THE 1956 SOVIET BUDGET

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• Document Creation Date: December 23, 2016
• Document Release Date: April 12, 2013
• Sequence Number: 2
• Publication Date: September 7, 1956
• Content Type: REPORT

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1`wizET,
ECONOMIC INTELLIGENCE REPORT
, THE 1956 SOVIET BUDGET
?
CIA/RR 77
\
7 September 1956
N?
CENTRAL INTELLIGENCE \AGENCY
OFFICE OF RESEARCH AND REPORTS\
NN.
0')
110
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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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ECONOMIC INTELLIGENCE REPORT
THE 1956 SOVIET BUDGET
CIA/RR Ti
(ORR Project 14.843)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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FOREWORD
The Soviet budget is the basic financial plan of the national economy
and reflects the government's policy of allocation of resources. In
addition, the presentation of the budget often serves as an occasion for
exposition of current propaganda themes, such as the reduction in mili-
tary expenditures claimed in the 1956 budget.
In the budget, as in other Soviet statistical presentations, the
data are almost certainly not falsified, but they are subject to manipu-
lation and omissions which may have a misleading effect. Thus the cover-
age of given budget categories may change from year to year, and entries
may be added or eliminated without specific references to these changes
in the budget presentation. Plan figures, but not actual results, are
often announced for different revenues and expenditures. For various
reasons, figures for a specific entry may be released one year but not
the next. Finally, many important expenditures are financed from extra-
budgetary sources. To assess the course of Soviet economic policy as
manifested in the budget, it is necessary, therefore, to make a careful
study both of the budget speech and of related information
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CONTENTS
Page
Summary and Conclusions 1
I. Introduction 2
A. Fictitious Entries 2
B. Price Changes3
II. Budget Revenues 14
A.
Turnover Tax
7
B.
Profits Tax
9
C.
Taxation on Population and State Loans
14
1. Taxation on Population
14
2. State Loans
14
D.
Secondary Sources of Revenue
15
1. Social Insurance Funds
15
2. Machine Tractor Station Revenue
15
3. Customs and Reparations
16
4. Economies in Administration
17
5. Other Revenues
17
E.
Summary of Revenues
17
F.
Budget Surplus
18
III.
Budget Expenditures
20
A.
Financing the National Economy
25
1. Allocations by Sector
25
2. Allocations by End Use
39
B.
Social-Cultural Measures
52
1. Education
52
2. Health and Physical Culture
52
3. Social Welfare
54
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C. Administration
D. Defense
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1. Explicit Defense Expenditures
2. Other Defense Expenditures
E. Internal Security
F. Other Expenditures
G. Summary of Expenditures
IV. Budgets of the Union Republics
Page
55
56
56
57
58
58
59
60
Tables
1. Soviet Budget Revenues, 1952-56
2. Distribution of Profits and Sources of Profits Taxes of
Soviet State Enterprises, 1954-56
3. Planned Profits of Soviet State Enterprises, by Sector,
1955 and 1956
4. Planned Distribution of Profits of Soviet State Enterprises,
1956
5. Soviet Budget Revenues, Expenditures, and Surplus,
1954-56
6. Soviet Budget Expenditures, 1952-56
19
21
7. Sources of Soviet Planned Allocations for Financing the
National Economy, Fixed Investment, and Expansion of
Working Capital, 1952-56 26
8. Financing the National Economy of the USSR: Distribution of
Funds by Sector and Source, 1954-56 28
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9. Soviet Budget Allocations to Agriculture, 1955
and 1956
Page
31
10. Financing the National Economy of the USSR: Distribution
of Funds by End Use, 1954-56 40
11. Financing Soviet Industry: Distribution of Funds by End
Use, 1954-56 42
12. Soviet State Capital Investment, 1954-56 43
13. Soviet Money Investment in Agriculture, 1953-56 45
14. Soviet State Bank Credit, 1951-56 47
15. Increases in Working Capital of Soviet Enterprises,
1952-56 48
16. Soviet Planned Budget Allocations for Education, 1955
and 1956 53
17. Soviet Allocations for Scientific Research, 1951-56 . . 54
18. Soviet Planned Budget Allocations for Social Welfare, 1955
and 1956 55
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THE 1956 SOVIET BUDGET*
Summary and Conclusions
The 1956 Soviet budget is designed to execute current economic
policies by restricting consumption, by promoting economic growth through
the development of heavy industry, and by maintaining a high level of
military capability, oriented increasingly toward modern weapons. Analy-
sis of the 1956 budget is complicated, and comparisons with earlier years
are rendered difficult, by price changes during 1955 and by the exclusion
from the 1956 budget of "fictitious" entries which appeared in preceding
budgets. Both revenues and expenditures are planned to increase 6 per-
cent over the actual 1955 level, the surplus remaining unchanged.
The increase in revenues is to come from the turnover tax and the
profits tax, the two principal revenues. Consumer purchasing power will
be limited by the increase in turnover tax collections, maintenance of
the spring mass loan at the high 1955 level (which was double the 1953-54
level), and omission again in 1956 of a general retail price cut, which
was announced each spring from 1948 to 1954.
Half of the increase in expenditures over 1955 is attributable to
increased appropriations for Social-Cultural Measures (Education, Health
and Physical Culture, and Social Welfare). Although allocations for
Financing the National Economy are to rise only slightly above the 1955
level, fixed investment is planned to increase 15 percent, Heavy Industry
receiving 60 percent of total investment. Allocations to Agriculture
remain at the high 1955 level despite the completion of part of the "new
lands" program. There has been a substantial increase in the unspecified
residual in Financing the National' Economy which cannot be fully explained
on the basis of available information.
Explicit defense expenditures for 1956, as announced in the 1956
budget speech in December 1955, are 8.6 percent less than planned 1955
expenditures. When allowance is made, however, for price changes, a
claimed cut in 1955 of 640,000 men in the armed forces, and savings
The estimates and conclusions contained in this report represent the
best judgment of ORB as of 15 May 1956.
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from mass production of military end items, it appears that the smaller
1956 allocation could finance the same amount of military procurement
as in 1955, or possibly more. If a further reduction in force of 1.2
million men, announced on 14 May 1956, is carried out as scheduled,
actual 1956 defense expenditures should be substantially below planned
expenditures.
I. Introduction.
Analysis of the 1956 Soviet budget is complicated by two factors
which make comparison with earlier years difficult. The first of these
is the disappearance of the fictitious Revenue and Expenditure entries
which appeared in the budget in 1953-55. The second is the impact upon
budget revenues and expenditures, both actual 1955 and planned 1956, of
the Soviet wholesale price reduction of 1 July 1955. Because an under-
standing of these changes is a prerequisite to an appraisal of the 1956
Soviet budget, they are discussed briefly in this introductory section.
A. Fictitious Entries.
Two fictitious entries appeared in the Soviet budget in 1953-55
(see Tables 1 and 6*). One was an entry for Retail Price Reductions,
which amounted to 43.2 billion rubles in 1953 and 15.7 billion rubles
in 1954. The other was called Raising Agricultural Procurement Prices
and amounted to 23.3 billion rubles in 1954 and 22.5 billion rubles in
1955. ?Both of these entries referred to turnover taxes foregone.
