THE 1954 SOVIET BUDGET (RR IM-401)

Created: 11/15/1954

OCR scan of the original document, errors are possible

INTELLIGENCE MEMORANDUM

CIA SPECIAL COLLECTIONS RELEASE AS SANITIZED

4 SOVIET BUDGET

CIA/RR54

CENTRAL INTELLIGENCE Office of Research an J

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cowrs:m;

I. Introduction -

XI. Budget Revenue

froa Profits

C- Population Taxes and the State Loan

D. Secondary Sources

B. Unorthodox Accounting Entries ln3

udgets

III. Budget

the national

Investment

C Social-Cultural

D. Defense

Explicit Defense

Internal Security

E. Administration

F. Secondary Items of Expenditure

Appendix

_ ^2

ui -

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Table r.

Page

Soviet Ridge* ,

Soviet Profits and Revenues fron Deductions from Profits,

6

3- Comparison of the Receipts from the Soviet Turnover Tax

andductionB fromlan . 7

k. Soviet Budget Expenditures, 13

5- Estimated Breakdown of the Planned Allocations toand Procurement in the Soviet 18

6. Changes in Accounts under Financing the national Economy

in the Soviet2 and 19

7> Planned Capital Investment and Expansion of Working

Capital in the USSR, 21

Capital Investment in the USSR by Sector

of3 Actuala 22

Investment in Agriculture in the USSR,

83

10. Capital Investment ln Light and Food Industries

ln the* 25

U. Announced Investment ln the USSR by Sector of Economy,

26

Allocations to Science In the USSR, 27

Index of munitions Procurement In thc USSR in Constant

Prices, 29

1*. Expenditures' on Internal Security and on Defense

in theO2 30

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U SOVIET BUEfcZT* Conclusions

Tbe striking points ofoviet budget are the largein Investment and allocations to agriculture and the consumer industries. Increases in investment to heavy industry,eveling off of explicit defense allocations. Large rises in unknown sources of revenue suggest the possibility of unreal revenues,ombination of both.

There are two unreal items In^ budgetne representing loss in revenue7 billion rubles because of tbe reduction in retail prices, the other representing loss in revenue3 billion rubles because of the rise in the procurement and purchase prices of agricultural products. Estimated undisclosed expendituresillion rubles.

Investment in industry, agriculture, transport, and trade will riseercent over the amount actually invested in those items The main part of the rise will go to agriculture and thegoods industries. At the same time, heavy Industry Is toizable increase and the major portion of investment funds.

Traditional sources of revenue have risen little. The main rise is to come from the profits tax, fulfillment of whichon the successful lowering of costs of production and on the fulfillment of thc plan for output. The state loan ls planned at the same level asn average subscriptioneeks' wages per capita.

3 budget benefited the consumer primarily through short-term measures which increased his disposable income- " budget

* The estimates and conclusions contained in this memorandum represent the best Judgment of thc responsible analyst as't.

preserves those same measures and also provides for long-term benefits by way of investing in agriculture and the consumer industries.

I. Introduction.

U Soviet budget shows the extent to which the Malenkov government is intending to carry cut its new economic program. Implementation of the new economic program3 was renderedby commitments already made and by tbe necessary time lags required for tbe reallocation of resources. This year, more than half of the rise in capital Investment in industry, agriculture, transport, and trade will go to agriculture and light Industry. At the same time, budgetary outlays for maintenance of and procurement for the defense establishment have been reducedercent less than3 expenditures. This year's budget reflects,morethan3 budget,Investment ln and benefits to the consumption sector of the economy. There is no evidence in theplanobilization of resources for hostilities, udget allocation for defense, though reducedppears adequate to maintain thc Soviet armed forces at their present strength and level. Economic Intentions revealed by the budget support those announced by Malenkov in

The new program for the development of agriculture and ofgoods production, which was announced by Malenkov in3 and was described specifically in subsequent decrees and orders seems to bc the framework for the new budget. Last year, measures ere token which had immediate effectseduction in the state loan and agricultural tax and an Increase in the plan for trademade possible by withdrawals from stocks, sales of obsolete goods, and increased imports. In connection with theof resources and thc stepping up of the production plan forgoods and agriculture, however, difficulties arose which are reflected in the relatively small increaseercent in capital investment/

* Footnote references ln arabic numerals are to sourceshc Appendix.

Seme of the seme measures which brought Immediate effects3 are being continued U such as the reduced state loan andtax. In addition, increased resources are being allocated to agriculture and the consumer goods industries. 3/ theto the new economic program has been largely accomplished to an extent that insures some degree of success in the plan forinvestment.

II. Budget Revenue.

Planned revenue inudgetillionillion rubles over revenue collected32 billion rubles over revenue planned Planned budget revenueU is shown inogether with the planned and actual revenuesignificant changes in revenuesecline In turnover tax receipts, resulting from reductions in retail prices and the raisingignificant rise ln profits tax receipts, resultingigher goal for lowering' the costs of production andarge rise in secondary and undisclosed revenues. In all, traditional primary sources of revenue (turnover tax, profits tax, state loan, populationhich account for aboutercent of total revenues,rose byillion rubles3 planned revenues, leaving the bulk of the rise in revenue to come from secondary and undisclosed sources. After estimating certain known secondary

. sources of revenue, there is left an increase of aboutillion rubles unaccounted for within the unknown category. It is difficult

. to say where this increase

There may be an item included ln revenues which is eitheror indicative of deficit financing. In the war years, there was deficit financing, but the budget showed expenditures higher than revenues. It is possible that new accounting methods are now being used in this connection,Just as other new accounting methods are being used in other connections.

