Accessibility links

Breaking News

Russia: Duma Unlikely To Approve Spending Cuts

Moscow, 16 May 1997 (RFE/RL) -- The State Duma's Budget Committee has rejected the government's proposals to slash spending due to low tax revenues, but a senior Finance Ministry official vowed the cuts would go ahead as planned.

The Budget Committee decided in principle yesterday to recommend that the Duma reject the government's proposal to reduce spending this year by 108 trillion rubles ($18.7 billion). While it will take a final decision only Monday, the committee is likely to propose the creation of a conciliatory commission to work out a compromise formula acceptable to both sides.

But the government downplayed the possibility of a standoff with the Duma. First Deputy Prime Minister Alexei Kudrin told Interfax that if the Duma rejects its proposals to cut spending, the government would slash expenditures anyway. The government says reconfiguring this year's budget will help end a mounting wage and pension arrears crisis by slashing spending in other areas.

The opposition-dominated Duma is headed for a showdown with the reformist Cabinet next week over plans to slice 20 percent off 1997 budget spending following dismal tax revenues in the first quarter. The budget law for the first time requires the Duma to approve plans to sequester spending when quarterly revenues fall below 90 percent of targeted levels.

The Duma is slated to begin plenary debate on the spending cuts Wednesday, when Prime Minister Viktor Chernomyrdin is scheduled to go before legislators to defend the plan. Deputies will vote on the proposals next Friday.

Although tax revenues picked up in April, they are still well below forecast, forcing the government to reduce spending to keep the budget deficit down. The Duma yesterday called on the government to make up for the revenue shortfall by printing money, but the Central Bank, independent since 1993, has dismissed the proposal as a recipe for hyper inflation.

Kudrin acknowledged that it would be "less legal" to push ahead with sequestration despite the Duma's opposition and urged deputies to approve the spending cuts.

Analysts say that given the weak powers of the Duma, the Finance Ministry still holds all the cards. One economist, who asked not to be identified, said: "It doesn't matter if the sequestration plan goes through the Duma or not."

Other analysts agreed that the government's chief concern now is to improve transparency in setting spending levels and minimize opportunities for bureaucrats to parcel out funds under pressure from lobby groups.

Some observers have noted that the debate on spending cuts is more political than economic. As one analyst put it: "It is really a question of how far the Duma wants to go with this, whether they want a vote of no confidence in the government."

Some analysts argue the deputies, eager to retain the perks of being in office, are unlikely to risk pushing ahead with a no confidence vote, which could result in the dissolution of the Duma and fresh elections. But the reformist Yabloko faction late yesterday proposed holding a no confidence vote in the government during next week's debate on the spending cuts.

While the Duma may not want to gamble on fresh elections, it could give the Cabinet headaches by holding up passage of the draft tax code which the government submitted to the Duma last month.

The handling of this year's spending cuts could also determine the fate of the 1998 budget, which the government hopes will be based on a new simplified tax code. Some believe that pressing ahead with spending cuts in spite of Duma opposition could result in difficulties getting next year's budget passed.

But as Oleg Leonov, an aide to the Budget Committee, put it: "The Duma now realizes it needs to accept a more realistic budget for 1998...Without it, the government will do what it wants."

In an apparent attempt to stay in the game, the Budget Committee is floating a proposal to create a joint commission with government representatives to hammer out new spending and revenue targets for the rest of this year. A similar commission was created last year to smooth over differences on the1997 budget, which is widely regarded as an unrealistic package of concessions granted to get a financial plan passed.

The Budget Committee, chaired by reformist Yabloko deputy Mikhail Zadornov, signaled that the government had not done enough to solve the budget crisis. It said the government's forecast of reduced revenues of 102.7 trillion rubles was "unduly exaggerated" and urged the Finance Ministry to "make full use of the opportunities to mobilize federal budget revenues."