The partial decline in revenue resulting from changed introduced in tax legislation was compensated for by the changed rates of excises in the RF Tax Code. As for changes in budget legislation, we should note the transfer, to the budgets of RF subjects, of the federal part of the tax on extraction of mineral resources levied on extracted diamonds, and of lumpsum payments for the use of subsoil resources in instances specified in licenses for the use of revenue resources in the RF territory, relating to deposits of natural diamonds.
If we consider the enlarged structure of the 2007 federal budget revenue, we can notice the substantial growth of the budgetТs tax revenues in absolute terms as compared to the indices established by the Law on the 2007 budget and the indi ces of its actual execution in 2006. At the same time, it is forecasted that in nominal terms in 2007 the non tax budget revenues will be somewhat decreased against the 2006 indices. In relative terms (in % of GDP) their behavior was slightly differ ent. Thus, while the share of tax revenues in the 2007 budget must be approxi mately 21.5 % of GDP against 21.6 % and 22.2 % of GDP, as established by the Law on the 2006 budget and the actual budget execution in 2006, respectively, the share of non tax budget revenues in the 2007 budget is noticeably lower than the indices established by the Law on the 2006 budget (1.0 % of GDP) and the indices of the actual budget execution (1.4 % of GDP).
The structure of tax revenue in the 2007 federal budget, by main taxed, is shown in Table 17.
Judging from the data presented in Table 17, it can be concluded that the revenues from all the main taxes, except the tax on the extraction of mineral re sources, in 2007, according to the forecast, will grow in nominal terms. However, if we take the relative indices (in % of GDP), their values in respect to many taxes did not changed, or slightly rose by comparison with the values of 2006. This, the high est growth is forecasted for the value added tax (from 5.7 % (by the results of 2006) to 6.6 % GDP). On the contrary, the revenues of the federal budget from for eign economic activity may decline from 8.7 % to 7.9 % of GDP, whereas the reve nues from the tax on the extraction of mineral resources - from 4.1 % to 3.3 % of RUSSIAN ECONOMY IN trends and outlooks GDP. The main downward factors may become the lower rate of oil production, as well as the stabilization of oil prices on the international market, which directly de termine the rate of the tax on extraction of mineral resources and the exports duty levied on oil.
Table The structure of tax revenues in the federal budget in 2006 and 2007 (in % of GDP) Actual budget execution Tax 2006 Law 2007 Law in million % of million million % of % of GDP roubles GDP roubles roubles GDP Tax on profit of organizations 485 681.7 1.8 509 914.6 1.9 580 408.8 1.SST, transferred to federal 310 412.1 1.1 315 839.8 1.2 368 773.9 1.budget VAT 1 534 485.3 5.6 1 510 903.4 5.7 2 071 792.3 6.Excises 107 560.9 0.4 110 487.9 0.4 126 683.4 0.Revenues from foreign eco 2 301 236.5 8.5 2 306 318.7 8.7 2 455 079.8 7.nomic activity Tax on extraction of mineral 1 083 188.2 4.0 1 094 319.3 4.1 1 037 739.6 3.resources * - in the 2006 prices.
Below, see the comparison between the volumes of expenditure in the RF federal budget in 2006 and 2007, presented in Table 18.
Table Basic expenditure parameters of the RF federal budget in 2006 and 2006 - law 2006 - fact 2007 - law million rou % of GDP million roubles % of GDP million roubles % of GDP bles Expenditure 4 431 076.8 16.3 4 281 329.2 16.1 5 463 479.9 17.including:
fixed as % 171 466.5 0.6 169 058.7 0.6 156 845.3 0.not fixed as % 4 259 610.3 15.6 4 112 270.5 15.5 5 306 634.6 17.* - in the 2006 prices.