A. Turnover Tax.

The turnover tax is an excise tax levied on consumer goods and petroleum products. It is collected at either the stage ofor the stage of distribution. It is the largest source of budget revenue, usually amounting to about jO percent of the total.

* ollows on p. h.

39

1'

b

>

>

>

a

1 it has been decliningesult of large reductions In retail prices and of increases in procurement prices on agricultural products. Turnover tax* Is planned atbillion rubles,illion rubles less than planned last year. Since retail price cutsoss in statend since there is no evidence of substantial declines in production costs, it is assumed that the loss largely takes the form of reduced tax receipts. The only other source of state revenue included in the priceroduct is profit, and at tbe time of large price reductions, planned profits and deductions from profits taxes have not suffered.

Rises ln procurement prices of agricultural products alsooss In turnover tax receipts. Procurement organizations pay turnover tax, and when their costs rise and retail prices stay constant, turnover tax rates must be reduced if the organizations ore not to suffer losses or reduced profits. Turnover tax receipts ore chiefly determined by the volume of retail trade turnover. Exactof movement cannot'be expected because petroleum products provide turnover tax receipts but do not enter into trade turnover and also because sales of products subject to different tax rates show disparate rates of increase. Trade turnover is scheduled to5 percent ln constant prices The gap between turnover tax receipts planned* and those which would be expected at this higher level of trade ia accounted for by retail price reductions and Increases In procurement and purchase prices, which are discussed belov.

B. Deductions from Profits.

Deductions from profits are planned to8 billion rublesompared3 billion rubles collected from this sourcen* billion rubles less than planned. The profits tax ls levied on state enterprises. hen subsidies were abolished and wholesale prices and freight rates raised,from this source rose considerably, ll/ eductions from profits fell slightly, but since then they have risen markedly each year. The fulfillment of the plan for profits, and hence for deductions from profits, depends primarily on fulfilling output and successfully lowering costs of production. It particularly depends on raising labor productivity, which Zverev stressed in the budget speech. Industrial labor productivity*o riseercent, comparedercent increase achievedercent It is planned that total profits will rise8 billion rubles, tlic figure achievedillion

ise ofercent-hows Soviet profits and profits taxes3 IkJ

Table 2

Soviet Profits and Revenues from Deductions from Profits

Billion Rubles

Plan Actual Plan

Profits Deductions from Profits' Retained Profits

8 5 6

Because profitsesidual and depend on tbe level of output, on investment outlays, and on changes in labor productivity and production costs, they are difficult to estimate with precision. The serious underfulfillmcnt of the profits plan3ombination of difficulties encountered in meeting targets for output. Investment, labor productivity, and costdifficulties which were compounded by the sudden shifts in resource allocations ordered under the new economic policy.

The* hasrend of substitution of deduc-tions-from-profits receipts for turnover tax receipts, as indicated in

Both the turnover tax and profits are considered sources of socialist accumulation" or "net income"that Is, the difference between cost of production and selling price. pproximately one-third of net Income will be derived from profits and approximately two-thirds will be derived from the turnover tax. Soviet theorists assert that by consistently lowering retail prices, and thus the amount received from turnover tax, there willore equal distribution

* ollows on p. 7.

Table j

Comparison of tbe Receipts from the Soviet Turnover Tax and from Deductions fromlan

Revenues

Rubles) a/

Tax

Rubles)

of Total Revenue

a/

from Profits Tax

Rubles)' '

of Total Revenue

a/

revenue3ocs not include the un-real budget entries in the budgetthat is, loss ofdue to price cuts aod losses resulting from increased procurement prices (see Unreal entries3 include the Plan figure for allocations for retail price cuts and the actual figure for allocations for raisingprices.

of net income over various branches of the economy. Including branches of In other vords, the long-term Soviet goal Isontinuation of the trend shown above,igher rate of increase in profits than in turnover tax. This Implies constant lowering of tax ratesaximization of profits through lowered costs andproduction and goods turnover.

C. Population Taxes and the State Loan.

The planned taxation of the populations slightly lowerreflecting the continued effects of the newtax policy laid down Besides the changing rate of taxation of agricultural Income, other measures in this field were'

workers In villages with anf/ttl tFT the Prlncl'ml^ theirrateSvarl0Ufl tfl* collections from the

kolkhoz market were "significantlyjJ Also*

contrary to usual practice, did not

include foodetuffs which are also sold on the free market Thus

^^wnvarT^pe^8

freilLrS?Income from

V ffeCted- Tnesc Policies have servedProduction and vill decreased

divergence between rural and urban living standards.

ftate loan collected from the population this year is the same as last year, an average of two weeka' wages per caSta The Planned increase in personal savingsJ,bU-

oanaa, togethermall amount frca social insurance orRaniza-

*

compared4 billion rubles

tSee^fJ^ Qep06it8yillion rubles, abouthe High savings

It lnCraDents t0 Purchaslngiower and also thtof greater availability of consumer goods.