Because the turnover tax is in essence the difference between the price
received by the producer and the price received by the trading organi-
zation, less trade costs, when retail prices were reduced in 1953 and
1954 without a corresponding reduction in producer prices, the effect
was to reduce turnover tax collections. Similarly, turnover tax receipts
declined when state agricultural procurement prices were raised in 1953
without a corresponding increase in retail prices. Fictitious entries
representing the loss in turnover tax from retail price reductions and/
or increases in agricultural procurement prices appeared in both Revenues
* Pp. 5 and 21, respectively, below.
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and Expenditures in 1953-55. They totaled 43.2 billion rubles in 1953,
39.0 billion rubles in 1954, and 22.5 billion rubles in 1955 and had the
effect of showing an impressive growth in the state budget and of
emphasizing to the Soviet public the. measures taken during the "new
course" program to increase consumption and to stimulate agriculture.
Neither of these fictitious entries is listed in the 1956
budget. Although Raising Agricultural Procurement Prices was included
in the planned 1955 budget, it appears that it was excluded from the
budget fulfillment report for 1955. In the case of both Revenues and
Expenditures, the difference between the planned and actual 1955 totals
is equal to the net change in the major items plus about 22.5 billion
rubles, the amount listed for Raising Agricultural Procurement Prices.
Thus in contrasting the planned 1956 and the actual 1955 Soviet budgets
with earlier budgets, only real revenues and expenditures should be
considered. The apparent omission of fictitious entries largely
explains why actual 1955 revenues and expenditures are below plan
figures and why planned 1956 revenues and expenditures show such a
small increase over planned 1955 revenues.
B. Price Changes.
The second factor which must be considered in analyzing the .
1956 budget and also budget results for 1955 is the reduction in
industrial wholesale prices which occurred in the USSR on 1 July 1955.
The price cut affected fuel, ferrous and nonferrous metals, machinery
and equipment, chemicals, construction materials, freight rates, and
rates for electric and fuel energy. 1/* The magnitude of the price
reduction is not known, but it appears from scattered evidence that
it may range from 10 to 20 percent. 2/
Investments in 1956, the first year of the Sixth Five Year
Plan (1956-60), are also expressed in terms different from investments
in the preceding years. Investment planning prices during the Sixth
Five Year Plan will be those introduced on 1 July 1955, whereas invest-
ments during the Fifth Five Year Plan (1951-55) were expressed in prices
of 1 July 1950. The new investment planning prices are estimated to be
about 16 percent below those of the Fifth Five Year Plan. 3/
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The mid-1955 price reduction affected both budget revenues and
budget expenditures. On the revenue side, it contributed to both the
increase in turnover taxes and the fall in profits taxes from the plan
in 1955. On the expenditure side, allocations for Financing the
National Economy expressed in the new prices are from 11 to 14 percent
less than the same allocations expressed in prices prevailing before
the 1 July 1955 reduction (see Table 8*). Other items of expenditures
were not given in both sets of prices, and it is not possible, from
the scattered price data available, to adjust all budget figures to
constant rubles. Therefore, in comparing actual 1955 and planned 1956
revenues and expenditures with those in the planned 1955 and earlier
budgets, it is important to make allowance for price differences. This
consideration is especially significant in comparing important entries
such as military expenditures, for which no figures adjusted for price
changes are available. In the following analysis of budget revenues
and expenditures, frequent reference is made to the impact of the
price cut of 1 July 1955 upon individual revenues and expenditures.
II. Budget Revenues.
Total revenues in the Soviet budget are planned at 592.7 billion
rubles in 1956, an increase of 31.2 billion rubles, 6 percent over
actual 1955 revenues. Table 1** shows planned and actual revenues
for 1952-55 and planned revenues for 1956. Although actual 1955
revenues of 561.5 billion rubles are lower than planned 1955 revenues
of 590.2 billion rubles, the revenue plan was rep9rted overfulfilled.
According to the 1956 budget speech, actual reVenues were 100.2
percent of plan. The difference of 28.7 billion r011es between
planned and actual revenues appears to have been caused not only by
the effects of the 1955 wholesale price cut but also by the apparent
exclusion from actual revenue of the 22.5-billion-ruble entry for
Raising Agricultural Procurement Prices. Actual receipts of the two
main revenues, turnover tax and profits tax, are known. The actual
turnover tax was 9.2 billion rubles above plan, whereas the profits
tax was 16.4 billion rubles below plan. Taken together, these two
sources, which account for almost two-thirds of all revenue, were
7.2 billion rubles less than planned. The difference between total
underfulfillment (28.7 billion rubles) and that attributable to the
two main revenues (7.2 billion rubles) is 21.5 billion rubles. It
* P. 28, below.
** Table 1 follows on p. 5.
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Table 1
Soviet Budget Revenues
1952-56
Billion Current Rubles
1952 1953 1954 1955 1956
Category Plan 2/* Actual h/ Plan Si Actual 1/ Plan Si Actual f/ Plan 5/ Actual hi Plan Si
Turnover Tax 260.7 246.9 240.4 243.6 234.4 224.3 233.7 242.9 271.2
Profits Tax 62.0 58.5 80.6 70.3 92.8 83.4 117.6 101.2 107.3z
Taxation on Population 47.4 47.4 46.1 46.1 45.7 46.4 48.4 N.A. 50.3
State Loans 1/ 42.6 (43.2) h/ (29.7) (30.6) (28.4) (29.8) (43.5) (42.3) (40.3)
Social Insurance Funds 21.4 21.9 ' (22.7) 23.2 24.7 25.3 26.5 N.A. (28.3)
Machine Tractor Station
Revenue 6.0 N.A. N.A. (8.8) 11 10.0 N.A. N.A. (14.0) 1/ (15.0) 1/
Taxes on Enterprises and
Organizations 10.2 N.A. (10.0) N .A . (10.0) N.A. 10.0 N.A. (lox)
Collections and Miscellaneous
Nontax Income 14.0 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Customs and Reparations 26.2 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Economies in Administration o o 6.5 N.A. 3.9 N.A. 6.1 N.A. N.A.
Other Revenues 19.4 N.A. (65.1) N.A. (83.6) N.A. (81.9) N.A. (70.3)
Total real revenues 509-9 497.7 501.1 N.A. 533.5 N.A. 567.7 N.A. 592.7
Retail Price Reductions 0 0 43.2 N.A. 15.7 N.A. 0 0 0
Raising Agricultural
Procurement Prices 0 0 0 0 23.3 N.A. 22.5 N.A. 0
Total stated revenues 509.9 497.7 544.3 539.8 572.5 558.6 590.2 561.5 592.7
Budget surplus 33.0 37.5 13.8 25.1 9.7 4.7 26.7 23.7 23.1
* Footnotes for Table I follow on p. 6.
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Table 1
Soviet Budget Revenues
1952-56
(Continued)
a. 5]
b.
c. A/
e. 2/
h. 12/
i. 13/
j. State Loans include loan purchases (l)by the population in the annual mass loan campaign, (2) by the population at savings banks during
the year, (3) by savings banks investing their deposits, and (4) by the state commercial insurance organization investing part of its
reserves. Figures for items (1) and (3) are given in budget messages and the Soviet press. The figure for item (2) is estimated at 1 bil-
lion rubles per year, from loan service schedules published in the Soviet press. 1V The figure for item (4) is estimated at 2 billion
rubles per year, on the basis of previous years. 12/
k. All figures in parentheses are estimates.
