THE 1955 SOVIET BUDGET

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• Document Creation Date: December 23, 2016
• Document Release Date: April 18, 2013
• Sequence Number: 2
• Publication Date: November 4, 1955
• Content Type: REPORT

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SECRET
ECONOMIC INTELLIGENCE REPORT
THE 1955 SOVIET BUDGET
CIA/RR 64
4 November 1955
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
SECRET
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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S-E-C-R-E-T,
ECONOMIC INTELLIGENCE REPORT
THE 1955 SOVIET BUDGET
CIA/RE 64
(ORB Project 14.437)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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FOREWORD
The annual statement of the state budget of the USSR serves two
purposes. First, and foremost, the basic financial plan for the
operation of the Soviet economy is presented for the guidance of the
governmental administrative apparatus and for the implementation of
the physical production plan which has been circulated. Second,
and from the Soviet point of view equally significant, the presenta-
tion of the budget provides an occasion for the elaboration of the
principal themes of current Soviet propaganda.
There is nothing riew about the use of the Soviet state budget
for propaganda purposes, but there has been increasing use of it
for these purposes since 1953. Traditional account entries have
been subject to more rapid change in content than heretofore, and
items have been included in the budget which formerly were not
included in the budget plan.
A detailed analysis of the budget statements and the account
entries thus has become doubly necessary if there is to be any
firm basis for comparing the year-to-year changes in the complexion
of the Soviet economy indicated by the presentation of the state
budget. Here, as elsewhere in Soviet statistical presentations,
the data almost certainly are not falsified, but they are subject
to manipulation that may (if not subject to careful scrutiny)
mislead the reader who assumes a continuity and identity of the
budget categories. To illustrate this point: despite a display
of increased emphasis on the Soviet agricultural program in the
Khrushchev and Zverev speeches, it appeared from a cursory examina-
tion of the 1955 budget that there had been a cut of more than 10
percent in the agricultural allocation. There was, however, a
redefinition of the appropriation from "agriculture and procurement"
to "agriculture," and the net effect of this redefinition of the
appropriation was to increase the appropriation for "agriculture."
The existence of not one, but several, transfers of this sort creates
a need for the methodical and detailed analysis of the budget structure
which has been undertaken in this report.
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Summary and Conclusions
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CONTENTS
I. Budget Revenues
Page
1
2
A. Turnover Tax 5
B. Profits Tax 5
C. Population Taxes and the State Loan 8
D. Secondary Sources 9
1.
2.
3.
4.
Social Insurance Funds
Machine Tractor Station (MTS) Revenue
Collections and Miscellaneous Nontax Income ? . ?
Customs and Reparations
10
10
10
10
E.
Summary of Revenues
11
II.
Unorthodox Accounting Entries in the 1953, 1954,
and 1955 Budgets
11
III.
Budget Expenditures
13
A.
Financing the National Economy
16
1.
New Capital Investment
17
2.
Expansion of Working Capital
17
3.
Capital Repairs
17
4.
Operational Expenditures
19
5.
Residual
20
6.
Sources of Financing the National Economy
22
a. Heavy Industry
22
b. Light Industry
26
c. Agriculture
27
d. Trade
29
e. Transport and Communications
f. Other Expenditures
29
in the National Economy
30
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B. State Budget and Procurement
C. Capital Investment
1. Heavy Industry
2. Light, Food, and Local Industry
and Internal Trade 37
3. Agriculture 37
4. Transport and COmmunications 39
5. Other Investments (National Economy) 39
6. Housing 39
7. Other Investments 4o
Page
31
33
36
D. Social-Cultural Measures 41
1. Education
2. Health
E. Administration
F. Defense Expenditures
1. Explicit Defense Expenditures
2. Other Defense Expenditures
41
42
43
43
43
45
G. Internal Security 45
H. Other Expenditures 46
I. Budgets of the Union Republics 47
J. Summary of Expenditures 47
Appendix
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Page
Tables
1. Soviet Budget Revenues, 1951-55 3
2. Soviet Turnover Tax Receipts as a Function of Trade
Turnover in Current Prices, 1951-54
6
3. Distribution of Profits in the Soviet Budget, 1951-55 ? ? 7
4. Total Soviet Budget Planned Revenues and, Expenditures,
1951-55 13
5. Soviet State Budget Expenditures, 1951-55 14
6. Financing the National Economy in the Soviet Budget,
1951-55 18
7. Financing the National Economy of the USSR: Sources
of Funds, 1952-55 23
8. Financing the National Economy of the USSR: Distribution
of Funds by Activity, 1954 and 1955
24
9.
Financing Soviet Heavy Industry, 1954 and 1955
26
10.
Soviet Agricultural Budget, 1955
27
11.
Soviet Planned Allocations to Agriculture, 1950-55 .
?
?
?
28
12.
Soviet Planned Capital Investment and Expansion
of Working Capital, 1951-55
34
13.
Soviet Investments in the National Economy, 1953-55 .
.
?
?
35
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Page
14.
Soviet Agricultural Money Investment, 1952-55
38
15.
Soviet State Investments in Housing, 1953-55
40
16.
Soviet Education Expenditures in 1955
41
17.
Soviet Allocations to Scientific Research', 1949-55
?
. ?
?
42
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CIA/RR 64 S-E-C-R-E-T
(ORE Project 1).437)
THE 1955 SOVIET BUDGET*
Summary and Conclusions
The Soviet state budget for 1955 is designed primarily to improve
financial control over the economy, to reduce excessive purchasing
power in the hands of the population, and generally to increase the
efficiency of the operation of the state. Except for a 12-percent
increase in explicit defense appropriations, the budget for 1955
shows no significant shift in resource allocation compared with
1954. Traditional priorities are being maintained, with a continued
emphasis on agricultural development. Total budget spending is being
curtailed. Revenues will increase about as much as planned for 1954,
the bulk of the increase going to budget surplus.
Increased profits taxes and a doubling of the state loan are the
two principal sources of increase in revenues. The turnover tax
continues to decline in importance, as a result of increases in state
procurement prices for agricultural products.
The doubling of the state loan, which reverts to the pre-1953
rate, and the failure -- for the first time in 7 years -- to announce
a retail price reduction both indicate concern over the inflationary
effects of the continued overexpenditure of the wage bill, which has
not been accompanied by a corresponding increase in the availability
of the basic consumer goods.
On the expenditures side there is no apparent increase in capital
investment over what was planned in 1954. Defense spending is esti-
mated to have increased primarily on the basis of an increase in the
procurement bill. There is no evidence of any increase in "hidden"
defense expenditures. The budget residual (adjusted to allow for
comparability) is the same as in 1954 and can be accounted for
according to traditional accounting categories. The residual within
the expenditure category Financing the National Economy has decreased,
* The estimates and conclusions contained in this report represent
the best judgment of ORB as of 1 June 1955.
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but there has been a corresponding increase in the allocation to heavy
industry, which implies a transfer of funds and not a net increase.
Both these categories have been associated in the past with "hidden"
defense expenditures. It is speculated that this transfer may repre-
sent a shift in atomic energy appropriations.
The above comparisons take into account the "fictitious" entries
made, on both sides of the Soviet state budget, since the death of
Stalin. They are smaller in 1955 in that this year there is no retail
price reduction. This year, the only fictitious entry is one repre-
senting the "revenues" and "expenditures" resulting from maintenance
of the increases in agricultural procurement prices inaugurated in
1953. It is possible that, in future budgets, these fictitious entries
will be discontinued.
I. Budget Revenues.
Total revenues in the Soviet state budget for 1955 are planned at
590.2 billion rubles. There is an apparent increase of 3 percent over
1954 planned revenues and 6 percent over 1954 actual revenues, but the
actual increase over the 1954 plan is 7 percent, since the value of
fictitious entries in the 1955 budget is only about one-half what it
was in 1954. Planned budget revenues in 1955 are shown in Table 1,*
together with planned and actual revenues for 1951-54. Most of the
increase in revenues in 1955 will come from increased profits taxes
and an increased state loan from the population. These items account
for about 20 and 5 percent of budget revenues, respectively. The
turnover tax, which accounts for about 40 percent of budget revenues,
continues to decline as a result of measures taken in 1954 to raise
the state procurement price for grain, but the decline is less than
in 1954, when retail price reductions also contributed to it.
Secondary** and undisclosed sources of revenues have been reduced by
about 5 percent compared with 1954 but are still high relative to
earlier years.
* Table 1 follows on p. 3.
** Secondary revenues are those not usually defined by the Finance
Minister in his budget speech.
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Table 1
Soviet Budget Revenues a/.
1951-55
Billion Rubles
1951 12/ 1952 2/ 1953 2/ 1954 2/ 1955 E/
Plan Actual Plan Actual Plan Actual Plan Actual Plan
Turnover tax 244.7 247.8 260.7 246.9 240.4 243.6 234.4 224.4 233.7
Deductions from profits 47.2 48.0 62.0 58.5 80.7 70.3 92.8 83.5 117.5
Taxation on population 43.4 44.3 47.4 47.4 46.1 46.1 45.7 N.A. 48.4
State loans 33.4 37.0 42.6 N.A. (28.4) B./ N.A. (27.4) B/ N.A. (42.5) g/
Social insurance funds 21.1 21.4 21.4 21.9 (23.0) 23.2 24.7 N.A. (26.2)
Machine Tractor Station (MTS)
revenue 5.2 N.A. 6.0 N.A. (9.6) bi N.A. (13.5) IV N.A. (15.0) 12/
Taxes on enterprises and or-
ganizations 7.6 N.A. 10.2 N.A. N.A. N.A. N.A. N.A. N.A.
Collections and miscellaneous
nontax income N.A. N.A. 14.0 N.A. N.A. N.A. N.A. N.A. N.A.
Customs and reparations N.A. N.A. 26.2 N.A. N.A. N.A. N.A. N.A. N.A.
Economies in administration 0 0 0 0 6.5 N.A. 3.9 N.A. 6.1
Other revenues 56.1 N.A. 19.4 N.A. 66.4 N.A. 84.6 N.A. 78.3
Total real revenues 458.7 470.3 509.9 497.7 501.1 N.A. 527.0 N.A. 567.7
Retail price reductions 0 0 0 43.2 N.A. 15.7 N.A. (0)
Raising agricultural procure-
ment prices 0 0 0 0 0 23.3 N.A. 22.5
Revaluation of inventories 0 0 0 0 0 6.5 N.A. (0)
Total stated revenues 458.7 470.3 509.9 497.7 544.3 539.7 572.5 1/ 557.5 1/590.2
Budget surplus 7.2 27.3 33.0 37.5 13.8 24.9 9.7 4.7 26.7
* Footnotes for Table 1 follow on p. 4.