D- Secondary Sources.

Secondary sources of revenue include social insurance funds

St*tlonoaxes on ent^iacs^nd

' JoUoctlons various nontax Income, customs from the republic and local budgets.

Information on revenues from these sources Is available as recentlyf part"estimates can be produced

in JLISI^T*J" ,WSxpenditures arHn^red ln the budgetross basis. Thus the total receipts of MTS are

' eXpenditUresTS exceededincome rtef in S ilk lk iDatedMTS revenues would4 more than in other recent yearsesult of the widening and developing of MTS activities. Expenditures to MPS

exnerStures^'that ^

expenditures and revenues is even greater than It isthat expenditures* wiU exceed revenues by ^billion rubles As long as intensive investment Is carried on In the MTS expenditures will continue to exceed revenuesarge amount^'

CuBtome aod reparations arc practically impossible toexcept on the basis of trends in other years, since no ruble value can be assigned to reparations.

After estimates of secondary sources have been made, which are explained in more detail in Tablethere is left anresidualX billion rubles, comparedubles last year. The sources for the rise in this itemunknown. There is left the possibility that some of thisrevenue is unreal or that it represents deficit financing.

Unorthodox Accounting Entries in3 and lQgtt Budgets.

There have been some suggestions that3 budgetan overlsrge undisclosed residual in both revenue andto the amount of Uo billion rubles. That is not accurate.3 Soviet budgeteretofore unmentioned category for the allocation of revenues "for the lowering of state retail prices." This category calls for an expenditureillion rublesalancing revenue. Inpeaking before the Supreme Soviet, Zverev

The general sum of revenues of the State Budget of the USSR3 includingof the budget of autonomous republics and local Soviets from local sources receipts, ond also including revenues, allocated for tbe lowering of state retail prices, carried outs defined in the plan of the Soviet of Ministershousand rubles.

The general sum of expenditures of the State budget of the USSRncludingof the budgets of autonomous republics and local Soviets, and also including expenses for the loweringtateprices, is presented for confirmationhousand rubles.

In the budget speech, Zverev2 billion rubles for the price reduction The revenue item is probably

elow.

of the same magnitude since these revenues are "allocated for the lowering of state retail priceapril." In the past, this item has not been included in the budget. The only reflection of price reductions in the budgets of previous years is In reduced receipts from thc turnover tax and perhaps from deductions from profits. For instance,verev Bald that the retail price reductionspure loss for the state e specificallyhe income part of the State budget ls farwing to thc reduction of retail prices, which reduced state Incomes ln the ten months of this year to the sum8 billionj/

3 it would seem that the price reduction has beentwice, once in reduced tax receipts and once in additional entries mentioned above.

* the budget Includes an item7 billionallocated for the price reductionsk. Thestates

To confirm within the USSR State Budget* tbe allocation of funds set by the USSR Council of Ministers0 rubles from the revenue of the current year for the reduction of stateprices for food and manufacturing commodities which vas carried out aa ot ,

The fact that the revenue is of thc current year Indicates that the revenue loss ia due to thia measure.

InU budget there lo yet another new accounting entry, similar to the price reduction entry. This is the "allocation of funds set by the USSR Council of Ministersotal sumubles for compensation in connection with raising of procurement and purchase prices for agricultural produce, which was carried out

It Is impossible for this item to be included in tbesection of the budget ln the category Financing the Rational Economy. If, from the total agriculture and procurement allocation5 billion8 billion rubles for MIS3 billion rubles for raising procurement prices are subtracted, there is leftc billion rubles for all other agricultural expenditures, which

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cover allocations to Govkhores, cotton growing, forestry, agricultural service organizations, and other losses of procurementhe item planned for these other agricultural expenditures amounted7 billion rubles. It is most unlikely that* that same Item should amountillion rubles, less than half of2 allocation.

It is therefore assumed that there is an entry under "Other Expenditures" vhlch designates raising procurement prices. The most logical place for this item would beection entitled "Returned revenues aod various payments," urther definition of this section given9 hy Rovlnskly ls rebates on turnover It is believed that tbe source for financing the increase ln procurement prices ls the turnover tax. (Evidently profits are not the source, since no declines evident.) Moreover, itvident that* plan for turnover tax receipts is lower by aboutillion rubles than the amount of tax computed for receiptaking into account on Increase in the tradeplan and loss of tax from the retail price reductionpril. Assuming, therefore, the entryax rebate, and the plan fortax does not include receipts designated forebate, there mustevenue item in "Other Revenueo" to include turnover tax receipts designated for rebate.

In concluoioo, there occm to be* fictitious entries on both sides of the ledger vhlch represent tax rebates for raising procurement and purchase prices of agricultural products. This entry ls much like the fictitious price reduction entry whichtax rebateo for retail price cuts.

The ex-and

It seems that the most logical reason for3 inclusion of price reduction costs in the budget is one of propaganda. this item3 budget would have shown little increaseith this item3 budgeta normal rate of growth compared with2 rate. In order to show any rate of growth at all,* budget has had to continue this practice by matching in near amount the fictitious items of3 budget. The pendlture for thc rise in procurement lsax reba

cannot be considered real.

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Ill- Budget Expi-ndj-ures.