1. Machine Tractor Station (MTS) Revenue is estimated on the basis of MTS activity and the level of procurement prices at which MTS income-
in-kind is valued.
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is highly unlikely that minor revenues, which are both easier to plan
accurately and less influenced by price changes, could have fallen
enough to absorb the difference. If they had, the revenue plan
certainly would not have been met. Therefore, allowing a net varia-
tion of about 1 billion rubles between planned and actual receipts
from other revenues, it appears that exclusion of the entry Raising
Agricultural Procurement Prices is primarily responsible for the
difference between planned and actual 1955 revenues.
No fictitious entries have been listed in budget revenues for
1956. The turnover tax remains the principal revenue, with its share
of the total rising from 43 percent in 1955 (actual) to 46 percent in
1956. The planned share of the profits tax in total revenues in 1956
is 18 percent, the same as in actual 1955 revenues. As a result of
the reduction in heavy industry profits, apparently caused by the
wholesale price cut, profits taxes for 1956 are planned at 6 percent
more than actual 1955 collections but 10 percent below the planned
1955 level. It is estimated that state-loan revenues are planned at
a slightly lower level than in 1955, but this is explained by a more
realistic budget estimate in 1956 than in 1955 of the increase in
savings deposits, which are invested in the state loan. No impor-
tant change has occurred in other revenues.
A. Turnover Tax.
The Soviet turnover tax is a tax levied primarily on consumer
goods. It represents, essentially, the difference between the price
received by the producer and the price received by the trading organi-
zation, with an allowance for processing and transport costs. It is
the most important single source of budget revenue, accounting for
46 percent of total revenue in 1956, more than twice the share of the
next most important revenue, the profits tax paid by state enter-
prises.
Changes in the level of turnover tax receipts result from
changes in the volume of trade turnover subject to the tax and from
changes in either retail or producer prices affecting the spread
between them. Thus rising trade turnover expands tax collections,
whereas a reduction in retail prices or an increase in producer prices
reduces tax collections. Variations in the level of turnover tax
receipts in Table 1* represent the net effect of these two forces. In
1953, turnover tax collections declined below the 1952 level despite
a 21-percent increase in trade turnover above 1952 1.6_/ because both a
* P. 5, above.
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reduction in retail prices and an increase in agricultural procurement
prices occurred in 1953. Both of these price changes were made at the
expense of the turnover tax. In 1954, trade turnover rose by 18 per-
cent above the 1953 level, id/ but a combination of retail price
reductions and agricultural price increases again more than offset the
effects of increased sales of consumer goods and pulled turnover taxes
down to 8 percent below the 1953 level. In 1955, on the other hand,
no further price changes were apparently considered in estimating turn-
over tax receipts, which were planned to increase to 233.7 billion
rubles, only 4 percent. This planned increase corresponds to what was
probably the planned increase in trade turnover because the actual
increase in trade turnover of 5 percent in 1955 was reported as
exceeding the plan. 2.32./
Actual turnover tax collections in 1955, however, were 242.9
billion rubles, more than 8 percent above the 1954 level. The differ-
ence between the 5-percent increase in trade turnover and-the 8-percent
increase in turnover tax collections can probably be attributed largely
to the wholesale price reduction in 1955. Although the price cut
affected primarily the costs and selling prices of heavy industry, some
goods, such as consumer durables and construction materials, that were
sold at retail prices and were subject to the turnover tax, were prob-
ably also affected. The prices received by producers would have been
reduced by the price cut without a corresponding reduction in retail
prices to the public. The increase in the margin between producer and
retail prices resulting from the price cut would therefore have resulted
in increased turnover tax payments to the budget.
In 1956 a further increase in turnover tax collections of 11.6
percent is planned. The trade plan for 1956 has not been announced, but
it appears unlikely that all of the increase will come from the growth
of trade turnover. It may be suggested that trade turnover in 1956 will
increase between 5 percent, the increase achieved in 1955, 12/ and 8.4
percent, the compound average annual rate required to meet the Sixth
Five Year Plan goal of a 50-percent increase by 1960 over the 1955
level. ggi The remaining increase in turnover tax, not attributable to
the growth of trade turnover, must come from price changes. Because the
1955 wholesale price reduction came at mid-year, it affected only half
of the year's turnover tax collections. Therefore, some of the increase
in turnover tax receipts in 1956 will merely reflect the application of
the new, lower wholesale prices over a full 12-month period. In addition,
however, some increases in retail prices or reductions in agricultural
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procurement prices may be planned during 1956, although no significant
changes have been reported. El/
B. Profits Tax.
The Soviet profits tax consists of deductions from the profits
of state enterprises which are paid into the budget and also of the
return to the budget by enterprises of surplus working capital. It
excludes taxes on the income of collective farms and producer and con-
sumer cooperatives, which are listed under Taxes on Enterprises and
Organizations. The profits retained by state enterprises, approximately
one-fourth of total profits, are devoted to increasing working capital,
financing fixed investment, and various minor uses.
Table 2* shows the distribution of planned profits of state
enterprises in 1954-56, as well as the sources of planned profits taxes.
Actual profits in 1955 were 123.7 billion rubles, or 20 billion rubles
below the 1955 plan. This difference is caused in part by the under-
fulfillment of profit plans which occurred in various ministries E.?"
but appears to be primarily attributable to the 1955 wholesale price
cut, which apparently reduced the prices of the output of heavy indus-
try more than the prices of its inputs, thus curtailing profits in
heavy industry. Although actual profit data by sectors have not been
released for 1955, the effect upon profits of the wholesale price
reduction is indicated in Table 3,** in which 1955 figures are
expressed in pre-July 1955 prices and 1956 figures in the new prices.
Table 3 shows the planned profits of state enterprises, by sector.
Profits are to increase in 1956 in all sectors except heavy industry,
where profits are planned to be 18 percent below the 1955 planned
figure.
Table 4*** shows the planned distribution of profits of state
enterprises in 1956 by sector and use. Of total profits, 72 percent
will be paid into the budget, 7 percent will be devoted to the expan-
sion of working capital, and 11 percent will be used for capital
investment. About 1.5 percent will be allocated to the Enterprise
Fund (formerly called the Director's Fund), which, depending upon the
industry, receives from 1 to 6 percent of planned profit and from 20
to 50 percent of above-plan profit. The resources of this fund are
10.
Table
2 follows on p.
**
Table
3 follows on p.
11.
***
Table
4 follows on p.
12.
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Table 2
Distribution of Profits and Sources of Profits Taxes
of Soviet State Enterprises
1954-56
Billion Current Rubles
191+
1955
1_956
Item
Plan 2.1
Actual 12/
Plan P./
Actual 1/
Plan
Distribution of profits
Paid to budget
89.8
N.A.
112.3
N.A.
101.0
Retained
33.6
N.A.
31.0
N.A.
38.5
Total profits
123.4
123.2
143.3
123.7
139.5
Sources of profits taxes
Payments from profits
89.8
N.A.
112.3
N.A.
101.0
Return of surplus
working capital
3.0
N.A.
5.3
N.A.
