth of incentives to increase the revenue base of the budgets of the regions of the Russian Federation and municipal entities;
• improvement of the mechanisms of inter-budgetary transfers to the budgets of the regions of the Russian Federation and municipal entities;
• achievement of a new quality of management of regional and municipal finances.

The budget legislation leaving tax revenues to the budgets of the regions of the Russian Federation and stable principles of inter-budgetary transfers from the federal budget will ensure the growth of revenues to 6,298.2 billion roubles in 2009, 7,034.5 billion roubles in 2010, and 7,881.7 billion roubles in 2011, of which tax revenues will account for 4,706; 5,382, and 6,208 billion roubles, respectively.

Subsidies for levelling the budget capacity of the regions of the Russian Federation will amount to 364 billion roubles in 2009, 389 billion in 2010, and 416 billion in 2011. These subsidies would determine the minimum levelling of budget capacity proceeding from the average for the regions of the Russian Federation, not counting the 10 regions with the highest capacity and 10 regions with the lowest capacity.

The trend in improving the methodology of distributing resources for the purpose of levelling the budget capacity of the regions of the Russian Federation is meant to reduce to a certain extent the share of assets in the subsidies made available for levelling the budget capacity, for compensation measures. The indefinite preservation of compensation elements in the subsidies, given the substantial growth of the tax revenues of the budgets of the regions of the Russian Federation in recent years, amounts to a reduction in the financial support of regions which objectively have a small fiscal base.

The task of stimulating the regions of the Russian Federation to incur expenditure that is seen as priority expenditure by the Russian Federation is solved by granting subsidies to the budgets of the Russian Federation. The number of channels for such support has grown to 90; its volume will be 231 billion roubles in 2009, 192 billion roubles in 2010, and 176 billion roubles in 2011 (not including investment spending). While credit should be given to the effect achieved by the co-financing of key areas of social policy in the regions of the Russian Federation, the procedure of granting them needs to be improved in the future. Above all, it is necessary to gradually diminish the size of some subsidies as the tasks for which these subsidies were granted are solved, while new subsidies should be granted within the overall volume of subsidies at the disposal of the main administrator of federal budget money, and for a fixed period and not indefinitely, as is the case at present. For this purpose, those federal bodies that serve as the main administrators of federal budget money are to consolidate subsidies by sector, thereby making it possible to identify co-financing priorities depending on the concrete policy at each phase.

Financial support of the powers delegated by the Russian Federation to be exercised by the regions of the Russian Federation and municipal entities will take the form of subventions to the budgets of the regions of the Russian Federation. Disbursements for that purpose will amount to 219 billion roubles in 2009, 220 billion in 2010, and 234 billion in 2011. These amounts fully ensure the implementation of the delegated powers. The federal executive bodies must monitor the exercise of these powers by the regions of the Russian Federation and municipal entities.

Stimuli must be created for better management of regional and municipal finances. One condition that will ensure proper quality of financial management may be the expanded budget capacity of those regions and municipalities of the Russian Federation that pursue a responsible financial policy, and measures with regard to those in which the quality of financial management fails to ensure the rights of citizens to enjoy the services and guarantees provided by government bodies. The Finance Ministry of the Russian Federation will annually monitor and rate the regions of the Russian Federation in terms of the quality of financial management.

It is necessary to form a system of stimulating local government bodies to introduce advanced processes in the social-economic field and in the management of public finances. For municipal entities within the regions of the Russian Federation, stimuli should be created for more effective use of budget assets and for providing incentives to local government bodies to increase local budget revenues. To this end, the Finance Ministry must continue to organise federal contests in the sphere of reform of municipal finances in the framework of contests of regional finance reform, and develop recommendations on how similar work should be conducted in the regions of the Russian Federation. For these purposes, 3.5 billion roubles has been earmarked in 2009 and 3.8 billion roubles in both 2010 and 2011.

To prevent possible negative consequences in the fulfilment of expenditure commitments of the regions of the Russian Federation, subsidies to support measures aimed at ensuring balanced budgets of the regions of the Russian Federation are to be preserved in the event of substantial changes of the revenue base.

The implementation of the proposed measures to improve the management of federal and municipal finances in the Russian Federation must ensure further development of the system of inter-budgetary relations and help to make the budget system of the Russian Federation more effective through a combination of the principles of the autonomy of the budgets of all levels and their common interests.

2. The main characteristics of the budgets of state off-budget funds of the Russian Federation in 2009 and the planning period of 2010 and 2011

The Pension Fund of the Russian Federation

The forecast of the budget of the PF for 2009 and the planning period of 2010 and 2011 is based on the scenario of the functioning of the Russian economy and the main parameters of the forecast of the social and economic development of the Russian Federation in 2009 and the planning period of 2010 and 2011 (variant 2) considered at the meeting of the Government of the Russian Federation on May 15, 2008.