When comparing the values shown in the table, it can be concluded that the 2007 budget is oriented to a marked increase in the volume of federal budget ex penditure in absolute terms both as compared to the 2006 budget law and to the actual budget execution. In respect to GDP the 2007 budget expenditure was also noticeably higher than that established by the 2006 law (16.3 % of GDP) and the indices of budget execution in 2006 (16.1 % of GDP). At the same time, as can be seen from Table 17, the aggregate growth of budget expenditure was due exclu sively to the increased non interest expenditures, which rose up to 17.0 % of GDP against the 15.6 % of GDP established by the 2006 budget law, and the 15.5 % of GDP as seen by its actual execution in 2006. One of the main reasons for this no ticeable growth in 2007 of the federal budget non interest expenditures was the response to the Presidential Message to the RF Federal Assembly, where a number of priority directions of state policy in 2007 were determined. In particular, among By Law УOn the 2006 Federal BudgetФ as of от 1 December 2006.
Section Monetary and budgetary spheres these priorities was the finding of solutions to a whole set of problems in the sphere of social policy, the national economy and interbudgetary relations. Besides, in the 2007 budget expenditure a certain sum was earmarked to the implementation of the MessageТs provisions aimed at improving RussiaТs demographic situation.
Now let us look at the structure of expenditure in the 2007 RF federal budget and compare it to the structure of expenditure in 2006 - both as stated in the law on the 2006 budget and with the changes that occurred later (Table 19).
Table The structure of federal budget expenditure in 2006 and 2006 law fact law (million rou % of GDP (million rou % of GDP (million rou % of GDP bles) bles) bles) General state issues 623 208.39 2.3 529 666.7 2.0 808 196.48 2.of these, servicing of state 171 466.48 0.6 169 058.7 0.6 156 845.30 0.and municipal debts National defense 686 148.28 2.5 681 802.9 2.6 822 035.93 2.National security and law 556 337.12 2.0 550 232.5 2.1 662 867.23 2.enforcement activity National economy 358 628.27 1.3 345 015.0 1.3 497 229.53 1.Housing and utilities system 54 336.28 0.2 52 697.3 0.2 53 024.46 0.Environment protection 6 816.09 0.0 6 642.0 0.02 8 096.53 0.Education 211 976.79 0.8 212 371.3 0.8 277 939.33 0.Culture, cinematography and 55 834.65 0.2 55 219.7 0.2 67 804.67 0.mass media Public health care and sports 160 347.54 0.6 147 525.0 0.6 206 373.53 0.Social policy 216 506.39 0.8 201 243.3 0.8 215 565.76 0.Interbudgetary transfers 1 500 937.01 5.5 1 498 913 5.6 1 844 346.45 5.Total expenditures 4 431 076.81 16.3 4 281 329.2 16.1 5 463 479.90 17.* - in the 2006 prices.
If budget expenditure is analyzed by item of the functional>
RUSSIAN ECONOMY IN trends and outlooks and subitems of budget expenditure as a percentage of GDP in 2007 markedly rose on the previous year.
Table Federal budget surplus and the sources of financing for ederal budget deficit in 2006 and 2006 - law 2006 - fact 2007 - law million rou % of % of GDP million roubles % of GDP million roubles bles GDP Deficit (Ц) / surplus (+) of 1 739 407.8 6.4 1 825 910.3 7.5 1 501 837.3 4.federal budget * - in the 2006 prices.
The decline of revenue in the 2007 federal budget, coupled with a market growth of expenditure, resulted in a significant fall in federal budget surplus (Ta ble 20). Thus, while the law on the 2006 budget stated that it was 6.4 % of GDP, and by the yearТs end it went up to 7.5 % of GDP, in accordance with the law on the 2007 budget it may amount to approximately 4.8 % of GDP.
As for the structure of the sources for domestic financing of federal budget deficit, in 2007 it planned than, through the placement of government securities, the sum of 293,633.3 million roubles should be attracted, while the redemption of government securities will amount to 80,109.7 million roubles. Thus, the net bal ance of resources attracted on the domestic market will amount in 2007 to ap proximately 213,523.6 million roubles. The 2007 budget contains revenues from the sale of state owned and municipal property in the amount of 49,000 million roubles, as well as resources specially earmarked to a potential fulfillment of RF government guarantees in the amount of 3,649.4 million roubles.