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Table 1
Soviet Budget Revenues 2/
1951-55
(Continued)
a.
b.
C.
d.
e.
f.
g?
All figures
in
parenthese are
estimates based
on previous years
except where noted.
State borrowing includes loan subscription (1) by the population, (2) by the savings banks, and (3) by
the state insurance organizations. Items (1) and (2) are given; item (3) must never be more than 3.0 billion
rubles ?/ and is estimated at less, on the basis of previous years.
h. Estimates of MTS revenue take into consideration increased activity and increased value of income in kind,
which is valued at State Procurement prices.
i. The sum of the underfulfillment of receipts from turnover and profit taxes (19.3 billion rubles) exceeds
the underfulfillment of gross income (15 billion rubles) by approximately the same amount as the underfulfill-
ment of the budget surplus (5 billion rubles), which would tend to indiCate that the plan data for the remain-
ing income categories are virtually identical with actual results. 2/
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A. Turnover Tax.
The turnover tax is an excise tax levied on consumer goods
and petroleum products. It has been steadily declining as a per-
centage of budget revenues, falling from 55 percent in 1950 to 4o
percent in 1955. This decline reflected retail price reductions
and the raising of state agricultural procurement prices, measures
which tend to bring prices of consumer goods closer to costs.
Retail price reductions have been made primarily at the expense of
the turnover tax on consumer goods, and the raising of state pro-
curement prices in agriculture has been made at the expense of the
turnover tax on agricultural produce. This is evident from a compar-
dson of rates of increase in state trade turnover and the turnover
tax, presented in Table 2.* Assuming in 1955 a growth of state retail
trade turnover of 12 percent, expected turnover tax receipts would
be much higher than the amount planned for in the budget. The gap
can be explained by the rise in agricultural procurement prices in
both 1953 and 1954. If, for instance, the state procures an article
at 10 rubles and retails it at 25 rubles, making 15 rubles in the
turnover tax, when the state procurement price is raised to 15
rubles, the turnover tax falls to 10 rubles. Such an operation may
be performed without any announced change in tax rates, since turn-
over tax is expressed as the difference between the retail and the
wholesale price of an article. It is possible that the plan for
the turnover tax in 1954 was changed as a result of measures taken
in June 1954 which raised purchase prices and lowered delivery
quotas on grain. Revisions in the tax plan may have led to under-
fulfillment.
B. Profits Tax.
The profits tax continues to increase at a rapid rate, as
do total profits.. In recent years, however, the profits tax has
been increasing at a more rapid rate than total profits. Planned
profits and deductions to the budget in recent years are shown in
Table 3.** Thus, in 1955, profits taxes are to amount to 80 per-
cent of total profits; in 1954 they were planned to amount to 75
percent; and in 1953, 72 percent. This development is accompanied
Table 2 follows on p. 6.
** Table 3 follows on p. 7.
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Table 2
Soviet Turnover Tax Receipts as a Function of Trade Turnover in Current Prices
1951-54
Expected Tax Receipts
Less Loss in Revenues
Announced Turnover Expected Loss in Tax Revenues (= Announced
Tax 2/ Tax Receipts 2/ from Price Changes 1/ Turnover Tax)
(Billion Rubles) Percentage Increase 1.2/ (Billion Rubles) (Billion Rubles) (Billion Rubles)
1951 (actual)
247.8
115
1952 (actual)
246.9
110
272.6
(25.5)
247.1
1953 (actual)
243.6
121
298.7
(55.5)
243.2
1954 (planned)
234.4
115.5
281.4
45.5 2/
235.8
1954 (actual)
118
287.4
.A. L1
(230) E./
a.
b. Data in this column are from plan and plan fulfillment announcements. 2/
c. Obtained by multiplying yearly increases in trade turnover by turnover tax receipts of previous year.
d. These figures represeht losses to the budget of taxes rebated for the purpose of inventory revaluations at the time of
a price reduction and of taxes that would have been collected had not the price reduction taken place, from the time of
the price reduction to the end of the year. Except where noted otherwise, these data were obtained by taking 111 percent
of announced savings to the population from retail price cuts. This ratio Obtained in 1954 and has been assumed constant.
Revaluation of inventories plus loss to the budget in sales gave 22.2 billion rubles. Announced savings to the population
over a year were 20 billion rubles.
e. Revaluation of inventories (6.5) plus loss to the budget from price cuts (15.7 plus loss to the budget from raising
procurement prices (23.3).21/
f. Inasmuch as losses due to unplanned grain measures in 1954 are not known, total actual losses are unavailable.
g. Estimated on basis of total revenue underfulfillment. If this is approximately right, it would make total losses
about 57 billion rubles with about 12 billion rubles lost from grain measures in 1954.
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by less dependence, in the financing of industry, on nonbudgetary sources
and may reflect a growth of direct control by the state over the dispo-
sition of industry profits. It could reflect to some degree an increase
in surplus working capital to be paid into the budget in this category.
The category Deductions from Profits besides including profits taxes
also includes an item "surplus working capital." 1.21 There has been
increasing stress on cutting down above-norm supplies of raw materials
in recent months. At the end of 1954 there was a move to get rid of
some of these surpluses. Above-norm production supplies (zapasy) were
directed into the trade network for sale to the population or used for
additional production of consumer goods. 1.3./ Indications of an in-
creasing availability of credits to light industry also imply that the
amount of working capital covered by short-term credit is to be in-
creased.1)1/ All these measures would free surplus working capital
for deposit into the budget.
Planned profits and deductions to the budget in recent years
are shown in Table 3.
Table 3
Distribution of Profits in the Soviet Budget 12/
1951-55
Billion Rubles
1951 1952 1953 1954 1955
Actual Actual Actual Plan Plan
Total profits
74.7
83.5
89.8
123.2
143.3
Paid to budget
48.0
58.5
70.3
92.8
117.5
Retained ?
26.7
25.0
19.5
30.4
25.8
Profits are a function of unit cost and volume of production.
An underfulfillment of the profits plan usually reflects an underful-
fillment of the cost and/or the production plan. Since the cost plan
was underfulfilled in 1954, even though the production plan was fulfilled,
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it is likely that profits and profits taxes were slightly underful-
filled.
In 1954 the plan for industrial profits was 59 percent of
total profits, 2._/ which is a return to the 1948-49 levels, when
wholesale prices were raised in order to increase profits in indus-
try. 1// In 1954 there evidently were no planned price cuts in
industry. Thus to the extent that firms met their plan for lowering
of costs of production, this action would have the effect of pro-
ducing more profits than in years when both costs and prices are
lowered.
The 1955 budget law stated that wholesale prices and freight
rates were to be lowered 1 April 1955 and implied that the announced
budget did not take this into account. 18/ It charged the Council
of Ministers, in carrying out the budget for 1955, to make changes
in revenues and expenditures accordingly. The item most likely to
be affected here would be the profits tax. Price reductions would
have the effect of reducing profits and over-all revenues as well
as expenditures.
C. Population Taxes and the State Loan.
Taxation of the population is composed primarily of income
tax on the agricultural and nonagricultural population. In 1955
this category shows a normal rise expected from an increased labor
force. In 1953 and 1954, personal taxes fell as a result of reduc-
tions in agricultural income tax and other tax benefits to the
agricultural population.
The state loan from the population is to be 30.5 billion
rubles, double the loans of 1953 and 1954. It will elicit an
average subscription of 4 weeks' wages per worker. 12/ Additional
loans will be made to the state by savings banks, amounting to the
sum of increments to personal savings deposits, this year to be 10
billion rubles. 22/ Additional loans also will be made by social
insurance organizations, amounting to a sum of not over 3 billion
rubles. 21/ Total estimated borrowing, therefore, is 42.5 billion
rubles, the same amount as planned in 1952. Oversubscription of
the loan bond drive will raise this figure.
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The increase in the state loan seems to be mainly a result
of pressures caused by overfulfillment of the wage fund and under-
fulfillment of the consumer goods production plan. It also provides
a needpd source of revenue in 1955 to compensate for the continued
decline in the turnover tax. Other revenues, excepting profits
taxes, in general are at the same level as planned for 1954.
It should be pointed out that expenditures on retirement of
the state loan are increasing steadily and in 1955 will amount to
over 12 billion rubles, or about one-fourth of total state borrowing.
In 1954, when the loan was much lower, retirement amounted to about
one-third, thus lessening the net amount of revenue from this source.
In the face of the decline in the turnover tax, it would appear that
Soviet leaders may be faced with some rather considerable overhaul
of the revenue structure in the near future.
D. Secondary Sources.
Secondary sources of revenue include social insurance funds,
Machine Tractor Station (MTS) revenue (which is on a gross basis in
the budget), income taxes on enterprises and organizations (such as
profits taxes on cooperatives), collections and miscellaneous nontax
income, and customs and reparations.
In general, revenues from secondary sources in 1955 are
slightly below those planned for 1954. They are much above the 1953
leirel, however, since there was an unexpected rise in 1954, which
is difficult to explain. It is suggested that increasing amounts of
capital repair may be channelled through the budget. A possible
source of an increase in revenues could be the dissolution of a
number of Soviet joint stock companies in 1954 in China, Rumania,
and Bulgaria. The terms of sale dictate payment over a number of
years in goods. ?_?../ It might be that the value of these goods is
entered as budget revenue. At the same time, however, the ending
of reparations from Germany in 1953 should have effected some
decrease in the reparations item. The large import of consumer
goods items which existed in 1954 23/ and the consequent profit
from internal sale may also have served to raise revenues.
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1. Social Insurance Funds.
These funds retresent compulsory social insurance payments
deducted from workers' wages and budgeted by trade unions forpensions
and welfare expenses. Insurance of property is handled outside the
budget by the state insurance organization of the Ministry of Finance.
Social insurance expenditures are included under Social-Cultural Measures.
2. Machine Tractor Station (MTS) Revenue.
Inasmuch as the Machine Tractor Stations are on a gross
basis in the budget, all their income is paid into the budget. MTS
income consists of payments in kind from the kolkhoz for MTS services;
this income is valued at compulsory procurement prices. MTS income
has been estimated to rise in the same proportion as total state pro-
curement prices. In 1955 it is estimated to amount to less than half
of MTS expenditures. Under such a program it will be some time before
the Machine Tractor Stations will be able to cover their expenditures
with their own income. If, however, MTS income in kind were valued
at market prices, the Machine Tractor Stations would probably be much
closer to being self-sustaining, if not completely so.