Total planned expenditures ln tho Soviet budgetillion rubles, V8 billion rubles more thanndillion rubles more than. Planned budget expendituresk are shown in Table together with thc planned and actual expenditure- The most significant increases in expenditures are in the fields of agriculture, consumer Industry, and social-cultural measures. These seem to have been made at the expense of andefense program. Heavy industry continues to assume the dominant role ln the national economy andpercent increase In investment. Defense expenditures are plannedillion rubles, compared with planned expenditures3illion rubles and actual expenditures3 of an Indeterminably smaller amount. In general, the national economy receives about one-third of the budget funds, social-cultural measures about one-fourth, and Defense about one-fifth. These traditional primary expenditures account forillion ofbillion-ruble Increase over3 expenditures. Traditional primary sources of revenue, however, rose only slightly,arge increase in unknown sources of revenue to cover the known rises in expenditures. In view of this, it is possible that there is, more inflationary situation In the economy than

A- Financing the National Economy.

4 the National Economy will receivelt billion rubles, comparedi billion rubles Organisational breakdowns within the category Financing the National Economy have undergone34 significant shifts in definition, which render comparison with previous years difficult. With the old of estimation of certain shifting categories, some comparison can be made.

Expenditures under this category go to economicfor new capital investment, expansion of working capital, subsidies, operational expenditures, and capitalTS and other agricultural service organizations as well asenterprises of the Ministry of Coaminicatioos are entered

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ten lo tto

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9

1

ross basis in the budget under Financing the National Economy end receive all their expenditure funds from this

boutercent of the allocations made to the national economy vlll go to industry,ercent to agriculture,ercent to trade and transport, and the remainingercentesidual which includeg expenditures to the communalstate food and material reserves, and other research and experimental work. Possibly the development of nonconventlonal weapons is included here since there does not seem to be room elae-where In the budget for it; some of it also may be included under heavy industry.

ndustry continues to receive large allocations. They are aboutercent higher than those planned 0llocations to Industry declined slightly. The greatest decline occurredfter the abolition of subsidies to Industry and transport, end since then the allocations have been rising each year. Allocations to transport have also steadily risenecline Allocations to agriculture roseellnd3 had not yet regained1 level. Agriculture, however, received more attention* than other branches of the economy, and allocations to agriculture rose to the highest level known. An increase ofillion rubles outotal national economy Increase ofillion rubles vent to agriculture. Budget allocations to agriculture and procurement4 roflcct the positive measures being taken for the development of In particular, MrS allocations show on increasef which are for increased capital investment. Theillion are for increased operational

The fact that, beginningrocurement vas Included in the agricultural category makes it difficult on the basis of published budgetary statements to compare allocations to agriculture3* with the same allocations of former years. Instimates of agriculture alone have been made for ccaparablllty. 3 it was stated that allocations to agriculture and procurement9 billion rubles, yjj "Additional" allocations were given6 billion rubles, which was broken down as followsillion rubles, representing the loss in agricultural taxillion rubles additional allocations to the KTS;

* elow.

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illion rubles raising procurement prices of livestock products and other livestock measures, ofillion rubles were for raising procurement prlcea, andillion rubles were for other livestock measures. Of these) cannot be considered additional allocations to agriculture andunder Financing the national Bconomy. ose in revenue, and) Is included in "other expenditures' (see discussionn unorthodox entries in the budget). total allocations to agriculture and procurement3 under Financing the Hatlonal Economy are estimated atbillion * gives the estimated breakdown for planned allocation to agriculture and procurement3 andU.

On the basis of this Information, it should be noted that23 the allocation to agriculture waa not so high as it had been0espectively. Thus,ew program for the development of agriculture waa announcednvestment in agriculture had to be brought upevel below thatvidently, commitments already made3 left it Impossible to carry out the new program to any great extent in the current year.owever. It has probably become possible for funds to be made available for reallocation from other sources to agriculture.

Besides the shift of procurement to agriculture,U, internal trade was shifted into industry. In particular, lighthOy This leaves, fron the old trade and procurement section, -foreign trade, which is not mentioned lnudget and sohe "other" category under Financing the Rational Economy. hows the changes maden the accounts under Financing the national Economy.

For purposes of comparison, continuing estimates4 can be made for the old categories of Trade and procurement. Tablehows this.

* This breakdown was made on the basis of announced Increases In kolkhoz income from increased procurement prices on livestockhe amount was toillion rubles: alnce procurement organizations are subsidized for rises ln procurement prlcea, this would be the amount spent for that purpose.

na.

*** ollows onollows on p. Onbove.

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Table 5

Estimated Breakdown of the Planned Allocations - to Agriculture and Procurement In the Soviet

Billion Rubles

U

0 b/

/ d// 5

Otherb/

Procurement c/ Agriculture and Procurement

reakdown on agriculture and procurement is made onbasis of the basic allocation plus additional allocations mentioned In3 budget speech and law. Thesellocations are assumed to be additional over2 expenditures. 2 actual expenditures to agriculture5 billion rubles;* billion rubles for development Of HTBillion rubles formeasures gives an allocation6 billion rublesd procurement allocationsho "additional" items are left out, end the difference5 billion rublesubles, the basic allocation to agriculture and procurementthatillion rubles. Is assumed to be the llocations to trade and procurement3 billionillion rubles of thia for procurement does not seem unreaeooable.