6.3
Total profits taxes 92.8 83.4 117.6 101.2 107.3
spent for the introduction of new technology, modernization of existing
equipment, expansion and repair of housing, construction and maintenance
of cultural and social facilities, provision of passes to sanatoriums and
rest homes, and payment of individual bonuses. E',?1 The remaining 8 per-
cent of profits is to be devoted to a variety of activities, including
the financing of geological survey work and scientific research and
expenditures for housing and municipal services.
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Table 3
Planned Profits of Soviet State Enterprises, by Sector
1955 and 1956
Billion Current Rubles
Sector
1955 21
1956 12/
Industry
Heavy
53.4
43.6
Light
35.3
36.3
Subtotal
88.7
Agriculture and procurement
8.3
9.0
Domestic trade
10.9
12.1
Transport and communications
25.2
28.4
Other
10.2
10.1
Total
143.3
139.5
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Table 4
Planned Distribution of Profits of Soviet State Enterprises 2/
1956
Billion Current Rubles
Sector
Payments
to Budget
Expansion
of Working
Capital
Fixed
Investment
Enterprise
Fund
Other/
Uses SJ
Total
Profits
Industry
Heavy
22.6
5.8
10.0
1.0
4.2
43.6
Light
28.8
2.9
1.9
0.4
2.3
36.3
Subtotal
51.4
8.7
11.9
1.4
6.5
12.:2
Agriculture and procurement
5.2
0.6
0.8
0.1
2.3
9.0
Domestic trade
11.2
0.3
0.3
0.1
0.2
12.1
Transport and communications
24.2
0.5
2.5
0.4
0.8
28.4
Other
9.0
0.1
0.5
Negligible 2/
0.5
10.1
Total
101.0
10.2
16.0
2.0
10.3
13
a. 11/
b. Including investment in local industry outside the state plan of capital investments.
c. Including financing of geological survey and scientific research work and expenditures for housing
and municipal services.
d. Less than 50 million rubles.
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Table 4 also reveals the wide variation in the percentage of
profits which is retained in the different sectors of the economy. In
1956, heavy industry will pay into the budget 52 percent of its profits
and retain 48 percent. Trade, on the other hand, will retain less than
8 percent of its profits, light industry will keep 21 percent, and
transport and communications will keep 15 percent. These percentages
illustrate how Soviet price policy permits profits to form in one
sector of the economy and fiscal policy then draws them into the budget
to redistribute them to other sectors. In 1956, for example, light
industry will pay profits taxes of 28.8 billion rubles into the budget
and receive only 9.1 billion rubles* in budget allocations whereas
heavy industry will pay 22.6 billion rubles in profits taxes and
receive 100.9 billion rubles in budget allocations.* In effect, how-
ever, high profits taxes for light industry are only an alternative to
higher turnover taxes on the products of light industry, as both levies
tap essentially the same source of revenue -- that is, the proceeds
from the sale of the output of light industry.
Primarily because of the 1955 wholesale price cut, the share of
heavy industry in total profits will fall from 37 percent in the 1955
plan to 31 percent in the 1956 plan (see Table 3**). The share of its
profits which is retained by heavy industry, however, will rise from
30 percent in 1955 to 48 percent in 1956, increasing its retained
profits from 16 billion rubles in 1955 to 21 billion rubles in 1956.
The other sectors of the economy will be permitted to retain approxi-
mately the same amount of profits in 1956 as in 1955. 3.2./
In 1955 the level of profits tax collections was raised by a
change in the administrative level at which profits taxes are remitted
to the budget. The customary procedure in Soviet ministries has been
for profits to be balanced against losses within a chief directorate,
which then remits net profits to the budget. Because this authority
was often used by chief directorates to make unplanned transfers of the
profits of efficient enterprises to replenish the working capital of
inefficient enterprises, however, it was decided in 1955 to begin the
remittance of profits directly by the enterprise into the budget. 22/
On 1 July 1955 this procedure was initiated in the Ministries of the
Automobile Industry, Tractor and Agricultural Machine Building, and
Chemical Industry. In 1956, it was extended to the Ministries of
* See Table 6, p. 21, below.
** P. 11, above.
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Machine and Instrument Building, Paper and Wood Processing Industry,
Textile Industry, and Construction of Petroleum Industry Enter-
prises. Furthermore, the ministries of finance of the union
republics were authorized to apply this system to republican indus-
try. 151 One effect of this change will be to increase the amount
of profits remitted by these ministries, all of which are in heavy
industry. With this source of funds removed from the control of
chief directorates, however, the needs of enterprises in financial
difficulty will have to be met directly from the budget or from
bank credit. The new profits tax procedure thus will tighten
centralized control over the financial condition and operations of
enterprises in the ministries affected. lY
C. Taxation on Population and State Loans.
1. Taxation on Population.
Direct taxation of the population consists primarily of
the income tax on the agricultural and nonagricultural, population.
In 1956 these taxes show a normal increase reflecting the growth in
the labor force and in taxable incomes. In 1953 and 1954, population
taxes fell because of a reduction in agricultural taxes, Ei but by
1955, population taxes had returned to the 1952 level, and they are
planned at 50 billion rubles in 1956.
2. State Loans.
The revenue from state loans in 1956 is estimated to be
planned at approximately 40 billion rubles. This revenue includes
the proceeds of the annual spring mass loan drive, additional pur-
chases of bonds by the population at savings banks during the year,
investment in state debt of the deposits of the savings banks, and
investment of the free reserves of the state insurance organization.
The spring loan was announced in the 1956 budget speech
at 32.2 billion rubles, slightly above the 1955 goal of 30.5 billion
rubles, which was expected to elicit an average subscription of 4
weeks' wages per worker. 38 The 1955 loan was oversubscribed by
about 4 billion rubles, 3 and it is likely that the 1956 goal will
be oversubscribed by a similar amount. The other major source of
state loans revenue is the increase in the deposits of the savings
banks, which is planned for 1956 at 5 billion rubles, the same amount
as the actual increase in:1955.)29.1/ An increase of 10 billion rubles
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was planned in 1955, Ltli but this plan apparently did not take cognizance
of the smaller amount of funds left for voluntary saving after the spring
mass loan was increased in 1955. Savings deposits grew by over 10 bil-
lion rubles in 1953 and 1954, when the spring mass loan was only 16 bil-
lion rubles, but they rose by only 5 billion rubles in 1955, when the
mass loan was increased to 30.5 billion rubles. The estimate in the
1956 budget of a 5-billion-ruble increase in savings deposits is thus a
mbre accurate estimate of the increase to be expected when the spring
mass loan is set at over 30 billion rubles. In addition to the two
major sources of state loans revenue, bond purchases by the population
at savings banks and by the state insurance organization are estimated
at approximately 3 billion rubles, bringing total planned state loans
revenue to 40 billion rubles. Expected overfulfillment of the spring
mass loan should raise the total to several billion rubles more than
the estimated actual 1955 loan revenues of 42 billion rubles.
D. Secondary Sources of Revenue.
Secondary sources of revenue include the budget categories
Social Insurance Funds, Machine Tractor Station (MTS) Revenue, Taxes
on Enterprises and Organizations (such as collective farms and pro-
ducer and consumer cooperatives), Customs and Reparations, savings
from Economies in Administration, and Collections and Miscellaneous
Nontax Revenue. Complete information on the size of these revenues
is not available after 1952, and only a few entries can be accurately
estimated. As a group, however, these revenues probably will provide
to the budget in 1956 approximately the same amount of funds as in
1955.