3. Collections and Miscellaneous Nontax Income.
The category Collections and Miscellaneous Nontax Income
is made up of a variety of items such as receipts from fines, sale
of state property, "special funds," payments for passports, and
fines collected for nonfulfillment of obligatory deliveries to the
state.
4. Customs and Reparations.
Data on Customs and Reparations are available in Soviet
announcements only until 1952, and it is impossible to estimate this
account for more recent years. It may be suggested that the reparations
item in this category should decline in 1953 and 1954, in view of the
ending of reparations in 1952 from Rumania, Hungary, and Finland
and in 1953 from Germany. On the other hand, increases in foreign
trade, particularly in consumer goods, may have increased consider-
ably the income from customs levies.
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E. Summsry of Revenues.
Total real revenues increased 7 percent in 1955. Their dispo-
sition is indicative of anti-inflationary objectives. The absolute
increase in revenues is to be 33 billion rubles, of which 22 billion
will go to budget surplus. The state loan from the population in
1955 is to be double that of 1953-54. There will be no retail price
reduction in 1955, as there has been annually since 1948. At the
same time, increments to personal savings deposits, planned at 10
billion rubles, are to continue at the high rate begun in 1953. These
measures are to combat pressures which flow from underfulfillment of
the consumer goods production plan. In addition, they will bring
increased revenues to the budget, much needed in 1955, in view of the
fact that the turnover tax, the principal source of revenue, continues
to decline as a result of increased agricultural procurement prices.
The profits tax, the other principal source of increased
revenue, has risen considerably. Out of a total planned increase in
real revenue of 41 billion rubles, 25 billion will come from the
profits tax and 15 billion from the state loan. In future years,
as long as there are no retail price reductions or increased pro-
curement prices, the turnover tax will continue to grow along with
trade turnover. If, however, turnover tax rates continue to decline,
the structure of revenue, reflected in the budget, will have to be
revised in order to maintain previous growth rates.
II. Unorthodox Accounting Entries in the 1953, 1954,
and 1955 Budgets.
In all the budgets published since Stalin's death, there have been
certain new items entered in both sides of the budget which appear to
be fictitious entries and should be segregated in any analysis directed
dt discovery of the real growth in budget revenues and expenditures.
These entries represent losses to the state budget resulting from
reductions in taxes on consumer goods -- reductions in turnover taxes
reflecting retail price reductions and the increase in state agricul-
tural procurement prices. The losses to the budget occur under
revenues, and the specific revenue item where the loss occurs shows
the loss, but there is also an additional (fictitious) revenue item
of the value of the loss and a corresponding (fictitious) expenditure
item of the same value. The additional revenue item is described as
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"revenues, allocated for ... compensation of differences in connection
with ... the raising of procurement and purchase prices on agricultural
products, and also funds issued for ... lowering state retail prices ... ."
The additional expenditure item is described as "expenditures for the
compensation of the differences in prices on procurement of agricultural
products and ... for lowering ... state retail prices ... ." In 1953
these fictitious entries involved only an item representing budget losses
resulting from retail price reductions and amounting to 43.2 billion
rubles.* In 1954, apparently because retail price reductions were not
so great as in 1953 (losses being valued at only 15.7 billion rubles),
two additional fictitious items were entered in order to show some
growth in the total budget. One item of 23.3 billion rubles represented
budget losses resulting from state measures taken in 1953 to raise state
agricultural procurement and purchase prices. The other item of 6.5
billion rubles represented the amount of the turnover tax collected
and rebated for inventory revaluation at the time of the retail price
cut.** The total amount of fictitious entries in the 1954 budget was
45.5 billion rubles.
Only one questionable entry was made in 1955, that entry indicating
a 22.5-billion-ruble loss for 1955 from measures taken in 1953 to raise
procurement and purchase prices in agriculture. The inclusion of ficti-
tious entries has been partly discontinued this year and may be discon-
tinued altogether in 1956. All the fictitious entries showing losses to
the budget incurred by the state in reducing retail prices and raising agri-
cultural procurement prices essentially reflect losses in turnover tax, as
is indicated in the notes to Table 2.xxx Table 4xxxx indicates the levels
of total revenues and expenditures for recent years less the fictitious
entries outlined above. Budget growth lagged in 1953, the first year
* In last year's analysis of the 1954 budget an additional item
amounting to 3.8 billion rubles was erroneously introduced as a
fictitious item. .g2/
** 1954 was the first year in which such a figure has been announced.
In 1952, when savings from the price cut were 23 billion rubles, undis-
closed expenditures amounted to only 4.2 billion rubles, leaving no room
for inventory revaluations. It is suggested that such revaluations are
covered from turnover tax receipts and that the plan for turnover tax
takes this expense into account. Thus the entry of this item in 1954 in
the budget represents double counting, since the tax plan already takes
care of its losses. Last year's analysis of the 1954 budget does not
take cognizance of this entry as a fictitious item. aY
*** P. 6, above.
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that a fictitious entry was made in order to show growth. Revenues
for 1953 declined in previously conventional terms, and expenditures
increased 2 percent at the expense of the surplus.
Table 4
Total Soviet Budget Planned Revenues and Expenditures 2./
1951-55
Billion Rubles
1951 1952 1953 1954 1955
Revenues
458.7
509.9
501.1
527.0
567.7
Expenditures
451.5
476.9
487.3
517.3
541.0
Surplus
7.2
-33.0
13.8
9.7
26.7
a. Derived from Table 1, p. 3, above.
III. Budget Expenditures.
Total expenditures for 1955 are planned at 563.5 billion rubles.
Expenditures apparently are leveling off at the 1954 planned level,
2 percent above 1954 actual expenditures. In reality, however, the
growth over 1954 plan is 4.6 percent, since value of fictitious
entries in the budget in 1955 is only about one-half what it was in
1954. Planned budget expenditures in 1955 are shown in Table 5,*
together with planned and actual expenditures in 1951-54. All of
the rise in expenditures has occurred in traditional primary expend-
itures: Defense, Financing the National Economy, and Social-Cultural
Measures. The largest rise, one of 12 percent, has occurred in Defense
expenditures, which in 1955 amounts to 21 percent of real expenditures.
Financing the National Economy has risen 3 percent over 1954 plan and
amounts in 1955 to 41 percent of total expenditures. Social-Cultural
Measures have increased 4 percent and amount to 27 percent of total**
* Table 5 follows on p. 14.
** Continued on p. 16.
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Table 5
Soviet State Budget Expenditures 2/*
1951-55
Billion Rubles
1951E7/
1952 .8-1
3-953 P2/
1954 JV
1955 11/
Plan
Actual
Plan
Actual
Plan
Actual
Plan
Actual
Plan
Financing the National Economy 12/
178.5
179.6
180.4
178.8
192.5
180.4
216.4
213.4
222.4
Industry
79.9
N.A.
80.6
N.A.
82.6
N.A.
92.3
N.A.
111.8
Heavy industry
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
79.7
N.A.
101.2
Light industry
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
12.6
N.A.
10.6
Agriculture
39.0
N.A.
34.7
33.5
(40.4) 2/
N.A.
(52.0) 2/
N.A.
55.1
Procurement
11.2
N.A.
13.3
N.A.
(9.0) 2/
N.A.
(10.5) 2/
N.A.
(11.0) 2/
Trade
(1.0)
N.A.
1.6
N.A.
0.8
Transport and communications
11.9
N.A.
14.3
N.A.
17.4
N.A.
21.5
N.A.
23.0
Communal economy
5.0
N.A.
(5.0) f/
N.A.
(6.5) E/
N.A.
(7.5) f/
N.A.
(8.0) S/
Other expenditures
31.5
N.A.
(32.5)
N.A.
(35.6)
N.A.
(31.0)
N.A.
(12.7)
Social-Cultural Measures
120.8
118.9
124.8 ?
122.8
129.8
128.8
141.4
141.9
146.9
-
Education
59.0
57.3
60.0
58.5
62.1
61.1
67.2
N.A.
68.4
Health and physical culture
21.9
21.7
22.8
22.3
24.8
24.2
29.3
N.A.
30.0
Other expenditures
39.9
39.9
42.0
42.0
42.9
43.5
44.9
N.A.
48.0
Administration
14.3
14.1
14.4
N.A.
14.3
N.A.
13.9
N.A.
12.6
Defense
96.4
93.4
113.8
108.6
110.2
105.0
100.3
N.A.
112.1
Internal security
N.A.
N.A.
(22.9) E/
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Loan service
7.0
N.A.
8.9
N.A.
9.8
N.A.
10.5
10.2
12.2
Reserve fund, Councils
of Ministers
N.A.
N.A.
6.1
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Allotments to special banks
N.A.
N.A.
1.4
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Other expenditures
34.5
37.0
4.2
50.0
30.7
N.A.
34.8
N.A.
34.8
Total real expenditures
451.5
443.0
476.9
460.2
487.3
N.A.
517.3
N.A.
541.0
* Footnotes for Table 5 follow on p. 15.
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Table 5
Soviet Budget Expenditures 2/
1951-55 ,
(Continued)
Billion Rubles
1951.E2/
1952 EY
1953 Di
1954
12/
1955 21/
Plan
Actual
Plan
Actual
Plan
Actual
Plan
Actual
Plan
Retail price reductions
0
0
0
0
43.2
N.A.
15.7
N.A.
(0)
Raising agricultural procure-
ment prices
0
0
0
0
0
0
23.3
N.A.
22.5
Revaluation of inventories
0
0
0
0
0
0
6.5
N.A.
(0)
Total stated expenditures 451.5 443.0 476.9 460.2 >30.5 514.8 562.8 552.8 563.5
a. All figures in parentheses are estimates.
b. Information available indicates that the actual expenditures in the 1951-54 period for Industry; Transport and
Communications; and Agriculture were somewhat less than here indicated. The cumulative 4-year expenditures for
Industry amounted to 333.9 billion rubles; for Transport and Communications, 60.1 billion rubles; and for Agriculture.
