S Keyt-MA^'IOK.
INTELLIGENCE MEMORANDUM
THE SOVIET BUDGET3
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CENTRAL INTELLIGENCE AGENCY Office of Research and Reports
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Introduction
Trends In Budget
k. Investment end
Charts
Folloving Pagu
Figure 1. Soviet Budget
Figure 2. Soviet Budget
THE SOVIETUPCT3
1. Introduction.
3 Soviet budget, submitted to the Fifth Session of the Supreme Sovietugust, end Premier Georgi M. Malenkov's speech accompanying the budget presentationignificant change in Soviet economic policy. An analysis of the budget andannouncements reveals that whereas the USSR contemplates no slackening of investment or industrial development, consumption is scheduled to grow more rapidly than in the past. 'Explicitexpenditures arc reduced slightly from2 Plan although they axe increased slightly from actual expendituresnd total military outlays Including undisclosed categories may have risen even more. Premier Malenkov's speechpecific promiserastic shift In economic policy in favor of the Soviethift that wouldyear policy of emphasizing heavy industry. Analysis of the budget suggests that plans forthis new policy3 are ovcroptimistlc and will not be fulfilled.
The draft budget, as well as selected budgetary results2 and small revisions in the totals1 revenues and expenditures, wasonths later then usual by the Soviet Minis tor of Finance, A. Zverev. In past years it has usually been presented ln March. ays of debate thc draft budget,inorln revenues, was ratified by the Supreme Soviet. Tablendresent summary data available from the Finance Minister's speech, ensuing announcements, and the closing speech of Premier Georgi M. Malenkov, together with budget information from previous years. * presents more detailed data2
2. Trends in Budget Components.
* ollows on p.n ollow p. ollows on p. 3.
Total expenditures and revenues ure both scheduled to Increase substantially The planned expendituresillion
fable 2
Soviet
Currtat FMblrB)
of Total)
Current ftiale-)
(aUlioo Oureat friolee)
of Total)
Eocoacy
Tranaportati on Trade and Tt-ocurfDfWt CoBBiiua Eoonony UQdi*oloaod Bat local
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6-8
.
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2.6
1*0
6*6
ad
Social lofura&cc
and Pbralcal Education
State Aenlnlatratlonrlcc
f toteroal Affairo
and State Bccurltr Rcccrvcof the11
of MlnUtcr! Uecxplalncd
6a
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a
>diwtlon* fron
Direct
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Other llaevtvta
.
SLatc Soelal A.
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6
ai ratified by "C* friprwST-Eatlnate based on earlier rears*
State Loanpopulation *od
rubles areercent greater than actual expenditures2 andercent greater than2 expenditures, which were under-fulfilled. Scheduled "defense" expendituresillion rubles below2 planned level,illion,ercent,2 actual expenditures. The scheduled decline in percentage or total budget allotted to "defense" vill be the first.
The increase in budgeted expenditures is primarily accounted for by on increase in the undefined residual of budgetary expenditures. The residual risesO billion rubles (approximately)29 billion rublesisingercent to" lk percent of total expenditures. Although the specific nature of expenditures included in thi6 residual cannot be identified, there is substantial agreenY?ntignificant portion of these outlays has been more or less directly in support of the Soviet military effort. for "national economy" (government-financed investment Inagriculture, transportation, trade, and procurement) areercents contrastedmall decline "Social and cultural" expenditures are to riseercent. The percentage increases in'these two items are considerably less than the increase in total expenditures.
Thc revenue side of3 budgetecline of about ho billion from2 budget (planned) in revenues to be collected directly from the population through turnover taxes, direct taxes on the population, and loans. On the other hand, revenues from profits or enterprises are to rise6 billion. arge increase in'the "Other" revenue category is surprising and unexplained.
3 budgeted surplus8 billion rubles is to behird of2 actual surplus. The function of budget surplus was explained by Zverev in the folloving words:
urplus hasonsiderable expansion of credit Investments in our national economy and hasurtherof the monetary circulation of the country."
Since the surplus has the effecteducing purchasing power In the hands of Individuals and enterprises, the decline of the surplus3 together with the large increase in total budgetand enterprise investment gives the budget something of an Inflationary cast.
3- Defence.
In his presentation of the draft budget Zverev did not reveal thedefense" expenditures. The appearanceecline In this category vas created by comparison with2 Plan figure ofillion rubles. Malenkov, however, later gave the "defense" percentage of actual totalhich Indicated an actual defense expenditureillion. There Is reason to believe that the modest riseillion scheduled3 nay still understate the trend of defense expenditures.
Itairly safe assumption that the budget drafters wereon an early end to Korean hostilities. The savings from this source, amountingew billion rubles for the second half of the year, will be releasedore rapid build-up and Improvement of the armed forces than is implied by the increase in "defense."