1. Social Insurance Funds.
Social insurance funds represent compulsory social insur-
ance payments by enterprises to the budget of from 4.1 to 9.0 percent
of their wage bill, depending on the industry. yv Insurance of
property is handled outside the budget by the state insurance organi-
zation of the Ministry of Finance. Social insurance expenditures are
included under Social-Cultural Measures.
2. Machine Tractor Station Revenue.
Inasmuch as the Machine Tractor Stations (MTS's) are on a
gross budgetary basis, all their revenue is paid into the budget and all
their expenditures are paid from the budget. MTS income consists of
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payments-in-kind by collective farms for MTS services. These crops and
animal products are valued at compulsory procurement prices. Because
the physical receipts of the MTS are valued at such low prices, MTS
revenue fails to cover even operating costs. In 1956, for example,
MTS revenue is estimated at 15 billion rubles, compared with total
planned expenditures of 32.7 billion rubles, of which about 23 billion
rubles may correspond to operating costs (see Table 9*). If MTS income-
in-kind were valued at the higher "purchase" prices paid for above-
quota sales, however, MTS revenues would be more than sufficient to
cover operating expenditures. There has been extensive discussion in
Soviet journals 1.?-2/ about converting the MTS's from gross budgetary
institutions to khozraschet** institutions whose revenues would cover
their costs. In his speech to the XXth Party Congress, Khrushchev
criticized the absence of khozraschet in,the MTS's and declared that
"it would be expedient for the MTS's to switch over gradually, in the
next few years, to khozraschet." li..11/ A new and more favorable basis of
valuation of the income-in-kind received by the MTS's will be necessary,
however, before they can become self-supporting, profit-making enter-
prises.
3. Customs and Reparations.
Information on the magnitude of Customs and Reparations
revenue is available only until 1952, and it is not possible to estimate
this entry for more recent years. Reparations from Rumania, Hungary,
and Finland ended in 1952, and those from East Germany in 1953. In 1954,
however, a number of Soviet joint stock companies in Rumania, Bulgaria,
and Communist China were dissolved, with the terms of sale calling for
payment to the USSR in goods over a number of years. Under the 1955
Austrian peace treaty, Austria agreed to pay the USSR $US 25 million
worth of goods per year for 6 years for the return of Soviet-controlled
properties in .Austria and, in addition, to deliver 1 million metric tons
of oil annually for 10 years. li2/ Proceeds from the sale of these goods
inside the USSR may be treated in the budget like Reparations revenue.
Furthermore, on goods imported through normal foreign trade purchases
the difference between foreign prices converted at four rubles to the
* P. 31, below.
** In contrast to a budgetary institution, which draws all its expendi-
tures from the budget and returns all its receipts to the budget, an
enterprise operating on khozyaystvennyy raschet (economic accountability),
or khozraschet, uses its receipts to pay its expenses. Ordinarily these
receipts are adequate to cover expenses and show a profit.
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dollar and Soviet internal prices, with an allowance for a trading
margin, is paid into the budget as Customs revenue. ).:.[Y As the volume
of foreign trade rises, budget revenue from this source probably will
also rise. On the basis of these developments it appears that budget
income from customs and reparations may have been increasing in recent
years.
4. Economies in Administration.
Savings in administrative costs of economic ministries are
entered as budget revenue when these ministries return to the budget a
portion of their allocations corresponding to planned reductions in
administrative overhead expenses.III/ These revenues, which thus
offset to a small extent budget allocations to the various ministries,
were planned at 6.5 billion rubles in 1953, 3.9 billion rubles in 1954,
and 6.1 billion rubles in 1955. No reference to this entry was made in
the 1956 budget.
5. Other Revenues.
The remaining budget revenues include Taxes on Enterprises
and Organizations, which are estimated at 10 billion rubles in 1956 on
the basis of past years, and Collections and Miscellaneous Nontax Revenue.
The latter group comprises a variety of items, such as receipts from
fines, sale of state property, and payments for passports.
E. Summary of Revenues.
Total revenues continue to increase in the 1956 budget, showing
the same rate of increase over actual 1955 revenues (6 percent) as planned
real revenues in 1955 did over planned real revenues in 1954. The in-
crease in revenues will be achieved primarily through the expansion of
revenues of the two principal budget categories, Turnover Tax and Profits
Tax. The former, benefiting from increased trade turnover and price
changes, is planned to increase 11.6 percent over 1955 (actual) whereas
the latter, adversely affected by the mid-1955 wholesale price cut, is
set below the planned 1955 level and only 6 percent above the actual
1955 level. State loans revenue is estimated at about the 1955 level
because its main component, the spring mass loan drive, will continue at
over 30 billion rubles, the same as 1955 but double the lower subscrip-
tion goal set during the "new course" years of 1953 and 1954. Of the
remaining revenues, it is suggested that customs duties may be rising as
Soviet foreign trade increases and payments in goods are made by Austria
and Satellite countries for properties returned by the USSR.
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F. Budget Surplus.
A consistent feature of Soviet revenue policy is the achievement
of a budget surplus, as Tables 1* and 5** show. Table 5 shows Soviet
budget revenues, expenditures, and surplus for 1954-56. The 1956 surplus
is planned at virtually the same level as that achieved in 1955. The
1955 surplus was below the planned surplus because revenue overfulfill-
ment was less than expenditure overfulfillment. Revenues of 561.5 bil-
lion rubles were reported as 100.2 percent of plan and expenditures of
537.8 billion rubles as 100.9 percent of plan. From these percentages,
revised 1955 plan figures for revenue, expenditures, and surplus may be
calculated. These revised figures, as shown in Table 5, reflect the
effects of the wholesale price cut and also the apparent elimination of
the fictitious entry Raising Agricultural Procurement Prices.*** In
1956, revenues and expenditures are both planned to increase by slightly
more than 31 billion rubles, providing approximately the same surplus as
in 1955.
The Soviet budget surplus differs conceptually from the surplus
of the budgets of Western countries because Soviet budget revenue in-
cludes loan revenue. In Western budgeting the increase in government
debt is not treated as revenue but rather is considered as the source
from which an excess of expenditures over revenues is met. By Western
budgetary criteria, the Soviet budget would show a deficit, since
exclusion of loan revenue would make Soviet budget revenues smaller
than expenditures. A rationale for treating loan revenue as ordinary
revenue in the Soviet budget, however, exists in the essentially
involuntary, nature of Soviet loan revenue, which makes it comparable
either to direct taxes or to the revenue of gross budgetary institutions.
Virtually all bond purchases by the population are made during the annual
mass loan drive, when great pressure is exerted on every wage-earner to
subscribe an amount equal to a specified proportion of his wages. This
involuntary savings flows into the budget, and although the bondholder is
promised eventual redemption and even a chance for a prize in excess of
the value of his bond, it is not likely that these sums would be saved
voluntarily. Thus most bond purchases by the population constitute a
form of compulsory saving. As such, they are a dependable source of
revenue whose amount can be fairly accurately planned. Purchases of
state loans by savings banks and the state insurance organization absorb
* P. 5, above.
