DOUBTS CAST ON RUSSIA’S DRAFT 1998 BUDGET.

Russian parliamentarians have been provided with plenty of ammunition to use against the government’s draft budget by the Russian media — even those sympathetic to reform. Criticisms include the following. Liberal critics warn that some traditional sacred cows of federal spending have not been slain, presumably to appease at least some powerful interests. There is a rise in the economic "development" budget, which means a continuation of arguably damaging economic intervention, and increases in farm and coal-mine support (two well-known black holes in the budget). More traditionally-minded critics query whether an adequate central state can be maintained at the relatively low levels of central-government spending that are proposed. Perhaps of greatest significance, however, are worries about the draft budget that concern its economic and political feasibility, and which have been noted by writers from across the political spectrum.

Two such concerns loom particularly large. One is that the federal budget plan is based on a projection of reported GDP rising by 2 percent in 1998. Even if, as many believe, a true measure of GDP could have shown a recovery starting two years ago, it is the reported GDP that is relevant to the tax base, and people are being asked yet again, as they have been since 1992, to believe that an officially-measured recovery is just around the corner. After an apparent decline lasting seven years, that is an act of faith. The second major concern is the dependence of the budget plan on the installation of the new tax code by the start of next year. The tax code is controversial and remains to be passed by parliament. It may well contain too many internal anomalies to be easily used from the start, even if it does become law in time.

There are other concerns as well. Tax collection remains below target even under the downward revisions for this year, and Duma deputies are expected to believe that problems can be sorted out in time for 1998. Also, even if some concessions are made in the draft to powerful interests, hostages are given to others. In particular, the new tax code and the draft budget divert some tax revenue from the regions to the federal budget and, far from offsetting this with larger transfers, aim to reduce the transfers from Moscow to the regions. At a time when the regions are perhaps more powerful than before, this looks risky. In short, this reformers’ draft budget is bold, but it is also seen by many well-informed and sensible observers in Moscow as far from watertight. (Izvestia, August 21, 26; Finansovie izvestia, August 26)

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