ERR in Moscow: Russia planning defense spending boost, despite economic woes

11/3/2015 12:24 PM
Category: International

Despite Western sanctions and the low price of petrol, Russia's main export, hitting the nation, Russia is planning to increase the budget of the military and other power structures.

Income from the oil and gas industry makes up more than half of Russia's national budget. Crude oil prices are less than half of what they were in mid-2014 and natural gas prices are heading in the same direction, ETV's “Välisilm” reported.

Konstantin Simonov, the head of the Russian National Energy Security Fund, said Russia developed its tax system on oil in the mid 2000s. Simonov said the system is simple with the state taking the vast majority of profits from oil exports after prices pass 60-70 US dollars per barrel. The system was dubbed Kudrin's scissors, after the economic minister at the time, Alexei Kudrin.

Russia used that income to create a reserve which saved it from the worst during the 2008-2009 world financial crisis.

“When petrol prices were over 70 dollars, 8.5 dollars from every 10 additional dollars was transferred to the state budget and companies would be left with 1.5 dollars. When petrol prices began to fall, it was the federal budget, which took the biggest hit,” Simonov said.

Neeme Raud, ERR's Moscow correspondent, said Russia is planning to earmark emergency crisis aid 15 times less than previously, and cuts have been made in healthcare and education, while pensions have also been frozen, he added.

“If peoples' ability to pay would be decreased further, then that would mean a fall in consumption and decreased profits from manufacturing. This plan of replacing imports, which is talked about – if it really materializes – creates a question: to whom will they sell the domestically produced goods? Who will buy if people receiving state salaries have their wages frozen or even decreased and pensions are not increased as much as inflation? According to statistics, the real income of Russians is decreasing 10 percent,” said Oksana Dmitrieva, member of the Russian parliament's committee on budget and tax.

The new state budget sees a 9-percent surge in defense spending, now up to 9 trillion rubles (130 billion euros).

Viktor Litovkin, a military expert at TASS, said Russia is planning to update 60-70 percent of its weapons by 2025.

J.M. Laats

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