Actual MPS expenditures2U billion rubles, Ul/ and anillion rubles was appropriated to the MTSringing the total8 billion rubles Actual expenditures by MTS3 billion rubles-,

in parentheses are tentative estimates.

must be noted here that the amount Indicated In the abovetoot the amount paid to procurementfor the raising of procurement and purchase prices onproducts: this Item Is Included in the category "otherand is discussedrevious ocction on the inclusion of

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ruble 5

Estimated Breakdown of thc Planned Allocations to Agriculture and. Procurement ln the SovietContinued)

unorthodox accounting entrieo ln the budgets3rocurement allocation lleted here included investment, coats of storing products, and any operational losses Incurred by tha

d. On the basisillion rubles allocated to procurementn appropriationillion rubles ls estimated

. ' Table 6

Changes ln Accounts under Financing tho National Economy In the Soviet2*

Accounts

Industry Agriculture

Transport end Communications Trade and Procurement

Other

State Reserves Municipal Economy Other Miscellaneous (Honconventional Weapons)

ccounts

'Heavy Industry Light Induatry and Trade Transport and Cannunlcat ions Agriculture and Procurement

Other

State Reserves Municipal Economy Foreign Trade Other Miscellaneous (Nonconventlonal Weapons)

hereignificant rise in the portion or the total budget to be spent by the Union Republics. Whereas thc republic

-

budget expenditures rose03ercent,3* they rose byercentillion rublesillion Tbe bulk of the rise In republic budgets was absorbed by higher expenditures under Financing the Rational Economy. 03 these expenditures had risen frombillion rubles toillion rubles* they5 billion rubles, hh/ Host of the rise in republic expenditures Is probably caused by increased allocations to agriculture and light and local industry, which are administeredarge extent on tbe republic level. This rise also Indicates, however, an Increase ln decentralization of financial control, vhlch is probably intended to act as an incentive for greater efficiency.

B- Capital Investment.

In the budget speech, total allocations to Investment ln fixed capital and expansion of working capital are usually given, with specification as to the amount which vill come from tbe budget and the amount which vlll come from the enterprises' own funds. Tbe latterof retained profits,ation deductions, mobilization ofresources, and savings from lowered costs of production. Inallocations to fixed capitalillion rubles. This ls in line with thc Fifth Five Year goal for increasing capital investment. Allocations for the expansion of working capital9 billion rubles. Funds designated for expansion of working capital ere used when new enterprises are put into operation or when existingare expanding production and need more funds for wages and the procurement of raw materials, fuel, and other Items. Expendedand Investment in the building of new enterprises has been greatly increased3V, and there lsarger need for working capital than ln former yearn, vhen nonproductive projects like the Main Turkmen Canal and the South Ukrainian-North Crimean Canal absorbed large portions of fixed Investment funds. Tablehows capital investment and expansion of working capital from the budget and other sources.

In comparison13U there were sharp rises in the amount of funds to come from the enterprises' own resources for expanding working capital. These Increased fundseflection of the increased responsibility and control being given managers of enterprises, probably in an effort to increase enterprise efficiency aad at tbe same time get the consumer goods program under 1

* ollows on

Table 7

Planned Capital Investment and Expansion of Working Capital

in the

Billion Ruble i

j/3 W * it2/

Investment in Plxcd Capital

Own

Expansion of Working Capital

.Total Investment and Expansion of Working Capital

. .9

This year, for the first time the budget speech and law gave detailed information on capital investment in sectors of the national economy. This Information Includes sources from both the budget and the enterprises' own funds and is contained in

ollows on

Table 8

Announced Capital Investment in the USSR by Sector of Economy3 Actuallan

(Billion Rubles) (Billion Rubles) of Total

Heavy Industry

8.3

Industry

111

and Cooperatives

and Communications

Total

For a/

Includes communal economy, state reserves, other minor "activities, and possibly the development of nonconventional weapons.

The information inndicates thatU thereU-percent increase in total capital Investment in industry, agriculturend trade. In order to achieveigh increase in these' known sectors, there may have been some diversion of investment funds away from the unknown categorya, which would bring the increase ln total investment to less thanercent. In this connection, analysis has indicated that budget allocations to there planned to beillion rubles lower than (See

It is probable that the difference between actual3 and planned capital investments greater than actual and plan differences in other years. The increase in actual Investment3 was not so high as in other years; it amounted. percent2 Specifically, It is known that

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tbe Ministry of thc Food Industry underfulflUed Its investment plan3nd kolkhoz Investment is estimated to have been underfulfilied byercent. Although kolkhoz investment is not included In these figures, it may be indicative of other agricultural investment plan fulfillment. Lack of information on actualexpenditures In any recent year, however, renders comparison and analysis difficult.

Heavy industry continues to receive the bulk of announced capital investment funds. Investment in light industry, agriculture, and trade3 amounted1 percent of tbe total, andU* percent of the planned total. The real effort in investment in agriculture did not take placeU, as can be seen from Table 9.

