COMMENTS ON SOVIET MILITARY EXPENDITURES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000600010230-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 3
• Document Creation Date: December 22, 2016
• Document Release Date: January 20, 2011
• Sequence Number: 230
• Publication Date: February 14, 1952
• Content Type: REPORT

Sanitized Copy Approved for Release 2011/01/20: CIA-RDP80-00809A000600010230-1
CLASS` FICATIONg CRiaT/SEC''.. l FnamA7C;; OAl
CLNTRAL INTELLIGENCE AGENCY
INFORMATION REPORT
SECRET
SUBJECT Comments on Soviet Nil.itary Expenditures
PLACE
ACQUIRED
DATE
ACQU I RED
DATE OF II
.,r I
CLASSIFICATIONS Z;TIiIRTTYI
DISTRIBUTION
(imy u- I /___ Ill
DATE D!STR. /' Feb 52
NO. OF PAGES 3
NO. OF ENCLS.
(LISTED BELOW)
SUPPLEMENT TO
REPORT NO.
Managers of military equipment and military construction enterprises and
trusts are in a privileced position in the USSR.. Re.luests for additional 50X1-H
funds to meet payroll or )?_~tcrial fe uirements are provided ,;ith very
little delay; :chile the ieitiistrj of Finance has to decide from shat. categories
of the Financial Plan to ::1-iift the funds to cover above-plan Defense ih;inistry
expenditures,.
In.dust,je, producin- -oods for military as ,cell as for civilian consumption
(such as text_i.le and tractor industries), as a rule, supply goods to the
I?iinistry- cf .%a afenne at prices below cost, and add the difference to the cost
of the c.Lvili--n .sc -mr,ent of .' eir products. Since turn-.over tax on civilian
goods is Generally. a fixed perc, -tape of costs,. such a pricing policy enhances
the State revenue sources and further limits the effective demands of the
population, Armament industries are not re_ju.ired to sho,f profits, since
profits .Iould Dnly increase the costs to t'.e Staten
all the ;.ndicated increase
industrial and transportation profits in the Soviet economy are c' 'er:Lved from
consumers' coeds industries, or from tie transportation of consumers' goods
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and civilians. Increased profits during the post-war economy in the Soviet
Union could have been accomplished tl.rough: Lowering the quality of some
consumers'
segments of consumers' goods; increased labor productivity in the
;cods industries; increase of prices to consumers (in goods and services).
T1le publicized 20 to 35n price reduction in 1950, of such industrial products
as iron, steel, and cement constitute a deliberate attempt to fool people
abroade 'While some price reductions to the Union-important industries are
possible, the 20 to 35" reduction referred to may have applied to cement, iron,
and steel ":r'o.kcts sold to the public at tremendously inflated retail prices
through tern-over tax. Thus it is quite possible that prices on nails, hardware
and ecme.r.t sold to collective farmers in small cuantities were reduced by the
puulicizei f lures. Price reductions which have taken place in consumers' goods
since 190, have been effected by the reduction of turn-over tax rates Turn
over tax rates during the World War II and post-warpc-riods, up to 19117, ,are
increased over 100%, according to published revenue figures.
All military establishments buy food and other supplies at :wholesale prices
:rl:.c' include arc " i.ts , but do not include turn-over tax.
One must
ogler stars: fr..a the ,ri,nary unction o; ohm urnover tax in tlhe Soviet Union
is to sponge up all the currency put into circulation, through ,wages and
salaries, for which no consumers' goods are available for the public., and by
this means to draw the currency back into the banking system. Since about
70 of all -oods produced in the Soviet Union goes to the government in the
form of armaments or in ftc form of construction, machinery, and materials for
armament pro.-auction, this vast sum representing 70% of costs in the form of .wages;
salaries, upkeep and administration, must be mopped up, mostly through a turn-
over tag: on consumers' ;roods, or. material and equipment going into the
production of civilian roods
Every economist at.d financial man should realize that the
Soviet published mili_tai?:, budget is formulated with two main objectivess
to reflect; as small a percenta e of.' the -total bud-!et as possible for domestic as
well as for foreign propaganda, and to inflate the other budgetary categories,
where hidden military emmerdi.tures are included, in order to red' ce the percent
age ma'nit:ude of the announced military budget. It would be stupid f cr the
Soviet government to make p-"..rchases of food and supplies with turnover tax0 It
would amount to taking money out (f one account and ;gutting a.t; into another, while
at the same time inflating its military expenditure account. In the case of food
supplies, the I?i'nistry of Defense pays the Wholesale output or marketing price,
which includes profits but does not include the turnover tax In purchasing
other supplies for the armed forces, such as clothing, foo'owear, and other personal
items, these are bought on the average about 30% be] o:r production costs. The
difference .is shifted by the manufacturers to tl-:c civilian section in arriving
at the production costs of commodities. Thus every enterprise has a eo-called
mi1':tary price list.
SECRET,
SECRET/SECURITY IEFORI?IAT'ION
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some l9L0 and 19L47 military hand-
books quote prices of uniforms, clothin-', footwear and other supplies at ::rices
These price lists are issued to Company Quartermaster Sergeants, and they
reflect the prices charged to the military personnel in case of loss or other
disposal of their equipment as a penalty price; they have nothing whatsoever
to do with the cost to the Ministry of Defense. Costs to the Ministry of
Defense are from 12 to 2) times less than those indicated by the "penalty" price
li.,ts0
the prices paid by the Defense Ministry to the Ministry of Food
Supplies and other ministries fcc clothing, footwear, etc have remained at the
same the level as in 19400 However, "penalty" prices have about doubled0
(there are some 12 categories of menus of military mess within the
Soviet Union; Army, ;sir Force, Navy, schools, hospitals, etc0 Those soviet
.forces placed in occupied areas, living at the expense of the Satellites,
certainly are fed much better than those in the Soviet Union., since the Satellite
countries have to bear the cost of maintenance of the Soviet military personnel0
ll0 I I the average ratio of Soviet enlisted men to officers, and NCO' --
12.
130
About 10 to 10
the average monthly pay to the enlisted men in the Soviet armed forces
About 30 rubles per month0
In the purchase or raw alid fabricated materials for the production of military
equipment, t-he ratio is 2 rubles to .,51; in" the purchase of finished products
the ratio is about'3 rubles to $1, due to US superior skills in fields of
production and in administration and organization. In the case of military
aircraft the ratio ma,r be about 305 rubles to $1.
SECRET
SECRET/SECURITY INFORM/iTIODT
X1-HUM I
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