** Table 5 follows on p. 19.
*** P. 2, above.
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Table 5
Soviet Budget Revenues, Expenditures, and Surplus 2./
1954-56
Billion Current Rubles
1955 Plan
1954 19541955 1956
12/
Plan Actual Original Revised Actual Plan
Revenues
572.5
558.6
590.2
560.3
561.5
592.7
Expenditures
562.8
553.9
563.5
533.0
537.8
569.6
Surplus
9.7
4.7
26.7
27.3
23.7
23.1
a. Figures are from Tables 1 and 6, pp. 5 and 21, respectively, above
and below, except for revised 1955 plan.
b. Computed from percentages of overfulfillment. Revenues of 561.5
billion rubles were 100.2 percent of plan and expenditures of 537.8 bil-
lion rubles were 100.9 percent of plan.1113./
the free reserves of these organizations and also represent a steady
source of revenue. It thus appears practical in the Soviet setting to
treat bond sales to the population and to financial institutions as
ordinary revenue.
The surplus created by the excess of revenue over expenditures
constitutes a fiscal offset to monetary expansion by the banking system.
According to Finance Minister Zverev, 1.?2/ "the excess of revenues over
expenditures ... represents a supplementary source of expanding credit
in the national economy and serves as an important factor in the further
strengthening of the Soviet currency."
If the budget did not create an additional source
of credit resources of the State Bank, then additional
currency issue would be needed, which could exceed the
requirements of circulation and might lead to harmful
effects in monetary circulation, which in turn might
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intensify difficulties arising in the economy, caused
by disruptions in production and the distribution of
the social product.
Only a part of the budget surplus, however, is devoted to bank
credit. During the Fifth Five Year Plan, short- and long-term credit
increased by 47 billion rubles, 21/ whereas budget surpluses totaled
118 billion rubles. Thus only a small part of the budget surplus has
on the average served to offset bank credit. Soviet discussions of
monetary policy do not reveal the disposition of the remainder of the.
surplus, but it is possible that it is merely withdrawn from the money
supply in order to "strengthen the currency" by reducing the means Of
payment and thereby reducing the pressure on prices.
III. Budget Expenditures.
Total expenditures in the budget of 1956 are planned at 569.6 bil-
lion rubles, or 6 percent more than actual 1955 expenditures, with
which the coverage of 1956 expenditures is most comparable. Table 6*
shows planned expenditures for 1956 and planned and actual expenditures
for 1952-55. Although actual 1955 expenditures of 537.8 billion rubles
were almost 26 billion rubles below the planned figure announced in the
1955 budget, actual 1955 expenditures were reported as 100.9 percent of
plan, or slightly overfulfilled. Close analysis of actual expenditures
in 1955, however, suggests that there are two important differences in
coverage between the planned and actual figures.
First, it appears that the fictitious entry Raising Agricultural
Procurement Prices has been eliminated from actual 1955 expenditures in
the same manner as in the report of actual 1955 revenues.** This entry
was not listed in the 1956 budget, and comparison of total expenditures
and the individual expenditure categories indicates that it was also
eliminated from actual 1955 expenditures. The difference between
planned 1955 expenditures (563.5 billion rubles) and actual expendi-
tures (537.8 billion rubles) is 25.7 billion rubles. Budget expendi-
tures for Financing the National Economy, however, were reported at
7.7 billion rubles more than the plan figure. The other reported
results, for Social-Cultural Measures, Administration, and Loan Ser-
vice expenditures, are virtually identical with the plan figures.***
* Table 6 follows on p. 21.
** See II, above.
*** Continued on p. 24.
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Table 6
Soviet Budget Expenditures
1952-56
Billion Current Rubles
1952
1953 1954 1955 1956
Plan 1/
Plan 2/ Plan G/
Category Plan 2/* Actual 2/ Plan 2/ Actual 1/ Actual 1/ 1,1
Actual
Financing the National Economy 180.4 178.8 192.5 180.4 .216.4 213.4 222.4 230.1 237.3
Industry 80.6 N.A. 82.6 N.A. 92.3 N.A. 111.8 N.A. 110.0
Heavy N.A. N.A. N.A.
Light N.A. N.A. N.A.
Agriculture 34.7 33.5
Procurement (12.3) p/ N.A.
Trade (1.0)-Eil N.A.
Transport and Communications 14.3 N.A.
Municipal Economy E./ (5.0) N.A.
Other Expenditures (32.5) N.A.
Social-Cultural Measures 124.8 122.8
(40.4)
(9.0)
(1.0)
17.4
(6.5)
(35.6)
129.8
11
N.A. 79.7 N.A. 101.2 90.0 100.9
N.A. 12.6 N.A. 10.6 N.A. 9.1
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
128.8
(51.5) 1/
(11.0) 1/
1.6
21.5
(7.5)
(31.0)
141.4
N.A. 55.1 N.A. 48.6
N.A. (11,5) N.A. N.A.
N.A. 0.8 N.A. o.6
N.A. 23.0 N.A. 21.8
N.A. (8.o) N.A. (10.5)
N.A. (12.2) N.A. (45.8)
141.8 146,9 146.7 161.5
Education 6o.o 58.5 62.1 61.1 67.2 66.2 68.4 68.3 72.8
Health and Physical Culture 22.8 22.3 24.8 24.2 29.3 28.9 30.5 30.3 35.1
Social Welfare 42.0 42.0 42.9 43.5 44.9 46.7 48.0 48.1 53.6
Administration
Defense
Internal Security
Loan Service 2/
Reserve Funds, Councils of
Ministers
14.4
113.8
(22.8) 2/
7.0
6.1
* Footnotes for Table 6 follow on p. 22.
N.A. 14.3 14.3 13.9 13.9 12.6 12.5 12.5
108.6 110.2 105.0 100.3 N.A. 112.1 N.A. 102.5
N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.
6.8 9.8 N.A. 10.5 10.2 12.2 12.2 14.0
N.A. N.A.
N.A. N.A. N.A. N.A. N.A. N.A.
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Table 6
Soviet Budget Expenditures
1952-56
(Continued)
Billion Current Rubles
Category
1952
1953
1954
1955
1956
Plan 21
Actual h/
Plan 2/
Actual 2/
Plan S/
Actual II/
Plan E/
Actual h/
Plan 1/
Allocations to Special Banks
1.4
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Other Expenditures
(6.2)
N.A.
30.7
N.A.
41.3
N.A.
34.8
N.A.
41.8
Total real expenditures
476.9
460.2
487.3.
N.A.
523.8
N.A.
541.0
N.A.
569.6
Retail Price Reductions
0
0
43.2
N.A.
15.7
N.A.
0
0
0
Raising Agricultural
Procurement Prices
0
0
0
0
23.3
N.A.
22.5
N.A.
0
Total stated expenditures 476.9 460.2 530.5 514.7 562.8 221:2 563.5 537.8 569.6
a. 22(
b. .2.e
c./
d. _5i(
e. 5 /
I- f
g.e 2_/
h. 5
i.7
j. All figures in parentheses are estimates.
k. 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 billion rubles represented a reduction in apTicultural income tax. Total allocations were thus 39.9 + 13.6 - 4.1, or 49.4 billion
rubles, of which 9 billion rubles is estimated for Procurement and 40.4 billion rubles for Agriculture.
