Jon Hellevig — Share of oil and gas in Russia’s tax revenue dropped to 21%, but the threatened devastation failed to materialize

Analysis of the consolidated Russian fiscal position.

I must, however, here alert to a discrepancy in the figures that a keen reader could possibly spot. In fact, the Russian government reported that the oil and gas revenue had fallen to comprise 37.4% of the federal budget revenue and not the 21% of which I wrote above. The key word here is federal. For some archaic reasons, which I cannot fathom, the Russian Ministry of Finance publishes its reports in reference to the misleading “federal budget”. The correct reference would be the consolidated budget. 

Thing is that due to an accounting convention and administrative rules the Russian budgetary system is divided into three main categories: the federal budget, the regional budgets, and the state social security funds. The various types of taxes flow into one of these budgets, and only a consolidation of them all in one will show what is the total revenue of the state. All of the personal income tax and approximately two-fifths of the corporate profit tax as well as the social security contributions (referred to as ‘payroll taxes’ in economic speak) stay outside the federal budget. It is easily conceivable that this division is changed from one year to another, indeed what has frequently happened over the years. 

It is therefore quite nonsensical to rip big headlines out of what the oil and gas revenue is of one of the parts of the state budget. This is damaging for the economy as decision makers will wrongfully believe in too big a dependence on those sources, and indeed it feeds the Russophobes with a juicy argument. 

Indeed, in most countries those listed types of taxes (state revenue) are contained in one budget. Suffice to glance at the budget of the United States (below chart). By excluding from the U.S. budget all the types of tax revenue that the Russian ministry had excluded from its comparison, more than 80% of the U.S. budget revenue would disappear as well….

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Share of oil and gas in Russia’s tax revenue dropped to 21%, but the threatened devastation failed to materialize

Jon Hellevig