150.7 billion rubles compared with 335.4, 65.1, and 164.9 billion rubles, respectively, in this table. On the other
hand, the 4-year total actual expenditures for Procurement, Trade, Communal Economy, sna Other Expenditures were some-
what greater -- 207.9 billion rubles compared with 201.2 billion rubles -- than estimated here. These discrepancies
are small on the whole and do not affect either the interpretation or the conclusions presented herein. The infor-
Mation presently available is inadequate to determine the time distribution of the underfulfilIment. 32/
c. In 1953, allocations to agriculture and procurement were 39.9 billion rubles; in addition there was allocated
13.6 billion rubles, of which 4.1 represented a reduction in agricultural income tax. Thus total allocations to
agriculture and procurement were 39.9 + 13.6 - 4.1, or 49.4 billion rubles. Allocations to procurement in 1953 are
estimated at 9 billion rubles, leaving 40.4 billion rubles allocations to agriculture.
d. In 1954, allocations to agriculture and procurement from the budget were 62.5 billion rubles, of which it is
estimated that 10.5 billion rubles were allocated to procurement.
e. In 1955 the agricultural allocation was listed as 55.1 billion rubles, not counting allocations to procurement.
Allocations to procurement in 1955 are estimated at 11 billion rubles.
f. Communal Economy estimates are based on republic budget expenditures.
g. In 1952, allocations to internal security and administration from the Union and Republic budgets were 31.4
billion rubles; of this, administration expenditures are estimated to be 8.5 billion rubles, the same as 1951 admin-
istrative appropriations from the Union and Republic budgets. 33/ Total administrative allocations were 14.4
billion rubles; 5.9 billion rubles would be spent by local budgets. Allocations to internal security then would
be 31.4 billion minus 3.5 billion rubles, or 22.9 billion rubles.
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expenditures. Undisclosed and secondary items of expenditure have
remained equal to those planned for 1954, these expenditures having
remained at the same level throughout the Fifth Five Year Plan.
In Financing the National Economy, heavy industry will receive an
increase in allocations amounting to 21 billion rubles or 27 percent.
Light industry and trade will receive less financing from the budget
than last year. Agriculture and transport will receive slightly in-
creased allocations from the budget. The other expenditures category
within Financing the National Economy will fall by about 18 billion
rubles, strongly implying that there may be some accounting transfer
from other expenditures to heavy industry. Financing capital invest-
ment is planned at a figure slightly below 1954 planned investment,
although it is possible that the two figures are not entirely compar-
able, because of a change in definition. About 49 percent of alloca-
tions under Financing the National Economy will be spent on capital
investment.
A. Financing the National Economy.
The sector Financing the National Economy is exceptional in
Soviet financial practice in that the state budget furnishes only a
part of the flow of funds to the sector. In addition to state budget
funds, this sector finances a considerable portion of its outlays
from earnings of various economic organizations which remain after
meeting the profit tax liabilities of the respective firms or ministries,
and from the extension of bank credit. Thus any comprehensive analysis
of sector expenditures must consider state budget outlays and organiza-
tional outlays as well as bank credit. To simplify direct study of
the state budget, considerations of outlays for financing the national
,economy have been divided in this presentation. Flows from the state
budget are considered first. Subsequently, the combined state budget
and organizational flows are considered together. It is the latter
consideration that is of primary importance to the conduct of the
Soviet economy. Information on the role and magnitude of Soviet bank
credit is not yet sufficiently firm to permit integration of this
data into the present analysis.
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In 1955 the sector Financing the National Economy will receive
222.4 billion rubles, compared with 213.4 billion rubles in 1954. Ex-
penditures under this category go to economic organizations for new
capital investment, expansion of working capital, repair, subsidies,
and other operational expenditures. In order to establish trends,
rough estimates for these items are shown in Table 6.*
1. New Capital Investment.
It now seems well established that announced capital invest-
ment in the national economy pertains to the budget category Financing
the National Economy, and does not cut across all budget categories. 1Lt/
There is apparently additional investment involved within other budget
categories -- Social-Cultural Measures and Administration. 12/ Since
1949, budgetary investment in the sector Financing the National Economy
has accounted for about 55 percent of the sector total, but in 1955
the apparent allocation to investment fell to 49 percent of total outlays.
2. Expansion of Working Capital.
Expansion of working capital is defined as that working
capital needed for planned production expansion and newly built enter-
prises coming into operation. 1Y As in the case of investment, all
of the announced budget allocations to this item fall under Financing
the National Economy.
3. Capital Repairs.
Very little has been published in the postwar period on
the amount of capital repair for any given year. In 1951 it was
announced that total planned repairs were to amount to 29.1 billion
rubles, 1// and in 1955 it was announced that planned repairs in
industry alone were to be 18.7 billion rubles. 1_81 It has been
assumed, on the basis of the 1941 plan, that about 25 percent of
repair funds come from the budget. This portion has been applied to
estimates of repairs for the Fifth Five Year Plan period. 12/
* Table 6 follows on p. 18.
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Table 6
Financing the National Economy in the Soviet Budget Ei
1951-55
Billion Rubles
1951
1952
1953
1954
1955
Investment in fixed capital
98.0
98.1
106.7
116.3
109.3
Expansion of working capital
5.4
4.6
4.3
4.8
5.9
Capital repairs
(7.3)
(7.2)
(8.2)
(9.1)
(10.0)
Operational expenditures
Machine Tractor Stations
(12.8)
(13.8)
(15.5)
(21.5)
(23.1)
Other agriculture
(9.3)
(6.2)
(8.4)
(9.5)
(10.5)
Procurement
(10.0)
(12.0)
(9.0)
(10.5)
(11.0)
Other, including
(24.3)
(25.0)
(28.1)
(25.6)
(13.9)
Communal economy
State reserves
Atomic energy
Gold purchasing
Residual, including
(11.4)
(13.5)
(12.3)
(19.1)
(38.7)
Operational expenditures
to industry and transport
Financing planning organizations
Total
178.5
180.4
192.5
216.4
222.4
a. All figures are plan figures.
Figures in parentheses are estimates
discussed in the text. Figures in first two rows are from Table 12, p. 34,
below.
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4. Operational Expenditures.
The operational expenditures noted in Table 6 are a mixture
of subsidies, government purchasing, and direct budget accountability
of the gross operations of certain organizations classed as "budgeting"
institutions. In the latter organizations, all organizational receipts
are treated as budget income, and all organizational outlays are treated
as budget expenditures.
The Machine Tractor Stations receive all of their expense
funds from the budget. In 1954, out of a total MTS allocation of 31
billion rubles, about 9 billion rubles were spent for investment. In
1955 a like amount is estimated for investment, out of an appropriation
of 32.6 billion rubles. The increased appropriation is attributed solely
to increased operational costs.
Other operational expenditures in agriculture are allocated
to state farms, forestry, agricultural experiment stations, and other
unspecified agricultural projects.
The Ministry of Procurement receives large sums from the
budget for working capital. In addition, this ministry receives an
allocation for meeting the difference between procurement and purchase
prices of the goods which it purchases. For example, when a kolkhoz
sells goods to a procurement organization at a price higher than the
obligatory procurement price (purchase price), the procurement organiza-
tion values the sale on its own books at the obligatory procurement
price, pays the kolkhoz the higher purchase price, and receives com-
pensation from the budget for the difference.)19_11/
The category Other Expenditures in the sector Financing
the National Economy includes communal enterprises, motor transport
and highways, state reserves, gold purchases, probably atomic energy,
and other minor activities. In 1955, total appropriations for this
category declined about 18 billion rubles, and there was a correspond-
ing rise in allocations to heavy industry. The amount of investment
in the category Other Expenditures is difficult to estimate; 30 per-
cent has been assigned arbitrarily, based upon 1948 and 1949 infor-
mation. L1/ Working capital for these activities is probably high
because of the nature of their function. Thus, even if the invest-
ment guess is far off for any one year, at least the general magnitude
of the category would be obtained by this procedure.
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State reserves purchases, gold purchases, and the develop-
ment of nuclear weapons probably account for a considerable amount of
operational funds. Before the war the two former items accounted for
about half of the category)1_21 Other Expenditures. In 1953 this category
increased. In that year there was a general reshuffling of categories
within the category Financing the National Economy.
5. Residual.
The residual item includes all operational expenditures
which would be allocated to industry and transport. Certain organiza-
tions in these categories are supported wholly by the budget, such
as planning organizations of various ministries and departments --
which received 3.7 billion rubles in 1951. ill/ Some MVD economic
operations are included such as mining, construction, and road-building
activities. Li-V Included also are expenditures for training, research
and inventions, and subsidies, about which very little is known at the
present time. Assuming some relevance to the estimates here made, there
is left in this residual some amount of funds which could conceivably
be applied to subsidization of unprofitable enterprises.
Concerning subsidies, Malenkov announced in 1953 that in
1952 "losses of unprofitable enterprises amounted to 16 billion
rubles."1?V* Soviet literature declares that planned losses can be
covered either by state subsidies or profits of other enterprises./1-Y
Planned losses of a plant are, in the main, supposed to be made up'
by the plant's chief directorate through redistribution of profits
collected from the more profitable plants of the chief directorate.
During and immediately after the war, however, there was a considerable
amount of subsidization of heavy industry because costs rose to high
levels and prices were maintained at the 1939-40 level. Lig] In 1948-49
there was an attempt to abolish subsidies in industry and transport by
raising release prices of raw materials and equipment. It is evident
from budget data that at that time subsidies were reduced considerably;
whether they were wholly abolished is questionable. It is inescapable
* Since it was not known at the time to what extent profits were redis-
tributed within chief directorates or ministries, it was suggested that
the entire amount of 16 billion rubles might reflect subsidies from
the budget. Such a proposal seems extremely improbable, however, from
inspection of the estimates in Table 6, p. 18, above.
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that at present there could very well be some degree of subsidization,
particularly in view of the increasing complexity and high cost of
military end items. (See the discussion below.) The initial use of
atomic power in industry may also demand some subsidization. The
Russians state that li-L3/
As a result of lowering costs, regulating
wholesale prices on products of the branches
of heavy industry and freight tariffs in 1949,
the system of subsidies in industry, and even
in transport was in the main liquidated. At
the present (1954) it is used as a temporary
measure in regard to separate enterprises,
which in the first period of operation still
need them.
The residual category of Table 6 rose significantly in
1954 and 1955. In 1954 it probably indicates increases across the
board in items contained in the category, such as subsidization,
training, and research and inventions. In 1955 the increase in
this category is much greater than in 1954, and there is a correspond-
ing decrease in operational expenditures in the category Other Ex-
penditures. The increase in the residual category, however, is
almost twice as great as the decrease in Other Expenditures, indicat-
ing a net rise in the residual which amounts to about 7 billion
rubles and would be applicable to the items listed above. This in-
crease, like that of 1954 of 5 billion rubles, may very well reflect
subsidization of the initial stages of the production of new end
items. The cost of developing and initially producing modern air
and sea craft is certainly high enough to warrant such an increase
in expenditures.