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Table 6
Soviet Budget Expenditures
1952-56
(Continued)
1. In 1954, allocations to Agriculture and Procurement were 62.5 billion rubles, of which it is estimated that 11.0 billion rubles was
allocated to Procurement and 51.5 billion rubles to Agriculture.
m. In 1952, -the combined allocation to Trade and Pr-ocurement was 13.3 billion rubles. The allocation to Trade is estimated at 1 billion
rubles, leaving 12.3 billion rubles for Procurement.
n. Municipal Economy estimates are based on republic budget expenditures. ?.1./
o. In 1952, total allocations for Administration and Internal Security from the union and republic budgets were 31.4 billion rubles.
Allocations from these budgets for Administration are estimated at 6o percent of total allocations to Administration of 14.3 billion
rubles, or 8.6 billion rubles, on the basis of 1951 data. Allocations for Internal Security are thus estimated at 31.4 billion
rubles less 8.6; or 22.8 billion rubles.
p. Loan Service payments to the population only. Loan Service payments to organizations, primarily savings banks, were planned at 1.9
billion rubles in the 1952 budget, the last time total Loan Service was announced. ?...3/
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Although the Defense allocation was probably reduced as a result of the
1955 wholesale price cut, it is not likely that it and other expendi-
tures declined by so much as 32 billion rubles; if so, it would be
difficult to report overfulfillment of planned expenditures. If, how-
ever, the decline in Defense and Other Expenditures amounted to 10 or
11 billion rubles, because of savings from the price cut and possible
underexpenditure of such allocations as the Reserve Fund of the Coun-
cil of Ministers, the remainder could be explained by the exclusion
from actual 1955 expenditures of the 22.5-billion-ruble entry in
planned expenditures for Raising Agricultural Procurement Prices.
The second change which may be suggested is an increase in planned
allocations for Financing the National Economy above the level planned
in the original 1955 budget. A revised set of figures for planned
allocations for this category, supposedly showing the adjustment for
the 1955 wholesale price cut, has been released.* These data, however,
show a sharp increase in unspecified allocations to Financing the
National Economy, whereas all the allocations to specified sectors
decline, as would be expected following a price reduction. The only
explanation is that additional expenditures, not in the 1955 budget
speech, have been included in the revised figures, which were pre-
sented for comparison with the 1956 budget. It does not appear likely
that the increase in planned allocations for Financing the National
Economy represents merely a transfer of expenditures from other cate-
gories, because other real budget expenditures did not decline by that
amount. Instead, it appears that additional expenditures were author-
ized during 1955, following the publication of the original budget.
Their impact upon actual 1955 expenditures, however, was concealed by
the exclusion from actual expenditures of the fictitious entry which
had appeared in planned expenditures. Thus actual 1955 expenditures,
by excluding fictitious expenditures, financed a higher level of
activity than planned 1955 expenditures. Because their coverage and
prices appear to be the same, total expenditures in 1956 can more
accurately be compared with actual 1955 expenditures than with the
expenditures of earlier years.
In 1956, allocations for Financing the National Economy account for
over 4o percent of total budget expenditures and include funds for fixed
investment, expansion of working capital, capital repairs, and various
operational outlays. The budget category Social-Cultural Measures, com-
prising expenditures for Education, Health, and Social Welfare, is the
* P. 25, below.
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next most important group, absorbing 28 percent of total expenditures.
Military expenditures account for 18 percent of the total, somewhat
less than their share of the 1955 planned budget. It is suggested,
however, that because of the 1955 price reduction and a claimed cut
in troop strength, military procurement may actually be at a higher
level in 1956 than 1955. Other expenditures, including expenditures
for Internal Security, Loan Service, Administration, and the Reserve
Funds of the Councils of Ministers, represent 12 percent of total
expenditures, about the same share as in 1955.
A. Financing the National Economy.
Unlike military and social-cultural activities, which are wholly
dependent on budget allocations for their financing, activities in
Financing the National Economy obtain only a part of their funds from
the state budget. The remainder comes from organizational funds (such
as retained profits and amortization allowances) and from bank credit.
The importance of nonbudgetary funds is indicated in Table 7,* which
shows the sources of planned allocations for the category Financing the
National Economy, for fixed investment, and for expansion of working
capital. Approximately one-third of the funds allocated to Financing
the National Economy comes from organizational funds. An analysis of
allocations to this category must therefore embrace not only budget
funds but also financing from other sources. In the following dis-
cussion, allocations from both budgetary and nonbudgetary sources are
considered. First, the distribution of funds by sectors of the economy
(industry, agriculture, trade, transport and communications, and others)
is examined. Then the distribution of funds by end use (fixed invest-
ment, expansion of working capital, and others) is analyzed.
1. Allocations by Sector.
The sectoral distribution of allocations to Financing the
National Economy from the budget alone is shown for 1952-56 in Table 6.**
A more comprehensive and also more detailed view of allocations is pro-
vided for 1954-56 in Table 8,*** which shows the distribution of funds
by sector and source under Financing the National Economy. Data for
1955 are shown both as presented in the original budget speech on
3 February 1955 and in the revised form presented in a 1956 journal****
**
XXX
Table 7 follows on p. 26.
P. 21, above.
Table 8 follows on p. 28.
Continued on P. 29.
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Table 7
Sources of Soviet Planned Allocations for Financing the National Economy,
Fixed Investment, and Expansion of Working Capital
1952-56
Billion Rubles
1952 W*
1953 12/
1954 S/
1955 2/
1956 2/
Financing the National Economy
Budget I/
180.4
192.5
216.4
222.4
237.3
Organizational funds Ei
(86.7) hi
98.0
110.3
112.8
109.7
Total
(267.1)
290.5
326.7
335.2
347.0
Fixed investment
Budget li
Organizational funds Li
98.1
45.0
106.7
49.4
116.3
52.7
109.3
57.9
118.4
42.4
Total li
143.1
156.1
169.0
167.2
160.8
Expansion of working capital fi
Budget
4.6
4.3
4.8
5.5
' 3.8
Organizational funds
6.1
10.8
11.1
6.5
7.9
Total
10.7
15..1
15.9
12.0
11.7
* Footnotes for Table 7 follow on p. 27.
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Table 7
Sources of Soviet Planned Allocations for Financing the National Economy
Fixed Investment, and Expansion of Working Capital
1952-56
(Continued)
a.
57
c
b..
d.
e. /
f. Current rubles.
g. Organizational funds include both allocations from current funds in current rubles and
an allowance for reductions in the cost of investment below the investment planning prices
of the base date for the five year plan period, resulting from price reductions and in-
creased efficiency in construction.
h. Figures in parentheses are estimates.
i. Total fixed investment figures are expressed in investment planning prices. Figures
.for 1952-55 are in investment planning prices of 1 July 1950, while figures for 1956 are
in investment planning prices of 1 July 1955.