The cost of payment of the insurance and basic parts of the labour pension, government pension security, and monthly allowances have been determined in line with the decisions made by the Government of the Russian Federation on raising pensions, allowances, and social benefits in the framework of the current pension legislation, as well as with due account of the target set by the Address of the President of the Russian Federation to bring the social pension up to the level of a pensioner's living minimum in 2009.

For this purpose the allocations for raising labour pensions will be increased as follows:

• for the basic part:
o in 2009: indexation by 7.5% as of April 1, bringing the basic part of old-age pension to 2,280 roubles, a 18,224% increase, as of October 1;
o in 2010: indexation by 7.0%, fixing the basic part of the old-age pension at 2,778 roubles, a 13,871% increase, as of October 1;
o in 2011: indexation by 6.8% as of April 1, bringing the basic part of the old-age pension to 3,300 roubles, a 11,227% increase, as of October 1;
• for the insurance part:
o in 2008: indexation by 12% as of February 1, with a further indexation by 7.5% as of April 1 and indexation by 8.0% (for the expected growth of prices as of the first half of 2008) as of August 1;
o in 2009: an additional 15.6% increase as of April 1;
o in 2010: indexation by 7.5% as of February 1, an additional 6.7% increase as of April 1;
o in 2011: indexation by 7.0% as of February 1 and an additional 6.1% increase as of April 1.

As a result, the old-age labour pension (on an average annualised basis) will amount to 5,467 roubles in 2009, or 137.2% of the forecast pensioner's living minimum, 6,622 roubles in 2010, which is 1.5 times more than the pensioner's living minimum, and 7,804 roubles in 2011, which is 1.6 times more than the PLM.

Proceeding from the proposed parameters of the indexation of the basic and insurance parts of labour pensions, the ratio of the old-age labour pension to the average wage nationwide is growing and will amount to an average 26.3% in 2011, compared with 25% in 2007.

The social pension will reach the forecast value of the PLM at the end of 2009 and will be maintained at that level thereafter.

The volume of inter-budgetary transfers from the federal budget in 2009-2011 corresponds to the Methodological Recommendations that take into account the sectoral (departmental) specificities of planning federal budget allocations for 2009 and the planning period of 2010 and 2011 (Finance Ministry letter № 02-02-05/1158 of April 21, 2008).

The allocations for monthly payments to certain categories of citizens for 2009 - 2011 provide for an additional indexation by 10.5% as of July 1, 2008 (compared with the fixed size as of January 1, 2008), and adjustment of the monthly payment for the forecast consumer price index on April 1 of each year.

The inter-budgetary transfers towards monthly payments in 2009-2011 take into account the cost of the set of social services made available to individual categories of citizens.

The federal budget resources for compensation payments to individuals who have disabled citizens in their care will be increased in 2009-2010 in connection with the change of compensation payment as of July 1, 2008 from 500 to 1,200 roubles, pursuant to the Decree of the President of the Russian Federation of May 13, 2008 On Additional Measures of Social Support of Persons Who Attend to Disabled Citizens, assuming that the number of recipients of said payment in 2009-2011 will be 759,000 - that is, with no allowance made for growth.

In connection with the proposed change in the size of the social allowance for funerals from 1,000 to 4,000 roubles as of January 1, 2009, the federal budget allocations for funeral allowances for deceased pensioners who received government pensions will be increased.
The amount of resources allocated for travelling expenses to "northern" pensioners to their holiday destination and back in 2009-2010 will remain as approved by federal laws of July 24, 2007 On the Federal Budget for 2008 and the Planning Period of 2009 and 2010 and of July 21, 2007 On the Budget of the Pension Fund of the Russian Federation for 2008 and the Planning Period of 2009 and 2010. For 2011, the projection is 1 billion roubles.

Inter-budgetary transfers from the federal budget for maternal (family) capital, in accordance with the Federal Law of December 29, 2006 On Additional Measures of Government Support for Families with Children, take into account the indexation of maternal (family) capital in accordance with the growth of consumer prices and the number of additional children born in 2007-2008.

The federal budget allocations for maternal (family) capital amount to 71.28 billion roubles (+16.28 billion roubles against budget allocations) for 2010 and in 99.28 billion roubles, i.e. about 25% of the amount needed, for 2011, and is estimated at 394.72 billion roubles in 2010-2011.

The inter-budgetary transfers for 2009 include federal budget allocations to compensate for the payment of the tax on income from the temporary investment of PF budget money in the amount of 4.54 billion roubles.

The draft PF budget for 2009-2011 includes allocations from the federal budget to co-finance additional insurance out of the National Welfare Fund, as well as to meet expenditure commitments under the Federal Law of April 30, 2008 On Additional Insurance Contributions to the Accumulated Part of the Labour Pension and State Support for the Formation of Pension Savings.