As noted above, the figures in Table 6 indicate a trans-
fer of about 12 billion rubles in operational expenditures from the
category Other Expenditures to the residual in Industry and Transport.
Table 5, however, indicates a transfer of about 18 billion rubles in
operational expenses plus other allocations from the category Other
Expenditures to Heavy Industry. This leaves, then, a transfer of about
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6 billion rubles of nonoperational expenditures of capital investment,
repair, and expansion of working capital. Thus in the items that trans-
ferred, about one-third of their appropriation goes to investment and
repair.
6. Sources of Financing the National Economy.
It is evident in Tables 7 and 8* that total outlays for
Financing the National Economy in 1955 will increase but little com-
pared with increases in 1953 and 1954. This in itself might be taken
to indicate that the 1955 budget was less inflationary, were it not
that some of the budget surplus is used for credit investments in the
national economy. IL1-2/ With the increase in the surplus this year,
it might be expected that there will be an expansion of bank credit
which may in part compensate for the small increase planned in noncredit
financing. Zverev, in fact, mentions the availability of credit for
expanding production in light industry immediately after announcing
a decrease in allocations to that sector. 22/ Even taking into account
the larger surplus, however, there remains a smaller increase in spending
planned for tne national economy in 1955 than in 1953 and 1954. This
deflationary trend is reflected in several measures taken in the latter
part of 1954 to increase efficiency in the .economy by freeing manpower
and material tied up in administration; 21/ above-norm supplies of
stocks, 22/ unfinished construction work, 2y and funds tied up in
overdue loans on goods in transit. 211/ Decreased investment financing
also has been publicly connected with increased efficiency. 22/ Some
of this activity also may be part of an effort to consolidate the
economy in preparation for the new 5-year plan which will begin next
year.
a. Heavy Industry.
One of the most significant aspects of the budget for
1955 is a large increase in budget and nonbudget allocations to-Heavy
Industry that is evidently not accompanied by a corresponding increase
in investment in Heavy Industry. The increase in budget allocations
is about 18 billion rubles, and from Industry's internal funds, about
* Tables 7 and 8 follow on pp. 23 and 24, respectively.
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Table 7
Financing the National Economy of the USSR:
1952-55
Sources of Funds a/
Billion Rubles
1952 12/ 56/
1953 21/
1954 .2.132./
1955 59/
Budget
178.8
192.5
216.4
222.4
Organizational funds
86.8
98.0
110.3
112.8
Total
265,6
290.5
326.7
335.2
Budget surplus
37.5
13.8
9.7
26.7
a. Plan figures, except where noted.
b. Figures in this column are actual.
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Table 8
Financing the National Economy of the USSR: Distribution of Funds by Activity 2/
1954 and 1955
Billion Rubles
1954 ?..g./
1955
1.6J1
State
Budget
Organizational
Funds
Total
State
Budget
Organizational
Funds
Total
Industry
92.3
71.9
164.2
111.8
77.9
189.6
Heavy industry
79.7
53.5
133.2
101.2
62.4
163.6
Light industry
12.6
18.4
31.0
10.6
15.5
26.1
Agriculture
62.5
11.9
74.4
55.1
10.1
65.2
Procurement
b/
12/
(11.0)
(2.0)
(13.0)
Trade
1.6
.0
5.6
0.8
1.0
1.8
Transport and communica-
tions
21.5
17.3
38.8
23.0
17.5
40.5
Other
38.5
5.2
43.7
20.8
4.3
25.1
Total
216.4
110.3
326.7
222.4
112.8
335.2
a. Plan figures. Figures in parentheses are estimates.
b. Included in agricultural appropriation.
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7 billion rubles, as shown in Table 9.* Likewise the budget presents
a decrease of 18 billion rubles in the category Other of the national
economy. It is suggested that there may have been an accounting trans-
fer of appropriations for some item from the category Other to Heavy
Industry. There is no evidence of any large actual increase in ex-
penditures in heavy industry, ,and it is otherwise impossible to ex-
plain logically the fact that expenditures in the category Other,
which contains state reserves and possibly atomic energy, are being
halved and expenditures to heavy industry sharply increased. Zverev
seems to want to reassure the listeners and readers of his speech
that there is not an expansion in heavy industry that would warrant
the apparent increase in allocations. He gives the major noninvest-
ment expenditure items that would be connected with expansion for
all of industry together with capital investment expenditures for
heavy industry. _62/ He does not give any of this information for
other branches of the economy. The likelihood of transfer of various
items is discussed below.**
The increase of appropriations to Heavy Industry from
internal financing seems to be more the result of change in financing
technique than a transfer of traditional accounting entries. This
position appears tenable for two reasons. First, the displacement
of funds from internal financing is not as great as occurs in budget
financing. Second, there is statistical evidence that points to
some relative changes in internal financing among branches of the
economy. Data from Table 9* indicate that there is some shift in
financing techniques for 1955. Heavy industry will increase its non-
budget outlays for capital investment while the nonbudget financing
of other branches for capital investments will relatively decline.
At the same time, there seems to have been a slight decline in non-
budget financing from the category Other so that some of the increase
in nonbudget financing of heavy industry could be attributed to a
change in categories. Although a change in financing techniques may
have provided for the major increase in heavy industry nonbudget
financing, the proposed change in categories probably also provided
for some of the increase.
* Table 9 follows on p. 26.
** See p. 30, below.
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Table 9
Financing Soviet Heavy Industry 2./
1954 and 1955
Billion Rubles
Total
Heavy industry
Other
Total
Heavy industry
Other
Total
Budget-financed
Nonbudget -financed
Nonbudget Financing
Capital Investment
Capital Investment
1954 1955
110.3 112.8
53.5 62.4
56.8 50.4
169 167.2
90 93.5
79 73.7
169 167.2
116.3 109.3
52.7 57.9
a. All data taken from Table 8, p. 211., above, and Table 12,
10. 34, below.
b. Light Industry.
Allocations to Light Industry from both budget and
nonbudget sources will decline in 1955 by about 12 percent from 1954
planned levels. This decline may be explained by the fact that, in
the initial stages of the new consumer goods program, more money was
needed for the expansion of light industry than in the second year
of the program. It also means that an increasing amount of production
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expansion will be covered by state bank credit. Zverev mentioned the
availability of credit for this purpose in his speech and also in a
recent article on the state bank reforms of August 1954. He said that
increasing credit will be given "enterprises for expenses to organize
and develop the production of consumer goods and to better their
quality." _.2/
c. Agriculture.
Allocations to Agriculture in 1955 are planned at
65.2 billion rubles, as compared with 74.4 billion rubles in 1954.
In 1953, however, there has been a change in the definition of the
agricultural categoty, and the Procurement item has been omitted. ).21/
It is estimated that Procurement allocations amounted to about 12
billion rubles in 1954.* Allocations to Agriculture, therefore,
apparently have risen slightly over 1954. Agricultural allocations
provide for the full support of the Machine Tractor Stations, invest-
ment and some working capital for sovkhozes, and funds for experi-
mental stations and general projects in afforestation and irrigation.
The breakdown of the 1955 agricultural budget is presented in Table 10.
Table 10
Soviet Agricultural Budget
1955
Billion Rubles
Ministry of Agriculture
Allocation
Investment
Machine Tractor Stations.
32.6
(9.5)
Other
8.2
Ministry of State Farms
9.7
6.6
Other, general projects
4.6
Total
55.1 (21.0)
a. Figures in parentheses are estimates.
* Further discussion of allocations to Procurement follows on p. 31, below.
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Allocations to the new lands from the 1955 budget will
amount to 11 billion rubles -- 5 billion from the MTS budget and 6
billion from sovkhoz allocations. Two-thirds of the Ministry of
State Farms allocation will go to the new lands program, and most of
this money will probably involve investment funds. The effect of the
new lands program on the agricultural budget has been to increase
capital investment by about one-third and to increase the operational
expenditures of the Machine Tractor Stations by about one-fourth.
Budget allocations to agriculture (as shown in Table
11) as a portion of total allocations to the national economy were
22 percent in 1951, 19 percent in 1952, and 25 percent in 1955.
Most of the increase in agricultural allocations has
gone to the Machine Tractor Stations. This organization has increased
its share of the agricultural allocation from 49 percent in 1951 to
59 percent in 1955. Increases in other allocations to agriculture
have occurred principally in state farms and general projects.
Table 11
Soviet Planned Allocations to Agriculture W
1950-55
Billion Rubles
1950 .61/
1951 g./
1952
1953 DI
1954 /1/
1955 ,1T/
Machine Tractor
Stations
(20.0)
(19.0)
17.0
(20.0)
30.8
32.6
Ministry of Agri-
culture, less
Machine Tractor
Stations
(7.0) 12/
5.0 12/
8.2
Ministry of Sovkhozes
(8.1)
9.7
Residual, general
projects
1.5
4.6
Total
36.6
39.0
34.7
(40.4)
(52.0)
55.1
a. Figures in parentheses are estimates.
b. Does not include allocations to the Ministries of Cotton Growing and Forestry,
then separate from the Ministry of Agriculture.
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The decline in 1952 of allocations to the Machine
Tractor Stations could represent a shifting of priorities away from
agriculture because of the Korean War, but it probably also reflects
the price reductions on capital equipment effected that year. The
significant increase in the residual, which includes afforestation,
irrigation, and construction of dams and reservoirs, is due partly
to new plans for the large-scale irrigation of cotton-growing areas
in Central Asia and other new schemes of the same sort. The state
farm budget of 1950 included a 3.7-billion-ruble allocation for
carrying out the 3-year livestock plan (1949-51) 11/; in 1955 some
of that allocation has been replaced by investment in state farms
on the new lands. It is difficult to analyze agricultural alloca-
tions in 1953 and 1954, since total allocations are only estimates.
Outside of MTS allocations, which are given, a rise or fall of 2
billion to 3 billion rubles is significant, and yet such a rise or
fall could be wholly due to erroneous estimates of the total alloca-
tion. It remains that the 1955 allocation to Agriculture includes
significant sums for investment in the new lands program and that
allocations to Agriculture have increased considerably as a percentage
of total allocations to the national economy since 1952.
d. Trade.
