The Ministry of Finance Found a Trillion Roubles

August 21, 2013
Oleg Prasolov / WP

The Ministry of Finance and independent experts figured out how to save the budget money. Over three years the measures they proposed will save more than 1.1 trillion roubles.

The government expenditure optimization project has already been submitted to the government, the Ministry of Finance press service told “RG.”

The authors of these proposals plan to ensure the savings by cancelling federal allowances for multiple child families (so called maternity capital), realigning spending on the pension system and the public sector. The overall effect of the implementation of these measures will be 194.5 billion roubles in 2014, 377.1 billion roubles in 2015, and 581.9 billion roubles in 2016.

Among those who worked on the document were experts from the Higher School of Economics and the Russian Presidential Academy of National Economy and Public Administration. It is expected that at the beginning of September 2013 the report will be presented to the head of state. However, the purpose of the proposed changes is not to achieve a sustainable surplus, but rather to increase the cost-effectiveness of government expenditures through realignment of spending within each sector, says one of the authors of the report. However, the question of budgetary maneuver, that is, for example, by investing more in human capital at the expense of defense spending, was deliberately avoided in the report.

The changes will affect, for example, government spending on the pension system. Experts offer several different options. These include incentives for later retirement, for example, as suggested in the report, by introducing additional factors to the size of old-age pension if the person continues to work after reaching the pension age. Another option is annual indexation of the PAYG component of retirement pensions to the annual inflation rate, plus two percent. Thus, it will ensure a real growth of pensions, while the budget will save one and a half trillion roubles on subsidies to the pension fund.

It was also proposed to consider raising the retirement age for full-size fixed base retirement pension. But this question was put on the back burner. If the proposal is adopted, the retirement age will increase gradually, for women with 55 years in 2019 to 60 in 2029, while women eligible for pension at the age of 55 to 60 will receive partial payments of the basic pension, according to the report.

As to the social support measures the changes might affect the “maternity capital”. Under the current legislation, these allowances will be discontinued effective December 31, 2016. The authors of the report justify that it has fulfilled its purpose. Once these allowances are cancelled, starting from 2017 about 300-330 billion roubles will be released. Instead of the “maternity capital,” the authors propose to increase benefits for children from low-income families, which would require only 100 billion roubles.

The public sector will also be affected by the government expenditure “optimization.” Reforming this sector by creating “open” arrangements for the provision of government or municipal services will reduce the share of inefficient spending by 10-15 percent, including by establishing a clear link between the composition and volume of services on the one hand and social guarantees and obligations of the state on the other. Thus, it is suggested, for example, to develop and adopt before the end of 2014 a federal law regulating on provision of state and municipal grants for which their recipients will be publicly accountable. The federal grants to the top regions in terms of the executive bodies performance could be reduced by a factor of 11: from 11 to 1 billion roubles a year. The drafters of the report expect that this will improve the quality of public services provided to the population.

The education sector should also become more transparent. By 2016 it will save up to 15 percent of the government expenditure on education. In this case, the savings resulting from restructuring of universities, as the authors of the report emphasize, won’t be fully realized until 2018. And more uniformity in terms of budgetary allocations to educational institutions will save about 10 percent. In addition, the budget will save 81.8 billion roubles through the reduction of the number of students by 2018, including 63.1 billion in payroll savings.

In the health sector, cost optimization will be achieved, among other things, by prohibiting medical facilities to procure drugs, the prices of which are not subject to state registration and are inflated two to three times compared to prices in developed countries. For this end a system of reference prices for all prescription drugs will be established. According to experts’ estimates, the resulting savings on purchases for the hospital sector could amount to 13.27 billion roubles rubles per year in 2012 prices.