Federal budget allocations to cover the PF budget deficit are sufficient for timely delivery and payment of pensions and other social benefits in the first working days of January of the following year. The size of carry-over PF budget resources as of the beginning of each year must not be less than 45% of the paid pensions for January, considering that the amount of said payments (less the monthly payment) are estimated at 223.7 billion roubles in 2010, 268.7 billion roubles in 2011, and over 317.0 billion roubles in 2012.

Based on the above, the requirement for federal budget resources to cover the PF budget deficit for 2009 is 193.94 billion roubles (60.23 billion roubles more than in the budget), 284.21 billion roubles (56.84 billion roubles more than in the budget) for 2010, and 357.11 billion roubles for 2011. This is an indispensable condition if the scenario of the development of the Russian Federation approved at the Government meeting on May 15, 2008 and the budget parameters envisaged under the PF budget forecast are to be complied with.

Federal Mandatory Medical Insurance Fund

The draft budget of the Federal Mandatory Medical Insurance Fund for 2009 and the planning period of 2010 and 2011 has been prepared in accordance with the 2008 schedule of preparation and consideration of draft federal laws, documents, and materials developed when preparing the draft federal budget and the budgets of state off-budget funds of the Russian Federation for 2009 and the planning period of 2009 and 2011 on the basis of the Procedure for Planning Budget Allocations of the Federal Budget for 2009 and the Planning Period of 2010 and 2011, approved by Executive Order of the Finance Ministry of the Russian Federation No. 47n of April 17, 2008, Methodological Recommendations on Sectoral (Departmental) Specificities of Planning Federal Budget Allocations for 2009 and the Planning Period of 2010 and 2011, proceeding from the scenario of the functioning of the Russian economy approved at the Russian Government meeting on May 15, 2008.

The draft budget of the Federal Mandatory Medical Insurance Fund (hereafter FOMS) for 2009 and the planning period of 2010 and 2011 is balanced in terms of revenue and expenditure and is as follows:

• in 2009 - 139 812 178 200 roubles;
• in 2010 - 157 821 772 600 roubles;
• in 2011 - 177 986 057 200 roubles.
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The Fund's budget revenue from the Unified Social Tax and other taxes for 2009 and the planning period of 2010 and 2011 takes into account the current tax legislation and has been approved by the Federal Taxation Service.

The FOMS projected revenues from the unified social tax in 2009 to total 105 603 100 000 roubles, 123 233 100 000 roubles in 2010, and 142 994 100 000 roubles in 2011. These figures have been calculated based on the forecast of the wage fund for 2009, 2010, and 2011 - 12,444.0 billion roubles, 14,683.0 billion roubles, and 17,227.0 billion roubles respectively.

The increase of unified social tax revenues on the indicators approved under Federal Law No. 184-FZ (updated as No. 16-FZ, February 28, 2008) of July 21, 2007 will be in 6 635 500 000 roubles, or 6.7% of the approved indicator, in 2009, and 9 311 100 000 roubles, or 8.2% of the approved target, in 2010.

The expected revenues for 2009 and the planning period of 2010 and 2011 from taxpayers on special tax regimes (tax on the aggregate income) entered in the FOMS budget in accordance with tax legislation, have been calculated on the basis of actual revenues for 2007, the GDP growth index, the consumer price indices for 2009-2011 as envisaged by the forecast, and have been approved by the Federal Taxation Service.

The increase in revenues from the aggregate income compared with the indicators approved by Federal Law of July 21, 2007 (as updated on February 28, 2008) will amount to 177 600 000 roubles, or 17.7% of the approved indicator, in 2009, and 222 500 000 roubles, or 19.6% of the approved indicator, in 2010.

The increase in the FOMS budget revenue due to additional tax incomes compared with the analogous indicators approved by the Federal Law of July 21, 2007 On the Budget of the Federal Mandatory Medical Insurance Fund for 2008 and the Planning Period of 2009 and 2010 will be:

• in 2009 - 6 813 100 000 roubles;
• in 2010 - 9 533 600 000 roubles.

In 2011 FOMS expects its own revenues to reach 144 561 416 000 roubles.

The proposals regarding the amounts of inter-budgetary transfers in 2009-2011 from the federal budget to the FOMS budget are based on the expected implementation of the FOMS budget for 2008 and the proposal of the Ministry of Healthcare and Social Development regarding financial support of the priority national project in the sphere of public health in 2009-2011.

The draft provides for an increase in the overall volume of transfers in 2009, 2010 and 2011 by 1 566 593 000 roubles, 28 804 737 600 roubles, and 33 424 641 200 roubles, respectively, of which:

• mandatory medical insurance of the non-working population (children) in 2009 and 2010 corresponds to the analogous indicators approved under the Federal Law No. 184-FZ of July 21, 2007 On the Budget of the Federal Mandatory Medical Insurance Fund for 2008 and the Planning Period of 2009 and 2010. The requirement for budgetary allocations for 2011 in the amount of 4 347 870 700 roubles takes into account the indexation for the expected growth of consumer prices of the analogous indicator envisaged for 2010;
• the administration in 2009 of additional medical examinations of 4 890 428 working citizens envisages an increase in budget allocations for said purpose by 1 095 826 000 roubles.