Allocations to Trade from budget and nonbudget
sources in 1955 are scheduled to be less than half of planned
allocations in 1954. This reduction may be in part a result of
economies to be made in working capital, but the major amount is
probably the result of a scheduled decline in investment in the
trade network. The government may feel that the large investment
program in the trade network in 1954 was sufficient to permit the
immediate improvement of trade facilities required, particularly
in view of the modest increases in availability of goods. Long-
term credit, the uses of which are not specified in the budget
announcements, also may be used for trade investment, thereby per-
mitting the continued expansion and improvement of retail outlets.
e. Transport and Communications.
Allocations to Transport and Communications increased
again in 1955. Inasmuch as 2,000 kilometers of railroad are to be
built1?-11 during 1955 in the new lands, it seems likely that other
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expansion of the rail system may be strictly limited. Almost all the
increase in Transport and Communications allocations will come from
the budget, nonbudget funds remaining at the same level as in 1954.
Communications as well as Transport investment located in the new
lands will be financed almost entirely out of budget funds. The high
level of these immediate requirements probably will exceed the small
increase in outlays to .thesector, with the result that investment
funds for other activities will suffer.
f. Other Expenditures in the National Economy.
Before the war this category contained the following
items IV: Housing and the Communal Economy; State Reserves; Chief
Directorate of Hydrometeorology; Ministry of Automobile Transport and
Highways; Ministry of Finance, Chief Directorate of Precious Metals;
Chief Directorate of Geodosy and Cartography; and Chief Resettlement
Directorate. It is speculated that development of nonconventional
weapons is also included in this category. In 1955, as has been
mentioned above, there has been a decrease in this category of about
18 billion rubles, and Heavy Industry appropriations have increased
by 20 billion rubles. It is implied that there has been a transfer
of items out of the category Other into the category Heavy Industry.
The most likely item to shift would be the hypothetical item Atomic
Energy. It seems most unlikely that items such as Housing and the
Communal Economy or State Reserves would transfer to Heavy Industry,
first, because these items pertain to more sectors of the economy
than just Heavy Industry, and second, because these items have been
located in this category since before the war, and there seems to,
be no logical reason for a shift.
It is possible to estimate out of this category
housing and the communal economy on the basis of allocations in
Republic budgets. Although such allocations are not at present
available for 1955, it probably can be estimated that these ex-
penditures will rise slightly over 1954 and amount to about 8
billion rubles, leaving about 13 billion rubles for all other
expenses. In the 1941 budget plan, allocations to State Reserves
and gold purchasing amounted to about half of the comparable
category.
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B. State Budget and Procurement.
Since 1953 there have been two sets of figures concerning the
relation of procurement organizations to the budget. One is the alloca-
tion from the category Financing the National Economy that has existed
since before World War II and applies primarily to "compensation for
the difference" between purchase and procurement prices (see explanation
of this expense, above*). The other figure connected with procurement
expenditures is defined as "expenses connected with the raising of
procurement and purchase prices on agricultural products done in 1953." ly
The latter sum is taken to represent the loss to the state resulting
from the raising of procurement and purchase prices in 1953.** It
* P. 11, above.
** There seems to be some question as to whether or not grain purchase
prices were raised in 1953 or 1954. In 1954 a decree of the June Party
Plenum contained an announcement that grain prices were being raised
and delivery quotas lowered, and this was taken to be the first appear-
ance of any measures in raising prices and lowering quotas for grain.
There is some evidence, however, that the purchase prices of grain
were raised in 1953. An editorial in Voprosy ekonomiki in 1953
states I//:
The Party and government, already in the present year,
have decided to increase markedly the procurement prices
of meat, milk, wool, potatoes, and vegetables delivered as
obligatory deliveries; to also increase purchase prices for
surpluses of grain, vegetables, potatoes, and livestock prod-
ucts of kolkhozy and kolkhozniki who have fulfilled their
obligatory deliveries.
And in the recently published textbook on political economy, IlEY
... lower procurement and purchase prices on potatoes,
vegetables, milk, meat and grain inhibited their production.
The significant raising of procurement and purchase prices
on these products, done in 1953 by decree of the Soviet of
Ministers and Central Committee was a very important stimulant
to raising their production.
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represents losses to the budget and is treated in 1954 and 1955 in the
same manner as the losses to the budget, from price reduction. It is
entered on both sides of the budget, and turnover-tax revenues decline
accordingly, the turnover tax being the source for financing the in-
crease in prices. When the state procurement price is raised and the
retail price remains level, the difference, which is the turnover tax,
is cut.
This additional procurement expense is thought to represent
that amount of increase in the total state procurement and purchase
bill which is the result of price increases effected in 1953. In other
words, if the increase in the bill .in 1954 is 25 billion rubles and if,
of that amount, the sum of 22 billion rubles is attributable to the
1953 increase in prices, then had prices not been raised, the in-
crease in the bill would have been 3 billion rubles. Since the
source for the increase in procurement prices is the turnover tax,
planned tax receipts for 1954 (other things being equal) would be
22 billion rubles less than in 1953. In 1954 this procurement
figure representing state losses from the price changes of 1953
was 23.3 billion rubles. In 1955 the same figure representing
losses from the increases in procurement prices made in 1953 was
22.5 billion rubles. This slight decline in 1955 is hard to ex-
plain, since it would seem that there is planned a smaller volume
of procurement in 1955 than was planned in 1954 for those items
whose prices were raised in 1953. A number of factors could con-
tribute to this situation. There may have been closer planning in
1955 -- the procurement plan was probably underfulfilled in 1954,
so that the 1955 plan figure may actually be higher than the 1954
actual.* In addition, if state losses from 1953 price changes take
into account an increase in the volume of procurements and purchases
which is directly resultant from price changes, then it would be
logical that such increments in volume would be less in the second
year after the price change than in the first year of the price change.
This could not be the sole reason for the lower 1955 figure but may be
a contributing cause, since it is doubtful that volume of procurements
in 1955 is planned lower than was planned in 1954.
* Total state investments for 1951-54 have been announced in 1 July
1950 prices. The portion financed from the budget is by definition
in current prices, and the difference between 1950 and Current prices
is accumulated under internal sources of financing and treated as a
separate source -- that is, savings from the 1 January 1952 price
reductions. 12/ Therefore, the relationship between budget-financed
investment and total state investment is not what the figures might
indicate.
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C. Capital Investment.
Total allocations to investment in fixed capital and expansion
of working capital usually are outlined in the budget presentation with
specific reference to the amount which will come from the budget and
the amount which will come from enterprises' own funds. (See Tables
12, 13, 14 and 15.*) About 70 percent of the value of total state
investments is financed from the budget.** The remainder of state
investments is financed from enterprises' internal funds, derived'
principally from amortization deductions and profits set aside for
investments. A small additional fund for investment comes from
Directors' Funds and certain receipts and bonuses. From 1.5 to 2
percent of the total cost of investment is planned to be financed
each year from increased efficiency in construction, and periodic
official price reductions of materials and equipment also reduce the
monetary resources needed to attain a given volume of investment.
The amount of savings derived from increased efficiency and price
reductions is considered a source of financing.
Outlays for state investments in the national economy in
1955 are planned to be 167.2 billion rubles, of which the budget
will provide 109.3 billion rubles and enterprises will provide 57.9
billion rubles. This is an apparent decrease of 2 billion rubles
below announced planned investments for 1954 and a small increase
over estimated actual' outlays for investment in 1954. The planned
level of investment in 1955 is adequate to fulfill the Fifth Five
Year Plan goal for total investment. As in all previous years of
the postwar period, including 1953 and 1954, Heavy Industry will
receive over 50 percent of total state investment funds. Outlays
for Agriculture, Transport and Communications, and Housing will rise
slightly above actual expenditures in 1954, while consumer-oriented
industries and internal trade will invest less than in 1954. Several
reasons may be suggested for the apparent leveling off of investment
outlays in 1955.***
* Tables 12, 13, 14, and 15 follow on pp. 34, 35, 38, and 40,
respectively, below.
** See footnote *, p. 32.
*** Continued on p. 36.
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Table 12
Soviet Planned Capital Investment and Expansion of Working Capital
1951-55
Billion Rubles
1951 .22/ 1952 1953 1954 ?.Q./ 1955 Lt/
Investment in fixed capital
Budget
98.0
98.1
106.7
116.3
109.3
Enterprises' own funds
34.0
45.0
49.4
52.7
57.9
Total
132.0
143.1
156.1
169.0
167.2
Expansion of working capital
Budget
5.4
4.6
4.3
4.8
5.9
Enterprises' own funds
5.9
6.1
10.8
11.1
7.1
Total
11.3
10.7
15.1
15.9
13.0
Total investment and expansion
of working capital
Budget
103.4
102.7
111.0
121.1
115.2
Enterprises' own funds
39.9
51.1
60.2
63.8
65.0
Total 143.3 153.8 171.2 184.9 180.2
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Table 13
Soviet Investments in the National Economy 2/
1953-55
1953
12/
19542/
1955 Eli
Total
Allocation
Investment
Total
Allocation
Investment
Total
Allocation
Investment
Industry
N.A.
87.6
164.2
104.4
189.6
(105.0)
Heavy industry
N.A.
80
133.2
90.0
163.6
93.5
Light industry
N.A.
7.6
31.0
14.4
26.1
(11.5)
Agriculture
Procurement
N.A.
N.A.
0.2,0
N.A.
74.4
21.0
N.A.
65.2
(13.0)
(21.0)
N.A.
Trade
N.A.
2.0
5.6
14.0
1.8
(1.0)
Transport and communications
N.A.
17.7
38.8
18.6
40.5
(20.0)
Other
N.A.
(25.7)
43.7
21..0
(25.1)
(20.2)
Total
N.A.
(145.0)
326.7
169.0
335.2
167.2.
a. Plan figures, except where. otherwise noted. Figures in parentheses are estimates.
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There is accumulating evidence that the figures announced for
planned investment in 1955 are not comparable to figures for previous
years of the Fifth Five Year period, because of a change in pricing.'13_2/
Whereas in previous years planned investments were announced in 1 July
1950 estimate prices, 1955 investment figures appear to be on some new
basis, although nearer to constant 1950 prices than to current prices.
Use of current prices would result in an increase in total investments
for 1955 of 8 to 10 percent.
