A Russian plan to cut 10 percent from this year's budget is at best misleading. Once the government has protected President Vladimir Putin's favoured spending areas such as welfare and defence, it will struggle to make savings worth a third of that. The plan has grabbed much attention, reassuring investors looking for signs that Moscow is taking prudent steps to respond to the oil price plunge, while also deepening concerns about the further pain inflicted on the slumping economy.
But large areas of the budget are excluded from the cuts and Russia has a poor record of meeting its own targets. Last year the government also promised sweeping cuts and ended up raising state spending substantially. Despite this, Russia is still squeezing expenditure as global prices of its main revenue earner, oil, remain well below levels needed to balance the budget. With inflation likely to overshoot an official forecast of 6.4 percent, even a spending freeze, for example, would mean sizeable cuts in real terms.
Nevertheless, the talk of sweeping cutbacks hardly squares with the facts. "The wording of the government's budget policy is very, very tough, but we don't see this confirmed by the actual figures," said Natalia Orlova, economist at Alfa Bank. For a start, the 10 percent cut is from the 2016 budget which parliament approved in December, not from actual 2015 levels. Often also overlooked is the fact that most spending, around two thirds of the federal budget, will not be subject to the planned savings.
Putin appears reluctant to jeopardise his popularity by cutting the social benefits, mainly pensions, that account for over a quarter of the federal budget. He has also declared defence and national security, another third of the budget, off limits. In reality the cuts now being touted, about 500 billion roubles ($6.4 billion) according to Finance Minister Anton Siluanov, would amount to only around 3 percent of this year's budget. Meanwhile, the government is already talking about increases elsewhere that would partly negate these reductions, such as new "anti-crisis" measures.
"There's a history of announcing spending cuts in Russia, and actually what happens is that the cuts never quite materialise as planned, and they can get offset by rises in the areas that are ring-fenced," said Neil Shearing, chief emerging markets economist at Capital Economics.
The anti-crisis spending - supposed to counter the economic effects of plunging oil prices, the weak rouble and Western sanctions imposed over Ukraine - remains vague. However, similar measures last year included subsidies for industries and recapitalising banks. Some of these were financed from a sovereign wealth fund rather than the federal budget. Russia also said it would cut budgeted expenditure - outside the protected areas - by 10 percent in 2015.
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