The requirement for budgetary allocations for the following years has been determined proceeding from the number of working citizens subject to medical checkups: 4 390 429 people in 2010, in the amount of 5 048 993 400 roubles, and 3 908 028 persons in 2011, in the amount of 4 974 138 000 roubles;

• medical checkups of orphans, assuming the number of orphans is 540,000, subject to annual medical checkups and with due account of the annual increase, in the forecast period, of the consumer prices and the standard financial outlays for the medical checkup of one child, the inter-budgetary transfer for these purposes will be increased by 507 856 800 roubles in 2009 and by 492 834 000 roubles in 2010. In 2011, allocations for said purpose will be 839 705 000 roubles.
• payments to district therapists, district paediatricians, general practitioners, (family doctors), and nurses working with the aforementioned doctors at municipal institutions in 2009-2010 will be financed out of the federal budget in the amount of 23 262 910 200 roubles annually. In 2011, the funding will be 23 262 927 500 roubles.
•
The requirements for payments to primary-level medical workers from 2009 to 2011 have been determined proceeding from the number of primary-level doctors and nurses, the size of payments to doctors and nurses of 10,000 roubles and 5,000 roubles, respectively, adjusted for region, and additions to salaries of 26.2%, with due account of the guarantees established under Article 114, Part 4 of Article 139 and Articles 167, 183 and 187 of the Labour Code of the Russian Federation.

In projecting expenditure to finance the targeted measures to further develop and improve the system of mandatory medical insurance (retraining and upgrading of skills, informatics, international cooperation, information, and publishing activities, R&D) being implemented by the Fund under its Charter approved by the Decree of the Government of the Russian Federation of July 29, 1998 (hereafter, the Charter), it was assumed that FOMS resources should be first of all directed to the budgets of regional mandatory medical insurance funds (hereafter, regional funds) to finance the regional mandatory medical insurance programmes in the framework of the basic mandatory medical insurance programme, as well as to the Social Insurance Fund of the Russian Federation to pay for medical services for women during pregnancy and childbirth, as well as for additional medical checkups for the child during the first year.

FOMS' own additional assets are distributed as follows:

• in 2009 - 18 257 927 000 roubles (due to the expected additional revenues from the Unified Social Tax and the aggregate income tax in the amount of 6 813 100 000 roubles, as well as the FOMS budget surplus of 11 444 827 000 roubles) will be directed in the form of subsidies to the budgets of regional mandatory medical insurance funds to finance the regional mandatory medical insurance programmes as part of the basic mandatory medical insurance programme in the amount of 9 324 018 800 roubles to form the standard insurance reserve of 8 915 365 000 roubles, to finance the targeted measures implemented by FOMS under its Charter, and to maintain FOMS in the amount of 18 543 200 roubles;
• in 2010 - 24 534 366 000 roubles (due to additional revenues from the Unified Social Tax and the aggregate income tax in the amount of 9 533 600 000 roubles and the FOMS budget surplus in the amount of 15 000 766 000 roubles) will be directed in the form of subsidies to the budgets of regional mandatory medical insurance funds to support the territorial mandatory medical insurance programmes as part of the basic mandatory medical insurance programme in the amount of 12 457 207 600 roubles, to form the standard insurance reserve in the amount of 10 550 952 700 roubles, to the Budget of the Social Insurance Fund of the Russian Federation in aid of women during pregnancy, childbirth and the postnatal period as well as medical checkups of the child during the first year, an inter-budgetary transfer of 1 500 000 000 roubles for targeted measures implemented by FOMS under the Charter and for the upkeep of FOMS, 26 205 700 roubles;
• in 2011 FOMS will transfer 144 561 416 000 roubles of its own revenues to the budgets of the regional mandatory medical insurance funds to support the regional mandatory medical insurance programmes, 112 206 322 800 roubles as part of the basic mandatory medical insurance programme subsidies, 19 250 000 000 roubles to the budget of the Social Insurance Fund to finance assistance to women during pregnancy, childbirth, and in the postnatal period as well as medical checkups of the child during the first year in the amount of, 12 467 369 200 roubles to form the standard insurance reserve, and 637 724 000 roubles to finance the planned measures by FOMS pursuant to its Charter and for the upkeep of FOMS.

The amount of budgetary allocations for the upkeep of FOMS has been calculated in accordance with the Methodology of Planning the Changes in the Amount of Budgetary Allocations to Meet Current Expenditure Commitments of the Russian Federation in 2009 and 2010.

In accordance with the Charter, the remuneration of FOMS workers is equated to that of the employees of federal executive bodies.

In adjusting budgetary allocations for remuneration, an increase is envisaged in connection with the change of the basic indicators for 2008 without a change in the previous schedule of wage increases in 2009 and 2010 (by 6.8% as of August 1, 2009 and by 6.5% as of January 1, 2010).