A considerable part of the Soviet defense expenditures Is not disclosed in the'budget but Is burled in other categories, such ao education and scientific research, internal security (MVDJ, and tho like. These undisclosed military expenditures are probablyoillion rubles. In addition, lt has long been suspected that the undisclosed residual Item under "nationalhichstimated8 billion rubles, and the unexplainedIn the budget9 billion rubles may also includeamounts earmarked for the support of Soviet armed forces. The sharp rise in tho unexplained residual item in3 budgetarning against accepting the small rise In budgetedt its face value.
If this probable misrepresentation In tbe budget is taken Into account, it seems likely that military expenditures will continue to be in the neighborhood of one-sixth of the Soviet gross national
product.
h. Investment and Consumption.
The budget speeches hold out promises for Improvements In the standard of living. For example, Zvrrcveduction In direct taxes on thc agricultural population with thc avowedof encouraging private ownership of livestock. An increase" In coinflunal housing expenditures ofercent is also scheduled. These are small items in thc budget, but they are consistent with
the policy of increased consumption which has been Implemented by the reductions in prices of consumers goods announced In April, theIn the compulsory state loan collection announced in June, andpercent Increase In retail turnover announced for the first half The most heartening news for consumers was contained in Malenkov'e announcement that retail turnover of consumers goods will be Increased byillion rubles, orercent, above Plan. Since the Plan called-percent increasehe new Plan callspercent increase The additional goods, according to Malenkov, are to come from increased production and reallocations of goods from non-market consumers (military and industry). These points combined with the relatively modest Increase of "national economy" and "defense"3 billions,ercent, gives the appearancerastic shift in favor of the Soviet
The growth of investment, however, is not really scheduled to slow down. Malenkov's speech gives the total investment3 as moreillionillion rubles from* the budget andillion rubles from funds of enterprises and agricultureas compared to total investment2illionillion rubles from the budget2 billion rubles from funds of enterprises and agriculture. The increase of investment2 is nearlyercent, which iseduction from the rate necessary to Implement the current Five Year.
The growth in total Investment, defense, and government, as shown ins even more striking. The increase from2 actual budget6 percent. In order for total consumption, as distinct from retail turnover in state stores and cooperatives, to rise byercent at the same time that other expenditures rise6 percent, either gross national product must riseomparableor large quantities of goods must be withdrawn from
* ollows on p.*rovocative speculation is that sales of state reserves to the government might explain the large undisclosed budget expenditures snd resale to retail stores explain the large other revenues.
The Soviet government has something to gain from increasing supply of consumers goods besides the good will of the people. The chronic shortage of goods in quantity, quality, ond diversity in relation to consumer purchasing power has probably dampened incentives to earn
Table 3
Hon-Cons uaption Expcndl tuxes
Billion Rubles
Economy (Budget and Non-Budget)
Administration and Loan Service
Budget (Not including Social
Cultural)
additional income. Productivity vould probably IncreaseIf supplies of consumer goods were increased to the extent that at given prices the supplies of goods vould be more nearly equivalent to demand (purchasing power). However, if purchasing power Is expanded at the same rate as the physical supply of goods, which vould resultontinuation of the existing repressedthe marginal increment of consumer income would notmore goods, and there would be no incentive to producehe current budget and Plans do not appear to promise muchIn the situation. The Increase In funds available for con-suaors, enterprises, and the government appears to be greater than any possible real growth In gross national product.
* Over the longer run it Is possibleigher level of living vould be reflected in higher productivity as nutrition and health levels Improve. However, it is also possibleigher level of living vould resultmaller output as leisure le substituted for goods.
On the other hand, Malenkov did specifically announce Improved Incentives for peasants through revision and reduction of the direct* tax on farmers, higher procurement prices, and special Incentives for producing livestock and vegetables. The result of this Is likely to be Increased production and also increased sales to the state at the expense of the kolkhoz market. This willodest contribution to the planned increase in retail turnover.
Future prospects of tbe Soviet consumer will be brighter If Kalcrtxov'e announcements are fulfilled. Be promises that the Fifth Five Year Plan targets for production of consumers goods will be fulfilled considerably ahead of time. Some machinery ^indus try will shift to production of consumers goods. Agriculture Is to besubstantially. Tbe total investment in agriculture will amount5 billion rubles. Of this9 billion rubles are allocated out of the national budget, whichper-cent increase over2 Plan.
In summery,3 Kalenkov appears to propose an ambitious dose of "bootstrap" economics more radical than the early postwar plans of Stalin. Plans for consumer expenditures and the supply of consumers goods have been Increased without any reduction Inor government expenditure plans. The fulfillment of all thc plans would require an Increase In gross national product ofoercent, which compares with the ORR estimateercent.
Whether the announced Plans for greater consumption in future years
vlll actually be carried out remains to be seen.
Original document.
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