There are other possible reasons for a lower rate of investment,
however, which cannot be disregarded. Soviet officials have expressed
concern over the development of a disequilibrium in investments from
overproduction of certain types of machinery and equipment, a serious
lag in the completion of buildings under construction, and dispersion
of investment resources among too many projects. 22/ It appears that
1955 will witness a concentration of resources on construction, par-
ticularly on projects planned to be completed in the Fifth Five Year
Plan period, with a postponement of initiation of new construction
projects. 91/ The rate of production of machinery and equipment for
addition to fixed assets may decline, freeing facilities for pro-
duction of military end items, consumer durables, or spare parts and
tools for current operations and repairs. There has been criticism
of the level of construction costs and an emphasis on strict economy
in 1955. Intensified efforts to reduce construction costs would
permit a given volume of capital work at a lower level of expenditure.
Also it was announced in the btidget law that there would be a reduc-
tion in equipment prices and freight charges on 1 April 1955. 2?/
Although it was stated that these reductions had not been taken into
account in the budget, a knowledge of these reductions may have
precipitated the reduction of budget allocations to investment.
1. Heavy Industry.
The portion of total state investments going to Heavy Indus-
try in 1953, 1954 (plan), and 1955 (plan) has been 55, 53, and 56 per-
cent, respectively. Increases in investments in Agriculture and con-
sumer-oriented industries in 1954 were not planned at the expense of
investment in Heavy Industry but were planned to arise from a sharp
increase in total investment. The increase in investment in Heavy
Industry planned for 1955 is very modest in the light of policy state-
ments emphasizing the growth of heavy industry and in view of the sharp
rise in total allocations to Heavy Industry.
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2. Light Food and Local Industry and Internal Trade.
The share of total state investments in light, food, and
local industry rose from 5 percent in 1953 to 8.5 percent in the 1954
plan, falling back to about 7 percent in the 1955 plan. Because the
1954 plan was not fulfilled, however, the 1955 plan may not represent
a drop in actual investment expenditure. The major change in 1955
investment is the reappearance of emphasis on local procurement of
materials rather than central procurement and the high building
priorities which existed in 1954. Local procurement and low building
priorities traditidnally have increased the difficulty of fulfilling
the plan because of the subordinate position of local activity in
the general pattern of resource allocation. Investment in internal
trade in 1955 apparently will decline drastically, as is indicated
by the fact that total financing of internal trade will fall from a
planned 5.6 billion rubles in 1954 to 1.8 billion rubles in 1955.
Investment in trade enterprises from state sources is expected to
fall from about 3 billion rubles in 1954 to about 1 billion rubles
in 1955.
3. Agriculture.
State agricultural investment in 1955 probably will in-
crease somewhat over actual investment outlays for 1954. Approximately
one-half of these funds are allocated to the Machine Tractor Stations
to be used for the purchase of machinery and equipment and for the
construction of buildings. Allocations to the Machine Tractor Stations
for the development of the new lands are 5 billion rubles, 21/ at least
half of which probably will be spent on invebtment. About one-third
of state agricultural investment will be allocated to sovkhozes. It
is thought that more than one-half of these funds will be used in new
lands for purchase of machinery and equipment, for expenses connected
with breaking the new lands, and for construction. Almost two-thirds
of the total.allocation to sovkhozes, 9.7 billion rubles, will be
spent in the new lands. 2/.1/ The balance of state agricultural invest-
ment (other than MTS and sovkhoz) will be used for other purposes,
such as forestry, irrigation, cotton growing, development df electric
power, and afforestation.
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Whereas state agricultural investments are financed almost
entirely from the budget, collective farm (kolkhoz) investments are not
part of state capital investment and kolkhozes receive no budget funds
for investment. Their funds come mainly from money income set aside
for investments, from long-term bank loans, and from investment in
kind (kolkhoz labor and natural increments to the herd). Because of
the difficulty of evaluating investment in kind, this category is
omitted here. New Soviet agricultural policies have emphasized the
necessity of increases in kolkhoz investment, especially for the con-
struction of better farmbuildings, the purchase of machinery and
equipment for further mechanization of operations, the development
of power facilities, and the purchase of fertilizer. Table 14 shows
agricultural investments for 1952-55 (plan) including both state and
collective (kolkhoz) sectors.
Table 14
Soviet Agricultural Money Investment 2/ 22/
1952-55
Billion Current Rubles
1952
State Investment
Kolkhoz Money Investment
Grand
Total
MTS
Sovkhoz
Other
Total
Long-
Term
Loans
Own Funds
Total
(actual)
(3.7)
(2.9)
(7.0)
(13.5)
2.7
8.2
10.9
(24.4)
1953
(actual)
(5.1)
(2.0)
(4.9)
12.0
2.8
9.7
12.5
(24.5)
1954
(planned)
21.0
3.9
1954
.
(actual)
(9.3)
5.3
(3.4)
(18.0)
4.1
12.4
16.5
(34.5)
1955
(planned)
(9.5)
6.6
(4.9)
(21.0)
5.2
12.8
18.0
(39.0)
a. Figures in parentheses are estimates.
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The state has increased loans to kolkhozes greatly in 1954
and 1955, probably in part for funds needed for the development of new
lands, since about one-half of the new lands will be organized as kol-
khozes. 2Y As a result of increases in state procurement and purchase
prices of agricultural products of kolkhozes, an increasing amount of
kolkhoz income had been available for investment. Table 14* indicates
that there has been a 50-percent increase since 1952 in agricultural
money investment, with increases in the state and collective sector
being about equal.
4. Transport and Communications.
Investments in Transport and Communications should increase
both absolutely and as a percentage of total investments in 1955 because
increasing services are required for the new agricultural lands and
because the transport investment schedule for the Fifth Five Year Plan
period seems to be far behind plan. The portion of state investments
devoted to Transport and Communications in 1953, 1954 (plan), and 1955
(plan) has been about 12, 11, and 12 percent, respectively.
5. Other Investments (National Economy).
Other investments in the national economy include increases
in the working capital of construction organizations, investments in
municipal services and municipal housing, the construction of buildings
and other fixed assets of state reserves and procurement organizations,
and an unknown degree of expenditures on development of nonconventional
weapons and possibly some special construction and other minor invest-
ments. No effort is made to break down residual investments, the total
of which has ranged from 20 billion to 25 billion rubles for the last
3 years.
6. Housing.
Housing investment as such is not a separate entry in the
investment budget but is a part of investment in other sectors. For
example, about 15 percent of industrial investment is in houses for
workers and employees. State housing investment is presented in
Table 15.**
?* P. 38, above.
** Table 15 follows on p. 40.
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Table 15 -
Soviet State Investments in Housing
1953-55
Billion Current Rubles
1953
(actual)
19.5
1954
(planned)
25.5
1954
(actual)
(23.1)
1955
(planned.)
24.6
a. Figure in parentheses is an estimate.
Although the planned increase in housing investment for
1954 was 31 percent, the actual increase was only 19 percent. The
1955 plan envisages a 6-percent increase in housing outlays over
1954. Despite the absence of any reference to housing in the 1953
plan promises, there has been and continues to be a considerable
effort under way to increase Soviet housing construction. The 1955
planned housing investments will almost certainly guarantee fulfill-
ment of the Fifth Five Year Plan goals, a unique accomplishment in
the history of Soviet planning in that field.
7. Other Investments.
There has been some question as to whether or not the
announced figure for "investment in the national economy" includes
investments in military installations, in social and cultural activ-
ities, and in administrative buildings and office equipment. It
now appears certain that administrative and social and cultural
investments fall outside of "investments in the national economy." 21:1
An additional amount of from 5 to 10 billion rubles annually probably
has been invested in these activities. It is assumed that military
construction is included in defense appropriations and may amount to
about 4 percent of such appropriations, or 4 billion to 5 billion
rubles annually.
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Investments of kolkhozes, producer cooperatives, all
capital repairs, all peasant investments in private housing and improve-
ment of their private property, and all private urban housing almost
certainly are excluded from the budget as well and would probably
constitute yet an additional investment of 60 billion to 70 billion
rubles annually.
D. Social-Cultural Measures.
Allocation to Social-Cultural Measures in 1955 are planned
to be 146.9 billion rubles, or 26 percent of total budget expenditures
as announced. The planned rise in these allocations is 3 percent.
In 1954, there was an unusually large rise of 9 percent. Expenditures
for Social-Cultural Measures cover general costs of education, health,
social security, and social insurance.
1. Education.
Educational expenditures account for about half of the
budget for Social-Cultural Measures. They include maintenance of
schools (including technical schools) and the cost of educating skilled
workers and technicians. Scientific research and maintenance of theaters
and museums also are included under education. Capital investment and
repairs are listed separately under educational expenditures. In 1955,
several items in this category were given for the first time in recent
years, as shown in Table 16. 22/
Table 16
Soviet Education Expenditures in 1955 2/
Billion Current Rubles
Total education 68.4
Maintenance of schools 23.0
Preparing skilled workers 12/ 6.9
Preparation of cadres 15.0
Scientific research (6.5)
Residual 16.6
a. Figure in parentheses is an estimate.
b. This item includes the preparation of
skilled workers for agriculture and part-
time training of technicians.
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Included in the residual would be allocations for maintaining children's
homes and kindergartens, museums, theaters, literary publications, and
capital repair and investment. A considerable sum apparently remains in
this residual which is used for investment and which should be added to
the national economy figure for investment.
Scientific research will receive about 10 billion rubles In
1955, about two-thirds of which will probably come from the budget. This
category probably includes funds for research and development of weapons
and weapons systems and other applied purposes as well as the conventional
grants to pure scientific research. Allocations to scientific research
since 1949 are shown in Table 17.
Table 17
Soviet Allocations to Scientific Research 100/
1949-55
Billion Current Rubles
Year
Budget
Organizational
Funds
Total
1949
6.6
2.5
9.1
1950
5.6
2.5
8.1
1951
5.3
2.7
8.o
1952
N.A.
N.A.
N.A.
1953
N.A.
N.A.
N.A.
1954
N.A.
N.A.
9.5
1955
N.A.
N.A.
10.5
2. Health.
Expenditures for health in 1955 will be 30 billion rubles.
These outlays include funds for medical-prophylactic institutions and
activities, medical aid to children, sanitary anti-epidemic institutions
and activities, medical aid to invalids, and other expenditures, including
capital repair and investment in medical institutions.