In determining the amount of budgetary allocations for 2011, wages will be adjusted for consumer price growth by 6.8% (December to December) as of January 1, 2011.

The allocations in 2009-2011 for the upkeep of FOMS, according to the Code of the Classification of Operations of Government Budget Spending 220 "Purchase of Services", have been calculated through indexation for inflation of the budgetary allocations for the same purposes in the previous fiscal year.

The volume of budgetary allocations to implement targeted measures in 2009-2011 has been calculated by adjusting the budgetary allocations of the previous fiscal year for the level of inflation.

Social Insurance Fund of the Russian Federation

The draft budget of the Social Insurance Fund of the Russian Federation for 2009 and the planning period of 2010 and 2011 has been prepared in accordance with the 2008 schedule of the preparation and consideration of draft federal laws, documents, and materials developed in preparing the draft federal budget and the budgets of state off-budget funds of the Russian Federation for 2009 and the planning period of 2010 and 2011 on the basis of the procedure of planning allocations from the federal budget for 2009 and the planning period of 2010 and 2011, approved by the Executive Order of the Finance Ministry of the Russian Federation of April 17, 2008, the Methodological Recommendations regarding sectoral (departmental) specificities of planning federal budget allocations for 2009 and the planning period of 2010 and 2011, proceeding from a scenario of the functioning of the Russian economy approved at the meeting of the Russian Government on May 15, 2008.

In preparing the draft budget of the Social Insurance Fund of the Russian Federation (hereinafter the Fund) for 2009 and the planning period of 2010 and 2011, the following indicators have been used:

• wage fund for 2009 - 12 444 billion roubles, for 2010 - 14 683 billion roubles, and for 2011 - 17 227 billion roubles;
• consumer price index in 2009 - 107.5 %, in 2010 - 107.0 %, and in 2011 - 106.8 %.
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The Fund's budget revenues are forecast as follows:

• 437 748.4 million roubles for 2009, 306 502.6 million roubles of which falls under mandatory social insurance (287 156.3 million roubles out of its own revenue and 19 346.3 million roubles out of the federal budget to cover the Fund's budget deficit), 64 429.5 million roubles, under mandatory social insurance against occupational accidents and diseases, 49 816.2 million roubles, the assets transferred to the Fund budget from the federal budget to finance government functions, and 17 000.0 million roubles, FOMS budget for the performance of government functions. The total transfers to the Fund from the federal budget amount to 69 162.5 million roubles;
• 515 562.9 million roubles for 2010, 368 558.3 million roubles of which under mandatory social insurance (333 122.4 million roubles out of its own revenues and 35 435.9 million roubles out of the federal budget money earmarked to cover the Fund's budget deficit), 73 009.9 million roubles, under mandatory social insurance against occupational accidents and diseases, 55 494.8 million roubles, out of the federal budget for the performance of the government functions, and 18 500.0 million roubles, the FOMS budget for the performance of government functions. The total transfers to the Fund out of the federal budget amount to 90 930.7 million roubles;
• 585 856.8 million roubles for 2011, 424 291.8 million roubles of which falls under mandatory social insurance (369 683.4 million roubles out of its own revenues and 54 608.4 million roubles out of the federal budget allocations to cover the Fund budget deficit), 82 150.3 million roubles, under mandatory social insurance against occupational accidents and diseases, 60 164.8 million roubles, out of the federal budget for the performance of government functions, and 19 250.0 million roubles, out of the FOMS budget for the performance of government functions. The total transfers to the Fund out of the federal budget amount to 114 773.2 million roubles.

Transfers from the federal budget for the performance of government functions include:

• for allowances to workers exposed to radiation due to radiation accidents and nuclear tests in amounts over and above those envisaged under the mandatory social insurance legislation: 40.0 million roubles in 2009, 42.6 million roubles in 2010, and 42.6 million roubles in 2011. There is no change in the amount of allocations for 2009 and 2010 compared to those approved under the Fund's budget;
• providing disabled people with technical means of rehabilitation and services and specified categories of citizens from amongst veterans with prosthetic and orthopaedic means: 10 016.6 million roubles in 2009, 825.1 million roubles of which goes towards administrative costs, 10 848.5 million roubles in 2010, 919.6 million roubles of which goes towards administrative costs, and 11 619.0 million roubles in 2011, 988.1 million roubles of which goes towards administrative costs. Compared with the indicators approved by the Federal Law On the Budget of the Social Insurance Fund of the Russian Federation for 2008 and the Planning Period of 2009 and 2010, the amounts have been increased by 336.5 million roubles in 2009 and by 461.5 million roubles in 2010. Allocations need to be increased because under the rules of providing disabled people with technical means of rehabilitation and certain categories of citizens amongst veterans with prosthetics (other than dental prosthetics), prosthetic, and orthopaedic means approved by the Russian Government's Decree No. 240 of April 7, 2008, some medical and technical certification functions have been vested with authorised agencies - the executive bodies of the Social Insurance Fund of the Russian Federation. These functions include: medical-technical certification and authorisation of replacement or repair of technical rehabilitation means, including prosthetic and orthopaedic means and compensation of the cost of repair of technical means. This necessitates the creation of an additional 484 jobs to fulfil said functions (one specialist per executive body of the Fund, considering the system of branches), and accordingly, administrative costs will grow by 227.1 million roubles in 2009 and by 261.4 million roubles in 2010. In addition, allocations are envisaged for medical-technical examination and certification;
• for the payment of childcare allowances until the child is 18 months old for citizens not covered by mandatory social insurance: 38 754.7 million roubles in 2009, 43 511.8 million roubles in 2010, and 47 411.4 million roubles in 2011. Compared with the indicators approved under the Federal Law On the Budget of the Social Insurance Fund of the Russian Federation for 2008 and the Planning Period of 2009 and 2010, the allocations for the aforementioned purposes have been increased by 21 959.4 million roubles in 2009 and by 26 342.7 million roubles in 2010, considering the increased number of recipients (as per the Fund's budget for 2007 and the draft federal law On the Introduction of Amendments to the Federal Law On the Budget of the Social Insurance Fund of the Russian Federation for 2008 and the Planning Period of 2009 and 2010) and the forecast adjustment of allowances for the consumer price index growth, 1.075 in 2009 and 1.07 in 2010;
• on the payment of childcare allowances until the age of 18 months over and above the amount established under the Federal Law On State Allowances to Citizens with Children in accordance with the Law of the Russian Federation On the Social Security of Citizens Exposed to Radiation Due to the Chernobyl Nuclear Plant Disaster (as updated on May 15, 1991), to citizens exposed to radiation during the 1957 accident at the Mayak production facility and the discharge of radioactive waste into the Techa River and covered by said law: 1 005.0 million roubles in 2009, 1091.8 million roubles in 2010 and 1091.8 million roubles in 2011. The allocations for 2008-2010 are unchanged from those approved under the Fund's budget.

In accordance with the current regulatory acts, the resources to finance social support measures enabling citizens to use sanatoria and holiday facilities, including travel to the place of treatment and back, are envisaged at the level of the total sum of the monthly allowance transferred to the Pension Fund of the Russian Federation from the federal budget. In connection with this, no allocations for these purposes are envisaged under the present forecast.

Allocations from the Federal Mandatory Medical Insurance Fund under the national Health project are envisaged to pay for medical assistance to women during pregnancy, childbirth, and in the postnatal period, as well as medical checkups for the child in the initial period of life in the amount of 17 000.0 million roubles in 2009, 18 500.0 million roubles in 2010, and 19 250.0 million roubles in 2011. The projected amounts correspond to the indicators of the national Health project.

The Fund's expenditures are to be as follows:

• 439 574.2 million roubles for 2009, of which 318 298.1 million roubles falls under mandatory medical insurance, 54 459.9 million roubles, under mandatory social insurance against occupational accidents and diseases, 49 816.2 million roubles, for the performance of government functions financed by the federal budget transfers to the Fund's budget, and 17 000.0 million roubles from the FOMS budget;
• 501 194.1 million roubles for 2010, of which 368 558.2 million roubles fall under mandatory social insurance, 58 641.1 million roubles, under mandatory social insurance against occupational accidents and diseases, 55 494.8 million roubles, for the performance of government functions financed out of the federal budget, and 18 500.0 million roubles from the FOMS budget;
• 566 471.3 million roubles for 2011, 424 291.8 million roubles of which falls under mandatory social insurance, 62 764.8 million roubles, under mandatory social insurance against occupational accidents and diseases, 60 164.8 million roubles, for the performance of government functions out of the federal budget, and 19 250.0 million roubles from the FOMS budget.

The budgetary expenditure of the Fund by sections of the budget classification is distributed as follows: Section 01 "National Issues": 3,700.0 million roubles in 2009, 4,000.0 million roubles in 2010, and 42,00.0 million roubles in 2011; under Section 07 "Education": 20 154.3 million roubles in 2009, 22 354.8 million roubles in 2010, and 24 695.5 million roubles in 2011; under Section 10 "Social Policy": 419 416.3 million roubles in 2009, 478 835.3 million roubles in 2010, and 541 771.6 million roubles in 2011.

Mandatory Social Insurance

Revenues

The draft federal budget of the Fund includes revenues from the Unified Social Tax transferred to the Fund, 275 342.0 million roubles for 2009 (6 889.0 million roubles more than envisaged under the budget approved by the Federal Law On the Budget of the Social Insurance Fund of the Russian Federation for 2008 and the Planning Period 2009 and 2010), 319 788.0 million roubles for 2010 (10 681.1 million roubles more than stipulated in the budget) for 2010, and 354 628.0 million roubles for 2011. In forecasting the revenues from the Unified Social Tax transferred to the Fund, the data of the Pension Fund on the distribution of the wage fund and the number of workers by taxable base intervals were taken into account.

