Putin’s social projects to cost $170 billion - research

A range of social spending pledges outlined by Prime Minister Vladimir Putin in a newspaper article earlier this week could cost the Russian budget 5.1 trillion rubles ($170 billion) over the next six years, the Sberbank Center of Macroeconomic Research has found.
The research note published this week analyses the cost to the government of projects to increase public sector pay, raise social benefit payments and reduce the cost of housing.
All were policies laid out in an election campaign article by Putin, the leading presidential candidate, in an article published in Kommsomolskay Pravda Monday.
The research found that spending on the specific pledges in Monday’s article would constitute an annual average of 0.84 percent of GDP annually. The figure could be higher if added to other social spending projects proposed by the government.
The Sberbank figure also does not include some of the vaguer policies pitched by Putin in the article that were too difficult to quantify in financial terms, such as those to bridge social divides and lowering alcohol consumption.
“Unfortunately, a lack of detailed statistical data and detail in the measures outlined in the article, doesn’t allow us to accurately calculate the volume of spending required for their realization,” the report said.
The most expensive pledge, the research center found, was a promise to raise the pay of doctors, school teachers and university lecturers, which will cost 3.5 trillion rubles ($117 billion) over six years.
In his article, Putin put the price tag on the pay increases at around $30 billion, or 1.5 percent of GDP.
Many economists and political analysts described Putin’s article as populist and questioned how realistic the proposals were in the current economic uncertainty.
“There is a lot of discussion now about how to balance the budget given all these obligations,” Citibank strategist Andrei Kuznetsov told The Moscow News. “Now the government is discussing either which areas of spending to cut or which areas of taxation to increase.”
He said that increasing social taxes – currently the government’s preferred policy – would only raise a limited amount of funds because previous attempts have only led to a growth in the shadow economy.
Currently the government is also discussing cuts to military and defense spending, a policy popular with former Russian finance minister, Alexei Kudrin, who quit the government last fall over a dispute about spending policies.
Alexei Devyatov, chief economist at the Uralsib investment bank, said that a more effective way to create funds for increased social spending would be to increase budge spending efficiency by clamping down on corruption.
“Medvedev said in late 2010 that his estimate of corruption in the state procurement system was about 1 trillion rubles [$33 billion] per year,” Devyatov told The Moscow News “It think the real figure is more than that, but even at this level, over the next five years, it would be enough to finance social spending.”