OREANDA-NEWS. July 01, 2010. President Medvedev delivered the Budget address, highlighting priorities for Russia’s fiscal policy, reported the press-centre of OTKRITIE Financial Corporation.   

View: With the address being delivered after the major parameters of the fiscal system were decided, the focus was on specific initiatives to support modernization and innovation. The president also gave priority to a number of social spending commitments, including salary hikes for state employees and support for national defense. As we are entering the pre-election year, the focus on social spending was expected.

However, according to Finance Minister Kudrin, irreversible spending commitments already account for 80% of total spending. This most likely means that to reach a 4% fiscal deficit in 2011 and zero by 2015, the government will have to sacrifice financing investments which would negatively impact growth prospects. The financing of federally targeted program dropped from 11% of expenditures in 2008 to 8.4% in 2009.

Next year the share could be as low as 6.9%. Apparently, one goal is to spur private investment via tax breaks for new investment. However, we think that without support from infrastructural investment, as well as the overall measures to improve the investment climate, this goal will remain elusive.