The Ministry of Finance has refuted ten “myths” about the economy

The Ministry of Finance has refuted ten “myths” about the economy

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Photo: Ekaterina Kuzmina/RBC

Including austerity, the Finance Ministry has decided to answer its critics and populists in the form of a game. It offers to download a “quiz” which dispels “myths” about the budget and the economy

The Ministry has created an “interactive game”, which explains his fiscal policy and in fact brings in a compressed form the ideology of the Ministry of Finance. “Budget puzzle” and a quiz “the Myths about government Finance” was presented in September, on the Moscow financial forum, and enjoyed great popularity there, says the Agency. Now the game is available for download on the website of the Ministry of Finance.

Among the “myths”, which denies the Ministry of Finance, there are such theses as “the state and the Central Bank always have money”, “the Growth of pensions leads to a reduction in poverty” and “Russia’s high taxes”, etc. (see incision). Only the user is prompted to answer 10 questions, right or not a particular statement. In the “right” answers the Ministry of Finance explains why not all the time to raise pensions, to “invest” petrodollars into the economy, just print money and increase government spending.

Through play the Ministry of Finance is responsible opponents of fiscal consolidation and those who had long criticized the policy of saving oil and gas revenues in reserve funds, supporters of the inclusion of the printing press (the”target issue”) and the lobbyists of the defense industry. To stimulate economic growth through a “controlled emission” called Boris Titov, Sergey Glazyev and other members of the Stolypin club. And the accumulation of reserves due to high oil prices was criticized, for example, the Minister of economic development Alexei Ulyukayev, who last summer called it “poor governance”.

One of the “myths” according to the Ministry of Finance that military spending stimulates economic growth. The Agency explains that this is not the case: spending on defense is unproductive — “unlike the tractor, the creation of the tank can not increase the economy issue in the future.” In 2016 the share of defense spending in the budget, is expected to reach nearly a quarter, but in the next year, the Finance Ministry proposes to cut them by 27% in nominal terms; in 2017-2019 years, the share of defense expenditures will not exceed 18%, according to the draft three-year budget. Although the Minister of Finance Anton Siluanov October 10, assured that “priority will be given to defense spending, since it is a geopolitical task <…> in spite of all the limitations of financial resources.”

The Finance Ministry against the “myths”

1. The state and the Central Bank always have money

The Ministry of Finance: “In reality, the Central Bank and the government have only the possibility of economic policies to redistribute resources from one set of economic agents to others. A deficit or a “target emission” (in reality — the hidden interest rate subsidies) — a reallocation of resources from the public and private companies to budget due to higher inflation or tighter credit conditions (for companies not included in “special” programs)”.

2. In Russia, high taxes

The Ministry of Finance: “the tax burden on the economy in Russia (34-35% of GDP) is close to the average for the OECD countries. However, excluding oil and gas revenues in 2013 amounted to 23.4% of GDP, which is 11 percentage points below the OECD average. Of course, in Mexico and Chile, the tax burden is even lower than in Russia even without taking into account oil and gas revenues, but desirous of reducing the tax burden, it is necessary to understand what costs will have to decline. If you know, don’t be shy — the Finance Ministry of Russia always welcome suggestions to enhance cost-efficiency”.

3. The growth of pensions leads to a reduction in poverty

The Ministry of Finance: “since 2010, the size of the old-age pension cannot be less than the subsistence level of a pensioner, that is, the problem is poverty among pensioners (at least old age) no longer relevant. While undoubtedly, the current level of state pensions does not provide a decent standard of living for pensioners, which emphasizes the need for the development of a cumulative element of the pension system and to accumulate assets for the future pensioners”.

4. The increase in government expenditure accelerates growth, and their reduction — slows

The Ministry of Finance: “Positive effect on growth occurs only in the presence of unemployed resources competitive economy: high cyclical unemployment and idle productive capacity. Currently, the unemployment rate in Russia is around 5.5% of the economically active population, which is close to the natural level of unemployment. In such circumstances, additional costs will be to increase inflation and the level of interest rates in the economy, and not the physical volume of GDP. <…> The world practice shows that the implementation of fiscal consolidation by reducing expenditure usually has a positive effect on the dynamics of GDP.”

5. Russia has low budget deficit and does not pose serious problems

The Ministry of Finance: “the Primary structural deficit is high now — at the end of 2016 it will account for about 3.5% of GDP and that’s the problem. The presence of such a deficit means the unsustainable trajectory of public debt and the rapid growth of interest expenses in the budget structure. Effects of deficiency: displacement in the structure of expenditure other public expenditure or private expenditure”.

6. Military spending stimulate economic growth

The Ministry of Finance: “the Costs of purchasing weapons, best to compare with the current consumption, which generates only a single growth at the initial stage when production capacity is not fully loaded. But in the future they do not contribute to growth, as it does not increase productivity in the economy and do not contribute to the increase in production possibilities in the future. And unlike the tractor, the creation of the tank can not increase the economy issue in the future.”

7. Saving part of oil and gas revenues in the Reserve Fund is unprofitable to the state, as it provides a very low yield

The Ministry of Finance “Savings of excess oil revenues in foreign assets gives a double positive effect: (1) creates a safety cushion for use during periods of low oil prices and (2) make conditions for the development of the economy stable. Indeed, as practice has shown — a strong increase in spending of oil revenues within the economy has merely led to a redistribution of activity in the non-tradable sector, while the sector working for export or competing with imports stagnated. <…> From the point of view of profitability, the government buys foreign assets in the Reserve Fund with high oil prices — so cheap, and sells cheap — and therefore expensive. If you look at the actual return of resources during the “oil cycle” it was about 4% over inflation is a very profitable investment”.

8. The tax system in Russia does not encourage investment

The Ministry of Finance: “the Legislation on taxes and fees only at the Federal level contains nearly 90 standards, encouraging investments, totaling 2% of GDP. This is about as much as our country spends on primary and secondary education. The most significant tax incentives for investment are mechanisms bonus depreciation and accelerated depreciation. The list of benefits is extremely varied: from the lowered tariffs of insurance fees for IT companies to reduce the tax rate on mining for deposits with a high degree of depletion of stocks. Perhaps you can come up with something else, but then you have to cut costs. If you know how the Ministry of Finance always welcome your suggestions.”

9. The Federal center takes all the profit, leaving nothing for the regions

The Ministry of Finance: “the Federal budget is committing substantial resources to the regions and to the Pension Fund. Excluding these transfers revenues between the Federal center and the regions are divided almost evenly.”

10. Intergovernmental transfers are arranged so that de-stimulate regions to earn

The Ministry of Finance: If “well-wishers” in the regions advised not to work very hard in the development of the economy, on the grounds that the Federal center will immediately cut subsidies, if you see a growth in own revenues, they do not need to listen — it is necessary all forces to attract investments and develop the economy of the region — “do that should and come what may”.