If the structure of the sources for external financing is analyzed, it can be seen that in 2007 no placement of government securities denominated in foreign cur rencies is planned. Besides, among the external financing sources in 2007, no tied loans granted by foreign governments or international financial organizations are listed. At the same time, the planned volume of attracted tied loans from foreign governments and international financial organizations 2007 is at the level of $ 763.million (20,251.6 million roubles), which is by $ 349.2 million (or by 11,576.6 million roubles) less than that of 2006. The planning of the use of tied loans was compati ble with the main directions of the RFТs debt policy established for the current and the next years, which envisaged that no credits from foreign states should be at tracted in the future, as well as with the prospective financial plan for the years 2007 - 2009. The current policy will make it possible to round up the use of tied loans as early as 2007 (that is, two years earlier than the initially established time line).
Also in 2007 it is expected that the volumes of repayments against external debt will be decreased, which has become possible due to the large scale redemp tion of RussiaТs government debt, at the expense of the RF Stabilization Fund, in the amount of $ 44 billion during the period of 2005 - 2006. In 2007 it is planned to By Law УOn the 2006 Federal BudgetФ as of от 1 December 2006.
Section Monetary and budgetary spheres earmark to the redemption of the RfТs foreign debt the sum of approximately $ 6,850.3 million (or 181,670.6 million roubles). In this connection, more than 47 % of this sum will be spent on the payments against old government securities de nominated in foreign currencies. It is also planned that in 2007 a eurobond loan in the amount of $ 2.4 billion (or 63,648.0 million roubles) will be redeemed, along with an increased volume of redemption against RF eurobonds with maturities in 2010 and 2030. Besides, certain resources are earmarked in the budget to the po tential fulfillment of guarantees in support of the export of industrial products from the RF in the amount of $ 158.3 million (or 4,198.1 million roubles). Thus, the gov ernment continues its course toward the expansion of its domestic debt and reduc tion of its foreign debt in circulation.
On the whole, the law on the 2007 federal budget can be characterized as be ing rather conservative, because no significant changes in its structure of revenue and expenditure are planned. At the same time, by comparison with the budget, one can observe the stabilization of revenue, coupled with a marked growth of non interest expenditures. Any further pursuance of the policy aimed at increasing such expenditures at a rate higher than that of GDP growth may result in an additional inflation pressure, which will make even more difficult the implemen tation, by the RF Central Bank, of measures designed to maintain the rate of price growth within the planned margins. Besides, the stabilization of the situation on the international raw materials markets, alongside with the changes introduced in the tax and budgetary sphere, may play down the risks associated with the reduction in the amount of the situational share of revenue and losses of tax revenues in the budget. It also should be noted that the volume of federal budget revenue as stated in the budget (both in % of GDP and in nominal terms) is close to the estimated val ues yielded by the medium term macroeconomic structural model of the Russian economy developed at the IET.
2.3. Forecast Models of the RF Economic Development and Restrictions in Economic Policy over a Medium Term Prospective If one compares the situation, when for several years the international markets have been demonstrating high prices for oil and other energy carriers as opposed to the situation, when the oil prices are low, it will be noted that one of the main dis tinctive features characterizing the external conditions for implementing monetary, credit and exchange rate policies will be characterized by differences in the bal ances of payments and the equilibrium values of real exchange rate (that is, equi librium from the point of view of balance of payments).
During the period of high prices for energy sources, an extensive capital in flow, based on high export revenues, results in strengthening of nominal exchange rate, growth of import and reduction of export. In other words, oil prices growth and surplus of trade balance contribute to strengthening of the real exchange rate, contributing to equilibrium of trade balance. Dynamics of capital flow balance also supports the above statements, and as a result, the real exchange rate is strength RUSSIAN ECONOMY IN trends and outlooks ened either due to domestic prices growth (under stable exchange rate), or stabili zation of exchange rate. Herewith, in case of an upward breakthrough of external market, a higher value of equilibrium of real exchange rate versus the current rate is established and vice versa, a lower equilibrium value occurs under the external market downfall27.
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