The revenues from taxpayers covered by special tax regimes transferred to the Fund have been determined based on the Federal Taxation Service data for 2009 in the amount of 10 931.8 million roubles (644.2 million roubles more than stipulated in the budget), in the amount of 12 457.3 million roubles (253.4 million roubles more than stipulated in the budget) for 2010, and in the amount of 14 169.0 million roubles for 2011, of which:

• tax collected under a simplified taxation system - 6 845.6 million roubles (788.6 million roubles more than stipulated) for 2009, 7 800.9 million roubles (409.2 million roubles more than stipulated) in 2010, and 8 872.7 million roubles in 2011;
• the single tax on imputed income for certain types of activities - 3 949.2 million roubles (169.2 million roubles less than envisaged) in 2009, 4 500.3 million roubles (184.0 million roubles less than envisaged) in 2010, and 5 118.7 million roubles in 2011;
• the single agricultural tax - 137.0 million roubles (24.8 million roubles more than envisaged) in 2009, 156.1 million roubles (28.2 million roubles more than envisaged) in 2010, and 177.6 million roubles in 2011.

Payments towards arrears on insurance premiums built up as of January 1, 2001, are expected to diminish based on the results of the performance in 2007 and the expiry of the deadline for such payments in 2010 (70 million roubles in 2009 and 30 million roubles in 2010).

Expenditure

The growth of expenditure on mandatory social insurance compared with the budget target is mainly due to the increased outlays on the payment of allowances (public normative obligations) in connection with the growth of the wage fund and the number of recipients.

Expenditure on mandatory social insurance to pay temporary disability and maternity benefits has been calculated in accordance with Federal Law No. 255-FZ of December 29, 2006 On Providing Temporary Disability and Maternity Benefits to Citizens Entitled to Mandatory Social Insurance proceeding from the performance in 2007 and with due account of the birth-rate increase forecast.

The temporary disability allowance of citizens insured by employers who use special tax regimes is determined on the basis of the minimum wage. The minimum wage used in the calculations is 4,330 roubles for 2009. For the following years, the minimum wage has been adjusted for the growth of consumer prices by an annual 3 percentage points.

In projecting the payments of temporary disability allowances, the number of paid-for days remains at the 2007 level (381.1 million days) without any increase for the corresponding years. The growth of outlays for temporary disability compared with the budgetary target is 35 659,1 million roubles in 2009, of which the increase of the minimum wage accounts for 3 billion roubles, and 47 791,8 million roubles in 2010. In 2011, the outlays to pay temporary disability allowances are projected to reach 221 414,1 million roubles.

Budgetary allocations for the payment of maternity allowances proceed from the number of paid-for days, which takes into account the forecasted growth of the birth rate (4.2% in 2009, 2.3% in 2010, and 2.3% in 2011).

The total spending on maternity allowances includes benefits for the period of pregnancy and childbirth to women who have adopted a child (children) under 3 months of age.

The corresponding assets have been stricken off the target article "Child Adoption Allowance".

The growth of outlays to pay maternity allowances on the budget target amounted to 15 984,3 million roubles in 2009, 20 255,2 million roubles in 2010, with the outlays in 2011 of 69 224,6 million roubles.

The draft envisages an indexation of the maximum size of the temporary disability and maternity allowances from 2009 to 2011 in accordance with the growth of consumer prices in the corresponding year. The maximum temporary disability allowance in 2009 is envisaged in the amount of 18 545 roubles, in the amount of 19 840 roubles in 2010, in the amount of 21 190 roubles in 2011, and the maximum maternity allowance is to be 25 155 roubles, 26 915 roubles, and 28 745 roubles, respectively.

Budget allocations for the payment of monthly childcare allowances until the age of 18 months to citizens entitled to mandatory social insurance, allowances at the birth of a child, and lump sum allowances to women who have been registered with medical institutions at the early stages of pregnancy have been determined in accordance with the Federal Law On Government Allowances to Citizens with Children, with annual adjustment for consumer price growth in the current year based on the implementation of the 2007 budget, the draft budget for 2008, and the increase in the number of recipients due to the growing birth-rate.

The amount of allocations to pay childcare allowances until the age of 18 months to citizens entitled to mandatory social insurance is projected as follows: at 52 220,7 million roubles (at the level of the Fund budget) for 2009, 61 039,7 million roubles for 2010, or 2 007,4 million roubles more than stipulated in the budget, and 70 939,4 million roubles for 2011.

The outlays to pay childbirth allowances are to be 16 221,6 million roubles in 2009 (2 450,0 million roubles more than stipulated in the budget), 17 760,8 million roubles in 2010 (3 698,4 million roubles more than in the budget), and 19 411,0 million roubles in 2011.

