Russian macro: the 2022 budget to be amended as revenues soar
In contrast to the planned deficit, the federal budget posted a surplus of around R0.5 trln, (i.e., below 0.4% of GDP) in 2021 amid soaring revenues, and the 2022 budget is already in question once again. The 2021 budget remained in surplus despite the fact that expenditures have been raised significantly – to R24.8 trln. The initially approved 2021 expenditures were supposed to be R21.5 trln. Unsurprisingly, inflation in Russia accelerated and remains high as the effect of the year-end spending spree has yet to evaporate. High inflation pushed up Russia's nominal GDP in 2021, and, therefore, the 2022 tax base.
Normally, the government sees that it has extra cash by the summer, i.e., around the time when it starts drafting next year’s budget. Every year the current year’s amendments are also considered around this time. By September the budget is usually submitted to the Duma for formal approval, therefore leaving a limited time frame to allocate the extra spending. Hence, the December spending peaks, which are distortive. Excessive borrowing in line with the fiscal rule, so that the government is obliged to borrow even in the case of a surplus budget, is another source of various distortions.
The 2022 budget, which was approved just few weeks ago, already looks out of date as revenues will be much higher again this year. Therefore, expenditure amendments will follow, and allocation of budgetary funds will also remain uneven in 2022, causing similar macroeconomic distortions.
* After the initial amendment in 1Q21, federal budget expenditures were supposed to be about R22.3 trln last year but this amount was revised up to over R23.4 trln already in July, and later, to R25.4 trln (including partially unallocated 2020 expenditures). At year-end, the figure appeared to be R24.8 trln, i.e., R2.5 trln higher than was planned in 1Q21 and R3.3 in excess of the initial target.
* In 2021, the federal budget revenues exceeded the initial plan by 34.8% and reached R25.3 trln. Despite significantly higher energy prices, non-oil-and-gas revenues remained around 64.2% of total revenues, implying rather strong growth of non-oil-and-gas revenues, as well.
* Last year, 41% of total federal budget revenues originated from VAT and excise taxes (on domestically produced and imported goods). This exceeds the share of oil-and-gas taxes. Oil-and-gas taxes exceeded the target by R3 trln in 2021 amid higher oil prices, while non-oil-and-gas taxes grew by over R3.4 trln against the last year’s target.
* Unless Russia faces really “worst-ever sanctions”, causing its economy to collapse, or the global economy faces some new unexpected shock, it is likely that the federal budget will soar again. In a relatively calm environment one may expect several trillion rubles of additional revenues and, respectively, a significant increase in spending.
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