Table 9

Capital Investment in Agriculture in the

Billion Rubles

0

(Actual)

(Actual)

3* (Plan)

Credit

2.7

3-S

2.0

/

f

l)

Funds

/ 6

9-5

0

/

All Other Agricultural Investment ?/

I'd. 21

primarily MPS and sovkhoz Investment'.'

stated that monetary receipts to0 wereercent higher than they werereceipts to the fund are kolkhozes own funds earmarkedinvestment. It is assumed here that investment fromgrows at the same rate as the fund.

(based on qualitative evidence and trends of

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Table 9

Capital Investment in Agriculture ln the.

(Continued)

i Kredlt stated that the Investment financed by long-term credits from theBank12 This figure wasthe known figures for long-term credits for each year.

illion rubles were for rural electrification.

illion rubles were for developmentiUion rubles for ruralrubles for obtaining mineral fertilizer, andrubles for construction of hothouses and farm buildings,and so on.

gi 4 budget speech announced that the monetary resources of the indivisible fund3 bad grown byercent Monetary resources are earmarked for capital investment. It la assumed here that investment from the fund grows at the same rate as the fund.

h. Tentative estimates baaed on the fact that other allocations to agriculture have risen

nillion rubles2 was allocated to construction inndnillion rubles3 was allocated for thisonstruction in MTS, that is, building repair and construction of buildings,*6 will amount5 billion rubles,imes more than the total amount expended for the same purpose in the6l/

O the plan for long-term loans from the Agricultural Bank to kolkhozes was fulfilled only byercent. This was probably true also of other parts of tha agricultural investment plan. 1olkhoz, investment remained low, but3 the plans were raised considerably. It ishowever, that kolkhoz Investment3 was fulfilled. ong-terra credits for rural electrification had amounted toillion rubles, orercent of It was announced lnhat the credit plan

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or the agricultural long-term investment bank3 was largely under-fulfilled and thatbe credit plan of the agricultural bank is toines more than In the sane source. It vas atated that the collegium or the Ministry of Finance had noticed serious shortcomings ln the Agricultural Bank ln Its work of crediting plans for the return of loans. This Information on agricultural Investment shows that in thc1apital Inputs In agriculture suffered, most probablyesult of the Korean War. The fact that0 relatively high amounts were planned for Investment and that actual achievements were lower than in other years supports this thesis. It is alao evident that, aa in other areas of Investmenthe goals for kolkhoz invest-nent fall shortignificant amount, an estimatedercent. The lack of discussion on planned kolkhoz Investment In* budget also bears out this estimate.

A pattern similar to that ln agricultural Investment also exists in capital investment in consumer goods industry, ln in the light and food industrlcoj Investment in those twois shown In Table

Table 10

Capital Investment ln Light and Food Industries ln the.lan

Billion Rubles

.k

Hore again it seems that the Korean War disrupted anof those industries. It was not* that Investmentevel higher than that The revisions In the economy introduced3 seem not to embody revised goals of the present Five Year Plan in the ministries concerned with consumer

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goods. It is more likely that an effort was introduced to fulfill the Five Yearn time, since theears show that investment was well below the rates necessary for fulfillment of the Five Year Plan.

In addition to budget allocations to sectors of the national economy, the budget law this year gave tbe allocations to those some sectors from the nonbudget resources. In like manner Investment was also broken down, as is shown inj>/

Table 11

Announced Investment in the USSR by Sector of Economy

lan

Billion Rubles

Budget

Allocation Resources Allocation Investment

Financing thc

Economy

Industry

Industry

Trade

.2

Procurement

k

Communications

It is possible that some of this included social-cultural As of the present there is no available evidence that clearly states whether announced Investment pertains only to the budget category of Financing the National Economy or also included some social-cultural construction. Here it is assumed that It pertains only to the National Economy.

Items included in the "other" category of the budget are Communal Economy, State Reserves, some research and experimental work, other minor items, and, it has been suggested, theof nonconventtonal weapons. Host of these Items receive all

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their funds fron the budget, as Is evident from the table. Of the total undisclosed allocation7 billion5 billion rubles vlll case front the budget. In viev of this. It Is possible that the development of nooconventional weapons ls included here since it too vould probably receive all its funds from the budget.

C. Social-Cultural Measures.

Social-cultural measures are planned toillion rublesomparedillion rublesn unusually high rise of almostercent. The bulk of the rise vno absorbed by appropriations to Education and to Health and Physical Culture. Education is to2 billion rubles, which will go lntoward the education of agricultural specialists and also to expanding enrollment In the educational system. In oneU, there is planned tooubling of students vho will finish secondary The Academy of Sciences and other scientific research institutes will receive, from the budget and other sourcesillion Research on nooconventional weapons vould probably be Included in this category. Allocations to science declined91 and appearedew highllocations to sciencere shown in

Table 12

to Science ln the USSR

Billion Rubles

Year

Resources

This ls probably the highest allocation to sciencet may reflect increased nuclear and nonconventional weapons research.

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Social Insurance, Social Security, and Aid to Unmarried Mothers and mothers with many children will receive slightly increased fundsillion rubles4 comparedillion rubles.

D. Defense Expenditures.

Defense Expenditures.

