The government has announced the basic parameters of the 2006 draft budget. The Cabinet forecasts that GDP will reach 24.38 trillion roubles. Revenues of the budget will reach 5.046 trillion roubles; expenses amount to 4.27 trillion roubles. The draft budget was compiled based on the following parameters: oil prices – $40 for a barrel of Urals oil, growth of GDP – 5.8%, inflation – 7%-8.5%, average exchange rate of the dollar – 28.6 roubles. The Finance Ministry forecasts that the stabilization fund will increase from 1.315 trillion roubles to 2.132 trillion roubles (over 50%). Rossiiskaya Gazeta reports that the State Auditing Chamber intends to criticize this document because its macroeconomic indications contravene the president’s demand to double GDP by 2010.

Defense expenditure will go up next year. The federal budget plans to spend 668.321 billion roubles on defense (2.7% of GDP). It should be noted that this year Russia will spend 554.831 billion roubles on national defense (2.6% of GDP). Expenditures on national security and law enforcement agencies will reach 540.053 billion roubles next year (2.2% of GDP). In other words, defense expenditures will increase by 113.5 billion roubles in 2006 (20.4%).expenses on national security and law enforcement agencies will go up by 99.25 billion roubles (18.4%). Is it much?

As is known, military expenditure has increased by 27.9% in comparison with 2004 (expenses on national security and law enforcement agencies have increased 26% this year). The actual increase exceeds 30%, taking into account that the defense and security budget was revised in June in connection with the increase of servicemen’s and policemen’s wages.

In other words, the growth of expenses on defense and security will slow down next year. This is linked with an insubstantial growth of GDP and higher inflation. The actual growth of the defense and security budget will not be very substantial. It should be noted that Defense Minister Sergei Ivanov was not satisfied with the parameters of the 2005 budget. The president increased expenses on servicemen’s wages thanks to his demands.

The government plans to increase servicemen’s wages in 2006. Defense Minister Sergei Ivanov stated at the meeting with the military leadership of the Far Eastern military district in Khabarovsk that servicemen’s money allowances will go up 15%. Wages of civil workers of the Defense Ministry will be increased 11% from September 2005. The minister said that the state defense order will go up 15%-20% next year.

Expenses on defense and security will increase 0.1% of GDP next year. Meanwhile, it’s hardly likely that the situation in the Army will improve because prices go up. The Air Force lacks fuel, as a result of which it fails to organize regular flights. The same concerns ground and naval units. At the same time, the human factor is the main disadvantage of the military budget. The government does not intend to improve servicemen’s well-being, which means that the problem of military discipline will aggravate.

At the same time, there are plans to increase the budget of the Anti-terror federal program by almost 400% next year. This year the government has allocated 717.7 million roubles. Next year the sum will increase to 3.7 billion roubles. Expenses on the state border will go up 300% from 1.445 billion roubles to 6.03 billion roubles. The major part of this sum will be spent on building new fortifications, buying up-to-date technical systems and building housing for border guards. As far as the Anti-terror program is concerned, the state plans to spend money on anti-terrorist military hardware (robots for neutralizing bombs, special weapons, gas analyzers and more). The Interior Ministry, the Foreign Intelligence service and the Federal Service for Protection of Public Officials will also be financed within the framework of this program. This expenditure will be included in the 2006 state defense order. In the meantime, many military leaders think that this is not enough. Russia must spend much more on the state border and anti-terrorist programs.