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Other expenditures under Social-Cultural Measures include
social security (25 billion rubles), social insurance (18 billion
rubles), and state aid to unmarried mothers and mothers with many
children (5 billion rubles). The major portion of the social insurance
and social security expenditures is used for awarding pensions and
relief benefits to the population. 101/
E. Administration.
The post-Stalin Soviet leadership has undertaken a broad
program directed at a large-scale reduction of administrative expend-
itures. 102/ Administrative expenditures subsume the outlays of
all central administrative-control organs, such as the Ministry of
Foreign Affairs, the State Planning Commission, and administrative
overhead of all individual ministries and state judiciary bodies.
Planned savings in this area were 6.5 billion rubles in 1953, 3.9
billion rubles in 1954, and 6.1 billion rubles in 1955. These
savings are partly the result of reduced budget allocations to admin-
istration but primarily the result of savings in overhead expend-
itures by economic ministries. Oddly enough, this savings item is
listed as a budget revenue and is treated somewhat like a 100-percent
excess profits tax resulting from lowered costs.
F. Defense Expenditures.
1. Explicit Defense Expenditures.
Explicit Soviet Defense expenditures are those outlays
made for maintaining the land, sea, and air forces of the USSR, or,
in other words, all expenditures of the Ministry of Defense. Capital
investment in defense plants is included in Financing the National
Economy. Procurement of military end items is estimated to amount
to about one-half of the Defense budget. Planned explicit Defense
expenditures in the USSR for 1955 increased about 12 percent, thus
more than,restoring the 10-percent reduction in these outlays planned
for 1954.
The explicit Defense budget has increased 35 percent in
current rubles since 1950 (from 82.9 billion rubles to 112.1 billion
rubles). Price reductions in the intervening years bring the increase
to an estimated 45 percent. In terms of procurement the 1955 budget
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is about double that of 1950. There has as yet been no announcement
as to actual expenditures for Defense in 1954. In view of the fact
that actual expenditures fell short of budgeted allocations in 1954,
it is quite likely that Defense expenditures were slightly underful-
filled. (Total expenditures were underfulfilled by 10 billion rubles,
of which 2.5 billion ma Y be attributed to Financing the National
Economy and Social-Cultural Measures.) As a general rule, Other
Expenditures also have been underfulfilled as a result of not using
all of the reserve fund of the Council of Ministers.
Besides procurement of military end items, Defense expen-
ditures include all outlays for personnel, including food, clothing,
pay, housing, and servicing; capital construction of military facil-
ities; repairs and other expenditures on operations and maintenance;
and stockpiling of military end items.
In a broad sense, for certain internal accounting pro-
cedures, Soviet practice treats some procurement of military end
items as accumulation. In the calculation of national income sta-
tistics, the Defense budget is split between the national income
categories of accumulation and consumption. 103/ Procurement,
investment, and stockpiling constitute accumulation, and personal
services and maintenance constitute consumption.
The rise in the Defense budget in 1955 is probably due
to an increased procurement bill, resulting in part from rising
costs of modern military end items and in part from increased pro-
duction of military end items occasioned by the Kremlin's continuing
appraisal of its relative military position. It is difficult to say
whether or not the temporary leveling off of investment in the
national economy is a result of decisions to increase allocations
to Defense. If such is the case, the current stress on heavy industry
as opposed to light industry may have some basis as signifying a
greater stress on defense production as opposed to civilian production.
These would seem the more reasonably opposed forces than light and
heavy industry, since the development of light industry is considerably
dependent on heavy industrial equipment and also on increased agri-
cultural production. The latter objective continues to be one of the
primary tasks of the USSR.
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2. Other Defense Expenditures.
Other expenditures in the budget that might be considered
Defense expenditures would be allocations for atomic energy and guided
missiles. The location of such expenditures is purely speculative,
but it is believed that there is room for them in the category Other
in Financing the National Economy. Up until 1955 this category has
amounted to about 30 billion rubles, and knowing the nature of the
items it has in the past contained, it is difficult to understand
such a high level of expenditures. The undisclosed budget residual,
where it has been speculated that atomic energy expenditures exist,
in 1952 was quite low -- 4.2 billion rubles (see Table 5*). Since
1952 the undisclosed portion of the budget has not been known, but
the general category within which it exists has remained level, and
there does not seem to be room for any significant defense expen-
ditures.
The transfer of funds in 1955 from the category Other
in Financing the National Economy to the category Heavy Industry
may possibly reflect a transfer of some so-called Defense expend-
itures, since it is difficult to imagine any other of the items
in the category Other being transferred (see discussion above).
G. Internal Security.
The internal security item, which includes appropriations for
the police and border police functions of the MVD (Ministry of Internal
Affairs) and KGB (Committee on State Security), usually is included
in considerations of Defense expenditures. The economic activities
of the MVD are included in Financing the National Economy. Internal
security expenditures were last published in 1952. Since that time
there probably has been some decline in these expenditures, in view
of reorganization of the police apparatus and removal of some economic
activities of the MVD. The decline in Other Expenditures, 70 percent
of which in 1952 was devoted to internal security, would seem to validate
this estimate. Strengthening of the KGB in 1955 by establishing a chair
on the Council of Ministers of the Union and Union Republics 104/ may
possibly lead to increased expenditures for that organization.
* P. 14, above.
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H. Other Expenditures.
Items of expenditure not usually listed by the Supreme Soviet
are the Reserve Fund of the Council of Ministers, allotments to special
banks, and other unknown and minor expenditures. For 1952, these items
can be broken down. Other minor expenditures amounted in that year to
4.2 billion rubles compared with 13.8 billion rubles in 1950. The
rather constant level of Other Expenditures since 1952, when undisclosed
items were only 4 billion rubles, indicates that there probably is no
signifidant inclusion of strategic expenditures in that category in
1952-55.
The reserve fund of the Council of Ministers is considered by
the Soviet planners in the same light as state reserves, and in fact
represents in part a material reserve fund to be used at the discretion
of the Council of Ministers for demands unforeseen by the annual plan. 105/
Another function of the reserve fund is the insurance of industry of
Union and Union Republic import and of property of institutions supported
by the Union and Union Republic budgets, in case of mishap, natural
calamity, or other disturbances to the production process. 106/ It is
interesting to note that both the Council of Ministers of the USSR and
the Councils of Ministers of Union Republics have their own reserve funds.
The reserve fund of the Council of Ministers of the USSR in 1952 was to
amount to 6 billion rubles, and the reserve fund of the Councils of the
Union Republics was to amount to 100 million rubles. 107/
This fund is primarily a monetary fund for use in emergencies,
but it also includes material reserves. In both 1950 and 1952 it was
planned at 6.1 billion rubles. 108/ It is estimated that in 1953 it
amounted to a larger amount, in view of the changes in government and
planning during that year.
Allotments to special banks are additions to the assets of
those banks for the purpose of expanding long-term credits. This item
probably was higher in 1954 and 1955 than in previous years because of
the expanding of long-term credits to agriculture, housing, and possibly
other fields of investment.
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I. Budgets of the Union Republics.
In 1955 the budgets of the Union Republics are to amount to
127 billion rubles, as compared with 119.5 billion rubles planned in
1954 and 102.6 billion rubles planned in 1953. 109/ Most of the growth
of the republic budgets in 1955 appears in the budget for Kazakh SSR,
which has doubled; it was planned at 5 billion rubles in 1954 and 10
billion rubles in 1955. Since 60 percent of a republic budget is
devoted to social and cultural expenditures, it is estimated that most
of the increase in the Kazakh budget is to be spent on social-cultural
activities in the new lands and probably will supplement the announced
allocation of 11 billion rubles which is to come from the agricultural
budget for the new lands. All other republic budgets have remained
about equal to last year's budgets.
Republic budgets grew more in 1954 than in previous years as
a result of decentralization of economic organizations and increased
authority at the republic level. The formation of republic ministries
of coal industry in the Ukrainian SSR, nonferrous metallurgy in
Kazakh SSR, and oil' industry in Azerbaydzhan SSR as well as the forma-
tion of a Union Republic Ministry of Communications was announced in
1955, together with a transfer to republic control of a number of
enterprises of the light, food, meat and dairy industries and sovkhozes
and trading organizations. 110/ In the three republics listed above --
the Ukraine, Kazakh, and Azerbaydzhan -- budgets increased, whereas
in all other republics, the budgets either remained equal to those of
last year or decreased slightly. This would imply that the economy
measures and tightening of financial control evident in the state budget
are being carried down to the republic levels, and only where necessary,
as in the case of the formation of republic ministries from former
All-Union activities, are increased funds being made available for
local spending.
J. Summary of Expenditures.
The tremendous increase in planned expenditures in 1954 compared
with 1953 seems to have been checked in 1955 with a view toward increasing
efficiency and finishing up the present 5-year plan in preparation for
the inauguration of a new plan in 1956. Whereas Financing the National
Economy and Social-Cultural Measures in 1954 together increased 15 per-
cent, in 1955 they are planned to increase 4 percent. These two items
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account for about 68 percent of budget expenditures. Defense expend-
itures have shown an inverse trend; a 5-percent decrease was planned
for 1954 and a 12-percent increase for 1955. Defense expenditures
account for about 20 percent of the budget. Capital investment* will
increase at a slower rate than planned in previous years of the current
plan. The general consolidation and retrenchment evident in budget
spending this year is probably as much a lid for keeping under control
financial resources which were so extravagantly handled in 1954 as a
preparation of a sound base for the inauguration of a new plan in 1956.
The rise in Defense expenditures, which is estimated to have taken
place entirely in defense procurement of military end items, may be,
to a large extent, a necessary result of expanded production in 1954.
No particular shift in priorities is evident in this year's
budget except as might be interpreted from the rise in defense expend-
itures. Development in agriculture is emphasized particularly as
regards the new lands program. Heavy industry continues to be empha-
sized and the marked increase in noninvestment allocations to that
sector contains an implied transfer of categories which might pertain
to the development of nonconventional weapons. There is no evidence
of possible inroads being made into military production as a result
of development in other sectors.
Real changes evident in the 1955 budget pertain to financing
and planning techniques rather than to priorities and sector develop-
ment. The bank reforms of August 1954 and subsequent measures to rid
the economy of surplus inventory stocks and excess manpower tied up in
administration reflect a stress on efficient use of financial and
material resources.
Soviet internal economic policy as reflected in recent budgets
gives no indication of being aimed at immediate hostilities. The con-
tinued emphasis on heavy industrial development, however, benefits the
defense base, so that the country is becoming increasingly well pre-
pared for a possible outbreak of hostilities.
* There is some doubt as to whether the 1955 announced figure for
planned investment is strictly comparable with the figures for pre-
vious years. In any case, however, the statement here made appears
justified.
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