Explicit defense expenditures go for maintaining and equipping the land, sea, and air forces of the USSR. Procurement of end items is estimated to amount to aboutercent of the defense budget- Planned explicit defense expendituresillion rubles, compared2 billion rubles plannedIn terms of procurement4 effort is estimated to bedouble that0 and two-thirds as high as the World War II maximum hows the Index of munitions procurement. 4 allocation appears adequate to maintain the Soviet armed forces at their present strength and level.

If expenditure underfulfillments in financing the national economy, social-cultural measures, and minor outlays are deducted from total underfulf iliment, there isinimum underfulf ill -ment Itemillion rubles which probably can be attributed to defense < It is estimated that defense expenditures3 wereillion rubles, an underfulf Ilimentercent.

Expenditures for the development of nonconventional weapons are probably not included in this explicit military The major costs of development are believed to be accounted for under the heading of "Financing the nationalonsequently, the decline in direct defense outlays does nota decline in these important categories.

Security.

The item Internal Security, which includesfor the police and border police functions of the MVD and MGB, Is usually included in considerations of defense expenditures, The economic activities of the MVD are included in the national economy.

* Tableollows on

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13

Index of Munitions Procurement in the USSR In Constant

)

Year

iaa pointed out that expenditures for Internal security historically naverend opposite to that of explicit defense expenditures. This relationship Is shown in* Immediately after the war, for instance, when explicit defense'were about halved, internal security expenditures rose significantly. hen defense expenditures Increased sharply. Internal Security expenditures fell to6

This pattern holds Implications of the Soviet attitudes toward Internal and external security.

3 the merger of the MVD and MGB and the probable removal of scae economic activities or therobably served to reduce administrative costs of the organization. ommittee for State Security was established, and it seems to have taken the place of the former Ministry of State Security (MGB). In

* Tabicollows on

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Table 14

Expenditures on Internal Security and on Defense in tho2

Billion Rubleu

Security a/

a/

Plan figures.

view of this, expenditures to internal security vill probably be aboutillion rubles3 and plannedigher level The decline3 relative2 io based on the fact that the MVD lost acme of its economic functions ond wao merged with thc MGBresumably resultingecline of administrative costs.

S. Adminl st rat ion..

It was indicated in34 budget laws that expenditures for state administration and Justice have beenhigh. No figures for administration were giver in the budget laws for either year, although theretatement in4 law that there wouldavingsillion rubles inexpenditures Jl/ and another statement In3 lava planned savingsillion Evidence indicates that, vhen the law is votedn the Supreme Soviet, adninistration and Internal security are lumped together under one heading, and further, that when administration alone is mentioned in the budget speech as receivingbillion-rublc appropriation, whichairly constant amount, only organs of state administration and Justice are referred to. Therefore/the reduction In administrativementioned in34 budget lavs are taken to refer to both administration and internal security, and allocations togiven34 refer to only administration und Justice. These latter expenditures cover all central administratlve-control organs, the Ministry of Foreign Affairs, the State Planning

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Commission, and administrative overhead costs of all individualbodies. TZj U, administration alone

Jb to9 billion rubles. It is probable that theexpenditures goal23 vas overfulfilled, in view of the large reductions planned3, and of the aany^sdmlnistrativc changes vhich have occurred during the past two

F- Secondary Items of Expenditure.

Di.sually listed by the Supreme Council are allocations to Justice, the Reserve Fund of the Council ofAllotments to Special Banks, transfers to Republic and local Duaget8,and other unknown and minorhe usual underfulfillment of the undisclosed category reflects the unspent funds In the reserve funds of the Council of Ministers of the Union and of the Union Republics.. Where known, the allocations have beenairly constant amount, varyingillionillion rubles.

The fund is for emergency measures and financial bottlenecks, just as state food and material reserves are for emergency measures and economic It is possible that some small amount

trateSlc Purposes, under the category Other Expenditures., Major items of strategic expenditure,re believed to come under the heading of the National Economy.

It is interesting to note that3 for the first time in recent years, undisclosed expenditures3 were overfulfilled. One cause for this is probably that the reserve fund was used up in connection with emergency measures that arose that year.

. ecause the new program was not inaugurated until midyear and the budget was announced in August, it is likely that the planners could not foresee all the financial difficulties that would arise in connection with the implementation of the new program. Also aplan for the raising of procurement prices on agricultural products was not announced until September, and the only known amount allocated for this purpose in the budgetillion rubles for raising procurement and purchase prices of livestockt is most probable therefore that3 budget, as announced";

* tentativc star* toward implementing the new program. " budget gets the new program well under way.

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BLANK PAGE

APPENDIX

Evaluations following the classification entry and designated Tfival., have the following significance:

Source of Information

Doc

- Documentary

-

by other sources

-

reliable

-

true

-

reliable

-

true

-

reliable

-

-

usually reliable

-

false

-

reliable '

-

bc judged

-

be judged

othervise designated are those appearing on the

cited document; those designated "RR" are by the author of this No RR evaluation is given when thc author agrees with the evaluation on the cited document.

1.

3-

H.5 U.

Eval. RR U. Eval. RR Eval. KR. Eval. RR Eval. RR 1.

U. Eval. RR 1.

gosudarstvennom byudzhete1 god,

U. Eval. RR. Rovinskly, Qosudarstvennyy byudzhet SSSR, Gosfinlzdat,

U. Eval. RR 1.

0 gosudarstvennom byudzhete2 god,

U. Eval. RRasedaniya Verkhovnogo Soveta SSSR, Stenograficheskiy

U. Eval. RR 1.

Rosudarstvenncm byudzhete2 god.