The outlays to pay allowances to women registered with medical institutions at early stages of pregnancy in 2009 are to be 227.6 million roubles (70.5 million roubles more than in the budget), 249.1 million roubles in 2010 (88.7 million roubles more than in the budget), and 272.2 million roubles in 2011.

The expected growth of birth-rate was taken into account in determining the size of maternity and childcare allowances.

The allowances for funerals are to be increased from 1,000 roubles to 4,000 roubles as of January 1, 2009. Additional budgetary expenditure in 2009-2010 will amount to 379.5 million roubles annually, and expenditures in 2011will amount to 506.0 million roubles.

In determining allocations for children's health, the target of the number of children remains unchanged from 2007 - i.e., 5 270 000 children. The allocations for children's health in 2009 are forecast in the amount of 19 538,4 million roubles (3 034,0 million roubles more than in the budget), in the amount of 21 701,9 million roubles (4 207,3 million roubles more than in the budget) for 2010, and in the amount of 23 998,3 million roubles for 2011. The calculations are based on the implementation of the 2007 budget and take due account of the deflation index of paid-for services: 113.6 in 2009, 111.1 in 2010, and 110.6 in 2011.

The outlays for sanatoria and holiday treatment of insured citizens after stationary treatment (convalescence) has been determined on the basis of the Fund's projected expenditure for 2008 adjusted for consumer prices in the amount of 4 712,3 million roubles in 2009, 5 042,1 million roubles in 2010, and 5 385,0 million roubles in 2011.

Based on the forecast incomes (from its own resources) and expenditure, as for mandatory social insurance, the current deficit is projected to be 31 141,8 million roubles in 2009, 35 435,9 million roubles in 2010, and 54 608,4 million roubles in 2011.

In 2009, deficit financing under mandatory social insurance from internal sources will amount to 795.6 million roubles. The remaining part of the deficit, 19 346,3 million roubles, will be covered by the federal budget. Considering earlier allocated federal budget resources to cover the Fund's budget deficit in the amount of 561,4 million roubles, the additional requirement is estimated at 18 784,9 million roubles. The current 2010 deficit of 35 435,9 million roubles will be fully covered by the federal budget. Considering the federal budget resources envisaged in the Fund's budget for 2009, in the amount of 6 290,7 million roubles, the extra requirement is 29 145,2 million roubles. The current deficit for 2011 of 54 608,4 million roubles is to be fully covered by the federal budget.

Thus, the federal budget must determine the transfers to the Social Insurance Fund of the Russian Federation to cover the deficit on mandatory social insurance as follows: in the amount of 19 346,3 million roubles in 2009, in the amount of 35 435,9 million roubles in 2010, and in the amount of 54 608,4 million roubles in 2011. No resources have been earmarked in the federal budget at present.

Mandatory social insurance against occupational accidents and diseases.

The increase of allocations to pay temporary disability under the mandatory social insurance against occupational accidents and diseases compared with the budgetary target was 1 121,5 million roubles in 2009 and 1 556,6 million roubles in 2010. The expenditure for 2011 is forecast at 3 915,4 million roubles.

In determining allocations for the payment of temporary disability allowances the number of paid-for days (4.808 million days) for 2009-2011 will not increase.

Monthly insurance payment outlays increased by 1 024,0 million roubles in 2009 and 1 056,1 million roubles in 2010. In 2011, the allocations will amount to 36 850,8 million roubles. The increase is due to the adjustment of monthly insurance payments for the growth of consumer prices and maximum size of monthly insurance payments (from 41 000 roubles to 42 830 roubles in 2009 and from 43 500 roubles to 45 830 roubles in 2010; the maximum size of the monthly insurance payment in 2011 is 48 950 roubles).

Allocations for lump-sum insurance payments increased by 66.0 million roubles in 2009 and 84.7 million roubles in 2010. The allocations for 2011 amount to 637.8 million roubles. The increase is due to the indexation of the sum on the basis of which the lump-sum insurance payment is calculated: from 53 500 roubles to 55 700 roubles in 2009 and from 56 700 roubles to 59 600 roubles in 2010. In 2011, the sum will be 63 700 roubles.

The expenditure on delivery and transfer of insurance payments increased by 64.2 million roubles in 2009 and 85 million roubles in 2010, and is expected to amount to 431.1 million roubles in 2010.

The cost of financing full-scale medical checkups of workers in hazardous production facilities is projected to be 2 000.0 million roubles in 2009, 2010, and 2011 (no increases in 2009-2010).

The outlays for medical, social, and occupational rehabilitation of victims and preventive measures to reduce the rate of occupational accidents and diseases will not to be increased in 2009-2010 and will amount to 11 328,4 million roubles in 2011.

Mandatory social insurance against occupational accidents and diseases is to be financed by the Fund's own resources.

June 27, 2008
Moscow

* Press releases by the Department of Press Service and Information contain the materials submitted by the executive federal bodies for discussion by the Presidium of the Government of the Russian Federation.