President of Russia Dmitry Medvedev: Let us talk about how work is going on the budget. This is a very important part of your job. How are things going?
Deputy Prime Minister and Finance Minister Alexei Kudrin: The budget [for 2010] was submitted to the State Duma by October 1, as stipulated by law. According to preliminary estimates, the first reading will be completed by October 21, which means that the basic parameters – revenue, spending, and deficit – will have been approved by then. The second reading will involve expenditure analysis for various areas and priorities, and deputies will be invited to suggest specific changes within the set expenditure limits.
At the moment we are meeting with all the parties in the State Duma. I have already met with United Russia, A Just Russia and the LDPR [Liberal-Democratic Party of Russia]. We are working with all the parties and examining all the deputies’ ideas and suggestions.
Dmitry Medvedev: Has it been a constructive endeavour thus far – how’s it going?
Alexei Kudrin: Yes, we have had constructive exchanges with the factions I mentioned, and they have made considered and insightful suggestions. We’re in the process of studying them. Before the first reading we’ll be meeting with members of the CPRF [Communist Party of the Russian Federation].
I want to make clear that in the draft budget we included all the areas about which members of parliament and the voters have expressed concerns, using as a guide what the different parties have had to say to us.
The most important concern is social spending. Because of the financial crisis, many groups need support. For 2010, our primary focus is support for the pension system. Next year all pensioners in the Russian federal entities will receive compensation to bring their pensions to at least the federal or regional subsistence level.
This means that next year there should be no poor people in this category of citizens. According to our estimates, this will affect approximately 1.8 million people who are currently living below the poverty line.
Dmitry Medvedev: And what do all the social expenditures in next year's budget look like in relation to, say, current expenses?
Alexei Kudrin: Social spending will increase because we are now launching this large pension programme.
In addition there will be increases in spending on veterans and medical drugs to keep pace with inflation and with an increase in the number of eligible recipients. This is a crucial area for us.
Next are defence and law enforcement, since these are always paid for entirely from the federal budget. Education and health care remain key priorities, but the bulk of expenditures in these areas are the responsibility of the regions of the Russian Federation.
Another priority is support for the regions of the Russian Federation. Members of parliament are always mindful of this and in the preliminary draft budget we increased support for the regions to 23 billion rubles.
In addition, we increased our long-term financing at reduced lending rates that are one quarter of the regular refinancing rate, in order to help fund work on roads in the Federation’s regions. During discussions in this preliminary stage we have also increased this expenditure by 15 billion.
Dmitry Medvedev: That is an important budget item. I’m always talking about this during my visits to the regions. Governors are always asking for help in this area.
Alexei Kudrin: In addition, we have followed up on your idea concerning the Commission for Modernisation and Technological Development of Russia’s Economy: 10 billion will be reserved for implementing the decisions taken by the Commission.
Additional incentives will be made available for the automotive industry and the development of new technologies in a number of industries. In this regard, there will be no reduction and perhaps even an increase in the programmes dedicated to technological development. This applies to various industries, beginning with nuclear technology, where we have adopted a new federal target programme. We’ve allocated 10 billion rubles for digital television, which also involves the use of new technologies. We have not cut back on civil aviation or shipbuilding programmes. We have left untouched programmes related to outer space such as GLONASS [Global Navigation Satellite System]. We have not cut back on the programme for critical technologies and other programmes associated with the development of new technologies. Not only have we not cut back here but we have actually increased spending.
Of course there are programmes where we wanted to cut costs, first and foremost administration. Every administrative agency, from the Presidential Executive Office to the Government Cabinet, cut their costs by an average of 20 percent in the following categories: ”Upkeep“, ”Transport Costs“, ”Communications“, ”Rent“, ”Repairs“, ”Acquisition of New Technologies“, that is, equipment for the offices. In these areas state bodies have tightened the purse strings, much more than in, say, sectors like education or health care. In relation to 2009, expenditures on education and health have been reduced by 4–5 percent.
But we should be considering not the year 2009 but rather 2008, before the crisis occurred, because in 2009 we made our projections assuming there would be favourable economic conditions and therefore decided not to cut spending, believing that we needed to support demand. We drew extensively on reserves to maintain spending, so that if you compare our expenditures with pre-crisis 2008, they increased on average by 30 percent.
In certain sectors, compared with the pre-crisis year 2008, spending has increased: in national defence – 10 percent; security – 20 percent; the national economy and support for various industries – 31; education – 12; health – 19; culture – 21 percent. That is, across the board there have been no reductions if we use the pre-crisis year 2008 as a baseline. As a result, in social spending, for example to support the pension system, there has been an increase of 64 percent compared with the pre-crisis benchmark year.
These are the basic areas that United Russia considered today and endorsed in principle, but we will try to take into account any comments that we receive.
I would especially like to point out that next year we must carry out the programme of housing construction for military servicemen. Next year 113 billion rubles has been allocated to the Ministry of Defence, which means that this project to provide permanent housing will be completed next year, and for other ministries employing servicemen – by 2011.
Dmitry Medvedev: This is in accordance with the plans that we approved some time ago?
Alexei Kudrin: Yes. And in keeping with those plans your executive order concerning veterans will also be fully implemented. And we hope that even before the holidays every veteran will receive the apartment they are due.
Dmitry Medvedev: It has to be before the holidays, that was the whole point of the order. What I know about the situation in the regions suggests that in general the necessary construction is being carried out. I have visited several regions in Central Russia. They are quite confident that either by the end of this year or early next year, they will have saved all the money they need, received their federal funding, used their own resources to resolve this issue.
Next year will still be difficult, as you know only too well. Despite the fact that we are all hoping to reverse the negative trend of the global economy and to gradually stabilise the situation in the global economy and our national economy, next year will be very difficult.
It is true that, accordingly, we have different expectations regarding economic growth, but the preparation of the budget next year will be very difficult. So of course we need to optimize everything that can be optimized in the course of the State Duma’s deliberations and during work on all the readings, while retaining all the key priorities that you mentioned.
Of course here I have in mind the social priorities, the state’s social commitments in relation to pensions, salaries to employees of budget-funded entities, of course, and so on. We’re talking about support for our veterans, our commitment to the army and the security agencies. And as you pointed out there are other key priorities for which we are maintaining or even increasing funding compared to the level that it was this year.
These are critical points in the budget that we must do all we can to preserve and protect, in spite of everything, regardless of market conditions and the positions taken by political forces involved in the budget discussions. These are our main priorities, these are our fundamental choices.
In other areas we really do need to implement and optimize, and in some instances minimise expenditures, because as we both know not all of these expenditures are justifiable. If we talk about reducing the cost of government, it is high time it was done, and not just in times of crisis.
The crisis simply pushed us to ensure the Presidential Executive Office and the Government Cabinet cut costs. This is a very good thing. The one thing we have to ensure does not happen is: the crisis ends (as we’re all hoping), and all these expenditures that once existed start increasing again, and not by 20 percent but by 30 or 40 percent. This is what you have to watch out for as Deputy Prime Minister and Minister of Finance.