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Bloomberg: Russia is lobbying big business for more money to finance the offensive in Ukraine

Russia plans to siphon more money from some commodity producers and state-owned companies and cut non-defense spending as the cost of its invasion of Ukraine increases. Bloomberg informs.

The proposals include higher dividends from state-owned companies and a one-off payment from fertilizer and coal producers, according to instructions given to officials by Prime Minister Mikhail Mishustin in mid-December.

Government order calls efforts part of so-called ‘revenue mobilisation’. It also ordered 175 billion rubles ($2.4 billion) in additional spending on resettling 100,000 people from Kherson to Russia, an apparent admission that the Kremlin has little hope of retaking the parts of the Ukrainian region its forces have abandoned in the autumn a few weeks after the illegal annexation. .

Russia’s budget is shrinking as President Vladimir Putin’s invasion enters its second year and the economy is shrinking due to heavy US and European sanctions. Dividends and a special tax paid by Gazprom PJSC already helped boost the fiscal surplus late last year, before heavy spending commitments in December threaten to send the budget into the red.

Some of the extra money is needed to cover war-related costs, according to people familiar with the matter. No decision has yet been made on the size of the dividends or one-time charge, they said, as the amount will depend on how the budget fares throughout 2022.

Authorities will seek to target dividends above 50% of net profits for state-owned companies wherever possible.

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Budget expenditures and revenues are overly optimistic

Meanwhile, the Russian leader has promised that there will be no limits on military spending for the war, with social programs remaining the largest single budget item. Conversely, the costs of education and medicine are being felt less.

It’s a balancing act revealed in Mishustin’s order, which calls for the “optimization” of budget spending outside defense and security, which is expected to generate at least 150 billion rubles in savings.

With budget deficits set to consolidate in the coming years and international debt markets all but closed to Russia, the urgency of ensuring government access to finance is growing as energy revenues are under pressure.

The Treasury, which last year projected a budget gap of 0.9 percent of gross domestic product, now projects a deficit of 2 percent in both 2022 and 2023. In total, spending last year probably reached around 30 trillion rublesFinance Minister Anton Siluanov said in late December, or about 27% more than initially expected.

Siluanov said the government plans no tax changes this year, even as budget spending increases, and Mishustin’s order does not appear to propose permanent levies.

In the months immediately leading up to the invasion in late 2021, Russian mining companies, including coal and fertilizer producers, were hit by an increase in the tax rate on mineral extraction. Since then, the government has refused to ease the burden, even as sanctions have halted sales and forced production cuts.

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