Russia Weighs Biggest Spending Spree Since Putin Re-Election

(Bloomberg) -- Russia’s government is discussing a proposal to turn on the fiscal taps in what would be the biggest domestic spending spree since President Vladimir Putin last ran for re-election in 2012.

Kremlin economic aide Andrey Belousov said expenditures on health, education and infrastructure could be raised by 1.5-2 percent of gross domestic product, the official Tass news agency reported Tuesday. Cuts to outlays in other areas and “optimization” of taxes are among the options being considered to help offset the cost, he said. No final decision has been made, according to Belousov.

“We need to make structural changes, including to the budget and taxes,” Finance Minister Anton Siluanov told reporters on the sidelines of an economic conference. The proposals could help improve Russia’s prospects by “restructuring budget expenditures to more effective items that address social needs and those of economic growth,” he added.

The Kremlin is considering raising outlays on transport and roads by as much as 30 percent over the next three years and provide a boost of about 20 percent to spending on health care and education, a person familiar with the deliberations said Monday. Details of how the increases might be financed haven’t yet been worked out, though cuts to spending in areas like security, as well as tax increases and a wider deficit, are among the options, people involved in the process said. They asked not to be identified because the information isn’t public.

Russia Weighs Biggest Spending Spree Since Putin Re-Election

Belousov is spearheading the proposed budget overhaul, they said. Some of the moves were initially outlined by former Finance Minister Alexei Kudrin, according to a presentation by his research center that was seen by Bloomberg. Belousov confirmed those calculations formed the basis for the plans now under discussion, according to Tass.

The proposed boost would start to take effect in late 2018, with most of the effort focused on 2021-2022, two of the people familiar with it said. It could bring spending on health care, education and infrastructure up by as much as 2.3 percent of GDP, they said. At present, expenditures on the three amount to about 9 percent of GDP.

‘Dead End’

“There’s a risk that this will be limited to empty words in support of the need to reform, but in reality little will be done,” said Vladimir Tikhomirov, chief economist at BCS Financial Group, a Moscow brokerage. “The economic policy that’s currently being conducted is a dead end, it doesn’t produce the effect of economic growth or an improved standard of living.”

Putin faces little challenge as he looks to win a fourth presidential term in the election in March. But incomes have been slow to recover as Russia stumbles out of the longest recession since he first took power almost two decades ago. The government had been planning to hold spending on health, education and infrastructure little changed over the next few years as part of a drive to keep the budget deficit in check amid low oil prices.

The World Bank warned in November that “further cuts in health and education may jeopardize both economic growth and the well-being of the population.” At 3.6 percent of GDP in 2016, Russia’s spending on health care was far below the European Union’s average of 7.2 percent, it said in a report. The government also allocated 3.6 percent of GDP for education, compared with 4.9 percent for EU nations.

©2018 Bloomberg L.P.