U. Eval. RR 1.

Zasedaniya Verkhovnogo Soveta SSSR. Stenograficheskiy U. Eval, RR 1.

Verkhovnogo Soveta SSSR, Stenograficheskiy

Khozyaystvo, No. U. Rval. RR 1.

U. Eval. U. Eval. RR6 U. Eval. RR 1.

2 U. Eval. RR 1.

U. Eval. RR 1.

Voprosy Kkonomiki, No. u. Eval. RR 1.

redlt, No. U. Eval. RR 1.

U. Eval. RR 1.

Uvestlya,4 - U- Eval. RK I.

U. Eval. RR 1.

. (j. Kval. -tR 1.

8 U. it 1.

8 U. Eval. RR 1.

pp. U. J{ ).

21. Zasedaniya Verkhovnogo Soveta SSSR. Stenograficheskiy- U. Eval. RR 1.

Rovinskiy, GosudarstvennyyGosfinizdat,

U. Eval. RR 1.

Verkhnovo Soveta SSSR, Stenograficheskiy otchet.

Eval. RR 1.

0 flosudarBtvpnr.cci byudzhetc SSSR1 pud. Gospolitizdat,

Eval. RR 1.

fiosudarstvennctt byudzhctc SSSR1 Rod. Gospolitizdat,

U. Eval. RR U. Eval. RH 1.

U. Eval. tw 1.

W.N. Rovinskly, Gosudarstvennyy byudzhet SSSR. Cosflnizdat,

32. U. Eval. RR 1.

gosudarstvcnncci byudzhete SSSR2 aod. Gospolitizdat,

Rval. RR 1.

U. Eval. RH U. Eval. RR 1.

FBIS, Dally val. RR 1.

Planovoye Khozyaystvo, Ko. U- Eval. RH U. Eval. RR U- Eval. RR2 U- Eval. RR 1.

redlt. U. Eval. RR Izvcstiyu, U. Eval. RR 1.

7U. U. Eval. RR 1.

8 U. Eval. RR redlt. Mo. U. Eval. RR Voprosy Ekonomlki, U- Eval. RR 1.

Boguslavskiy,peratlvnayaosbanke

SSSR,6DD translation,- Rovinskiy, Gosudarstvennyy byudzltet SSSR,. U. Eval. RR 1.

redlt,- 7- Eval. RR 1.

U- Eval. RR 1.

1 U. Eval. RR 1.

vosrosy El.onomiki,. U. Eval. RR U. Eval. RR 1.

'a. 8" - U. Eval. RR 1. 'j. U. Eval. RRQ Anr U. Eval. RR 1.

-

U3. 4 V. Eval. RR 1.

U. Eval. RRh. 2. U. Eval- RR. 4 U. Eval. RR 1.

HC. ofltrfarstvenncm byudzhete1 god, Gospolitizdat,

Eval. RR 1.

u7- osudarstvennom byudzhete2 god, Gospolitizdat,

Eval. RR 1.

48. U. Eval. RR 1. 2 U. Eval. RR 1.

2. U. Eval. RR7 U. Eval. RR 1.

1 U. Eval. RR 1.

3 U. Eval. RR0 U. Eval. RR 1.

53- 4 U- Eval. RR 1.

D.A. Allakhverdyan, Nckotoryye voprosy teorii sovetskikh flnansov,- lba. U. Eval. RR Allakhverdyan,. lbb".

55- redit, U. Eval. RRzvestiya, U. R 1.

Sotsialisticheskoye Sel'skoye Khozyaystvo,. Eval. RR redit. u. Evnl. RR 1.

sudarstvennom byudzhete SSSR1 god, U. Eval. RR redit.P- U. Eval. U. Eval. RR 1.

Izvestiya, U. Eval. RR 1.

Sotsialisticheskoye Sel'skoye Khozyaystvo,. W, Eval. RR redit.- 7- U. Eval. RRzvestiya, Eval. RR 1.

redit,- 7- U. Eval. RRzvestiya.L. U- Rval. KR 1.

Sotsialisticheskoye Sel'skoye Khozyaystvo, Nc.. 5

0". Eval. RR 1.

i Kredit.- 3* U. l. RR o.'i, PP.. ll. Rval. RR

> U. '.H - U. Eval. RR U. Eval. RR 1.

66. 2 U. Eval. KR Ibid.

68. Planovoye Khozyaystvo, Ko. U- Eval. RRzvestiya,O. U. Eval. RR 1.

0 gosudarstvennom byudzhete SSSR1 god, Gospolitlzdat

U. Eval. RRzvestiya, U. Eval. RR 1.

69.

0oo. Gospolitizdat,

U. Eval. RR 1.

Izvestiya, U. Eval. RR 1.

1 U. Eval. RR 1.

Vos'maya sesslya Verkhovnogo Soveta SSSR, Stenograficheskiy

7

t

74. . Livshits, Baukovaya statistifca, Gosfinlzdat,.

75- - Rovinskly, Gosudarstvennyy byudzhet SSSR, GosfInizdat,

Voprosy EkonomikI, U. Eval. RR 1.

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Original document.

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