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Table 8
Financing the National Economy of the USSR: Distribution of Funds by Sector and Source f../
1954-56
Billion Rubles 12./
Sector
Industry
1954 2/ Original 1955 1/
Revised 1955 2/ 1956 f/
Organiza- Organiza- Organiza- Organiza-
State tional State tional State tional State tional
Budget Funds Total Budget Funds Total Budget Funds Total Budget Funds Total
Heavy 79.7 53.5 133.2 101.2 62.4 163.6 (90.0) .z/ (60.5) (150.5) 100.9 57.8 158.7
Light 12.6 18.4 31.0 10.6 15.5 26.1 (9.0) (15.0) (24.0) 9.1 17.3 26.4
Subtotal 92.3 71.,9 164.2 111.8 77.9 189.7 99.0 75.5 174.5 110.0 75.1 185.1
Agriculture (51.5) (10.4) (61.9) 55.1 10.1 65.2 48.1 10.1 58.2 48.6 8.o 56.6
Trade 1.6 4.0 5.6 0.8 1.0 1.8 0.8 1.0 1.8 0.6 1.1 1.7
Transport and communications 21.5 17.3 38.8 23.0 17.5 40.5 19.8 17.5 37.3 21.8 18.8 40.6
Other (49.5) (6.7) (56.2) 31.7 6.3 38.0 49.7 8.8 58.5 56.3 6.7 63.0
Total
216.4 110.3 326.7 222.4 112.8 335.2 217.4 112.9 330.3 237.3 109.7 347.0
a. Plan figures.
b. Budget funds are in current rubles. Organizational funds include both allocations from current funds in current rubles and an allowance for
reductions in the cost of investment below the investment planning prices of the base date for the five year plan period, resulting from price
reductions and increased efficiency in construction.
c. 6
d. Announced' in the 1955 budget speech on 3 February 1955. 22/
e. Plan figures for 1955 as revised to allow for the 1 July 1955 price reduction. Although these figures are labeled "in new prices"
a journal article by Finance Minister Zverev 21/, the organizational figures for agriculture, transport, and trade
original plan figures and thus appear not to have been adjusted.
f. 12/
g. Figures in parentheses are estimates.
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are identical
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article by Finance Minister Zverev for comparison with planned 1956
allocations. The dual presentation of planned 1955 allocations in
Table 8 reveals the effects of the 1955 wholesale price cut upon
specific allocations and also indicates the inclusion in the revised
figures for 1955 of some expenditures which were not in the original
plan. Furthermore, 1955 figures adjusted for price changes are
necessary for comparison with planned 1956 allocations.
Total allocations in 1956 are planned at 347 billion rubles,
or 5 percent more than the revised planned allocations in 1955. Of the
total the major share goes, as in the past, to Heavy Industry, which
receives 46 percent of total allocations. Of the specified sectors,
Agriculture comes next with 16 percent, followed by Transport and Com-
munications with 12 percent. There has been a large increase com-
pared with the original 1955 plan in the size of the unspecified
residual, which exceeds 18 percent of total allocations in 1956. As
Table 8* shows, however, most of this increase actually occurred in
1955, as Zverev's revised 1955 figures show a sharp increase in budget
allocations for unspecified activities in Financing the National
Economy. Unspecified Other allocations in the 1956 budget are 13 per-
cent greater than those in the revised 1955 budget data.1
a. Heavy Industry.
In 1956, total planned allocations to Heavy Industry
are 158.7 billion rubles, an increase of 5 percent over the estimated
revised 1955 allocation. Less reliance will be placed on internal
financing, however, as budget allocations are estimated to increase
by almost 11 billion rubles, whereas organizational allocations will
fall by about 3 billion rubles.
As Table 8 indicates, there have been marked changes
in the level of allocations to Heavy Industry in recent years, pri-
marily as a result of changes in the amount of budgetary allocations.
The growth of Heavy Industry allocations in the original 1955 budget,
compared with the 1954 budget, appears to have taken place at the
expense of a reduction in unspecified Other allocations. In the
analysis of the 1955 budget, /2/ it was suggested that a transfer of
atomic energy allocations, which it was speculated had been in the
unspecified Other group, might have been responsible. No evidence
* P. 28, above.
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has subsequently appeared, however, to confirm this supposition or to
provide an alternative hypothesis. Figures for the budget allocation
to Heavy Industry presented in the revised plan for 1955 and in the
1956 budget do not suggest any further change in the scope of this
allocation after the publication of the 1955 budget in February 1955.
The decline in budget allocations to Heavy Industry
from 101.2 billion rubles in the February 1955 budget to an estimated
90.0 billion rubles in the revised 1955 figures can be attributed to
the 1955 wholesale price cut, whose impact upon Heavy Industry allo-
cations was apparently less than upon the allocations to Agriculture
and Transport and Communications. Comparison of the original and
revised 1955 budget allocations in Table 8* reveals that allocations
to Heavy Industry declined an' estimated 11.1 percent whereas those to
Agriculture and Transport and Communications decreased 12.7 and 13.9
percent, respectively. This differential impact of the price cut
suggests that prices of the output of heavy industry, purchased by the
other two sectors, were reduced more than prices of the inputs of
heavy industry. In 1956, budget allocations to Heavy Industry are
estimated to increase 12 percent over planned 1955 allocations
expressed in the same prices. This increase is only slightly larger
than the increase in budget allocations to Transport and Communications
and in part reflects the estimated reduction in allocations from organi-
zational funds.
b. Light Industry.
Total allocations to Light Industry in 1956 are planned
at 26 billion rubles, an increase of 10 percent over the estimated 1955
allocation in comparable prices. Most of the increase is to come from
organizational funds rather than budget allocations As in 1955,
allocations to Light Industry in 1956 are well below the peak achieved
in 1954 under the "new course" program. It is likely, however, that
allocations to Light Industry will increase in the next few years as
agricultural production, upon which light industry depends for most
of its raw materials, expands.
c. Agriculture.
Allocations to Agriculture in 1956 are planned at
56.6 billion rubles, of which 85 percent is to come from the budget
and 15 percent from organizational funds. Budgetary allocations are
* P. 28, above.
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virtually the same as those planned, in comparable prices, for 1955,
although their distribution has changed, probably reflecting the com-
pletion of the settlement phase of the "new lands" program. Allocations
to agriculture cover all the expenditures of the MTS's; provide invest-
ment funds, working capital, and some subsidies to state farms; and
finance general agricultural programs, such as irrigation, afforestation,
experiment stations, and agricultural resettlement. The distribution of
planned budgetary allocations to Agriculture in 1955 and 1956 is shown
in Table 9.
Table 9
Soviet Budget Allocations to Agriculture 2J
1955 and 1956
Billion Current Rubles
Item
Machine tractor stations
Origin 1 Revised,
1955 b 1955 2/ 1956 1/
Operating expenditures (23-3) 2/ N.A. N.A.
Fixed investment (9-3) N.A. N.A.
Total 32.6 N.A. 32.7
State farms
Operating expenditures 3.1 N.A. N.A.
Fixed investment 6.6 N.A. N.A.
Total 9 ? 7 N.A. 8.0
Other 12.8 N .A . 7.9
Grand total 55.1 48.1 48.6
a. Plan figures.
b. As announced in the 1955 budget speech on 3 February
1955. Ili/ Estimated distribution of MTS allocations is
based on source J.
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Table 9
Soviet Budget Allocations to Agriculture La/
1955 and 1956
(Continued)
c. Planned 1955 allocations expressed in the prices effective
on 1 July 1955. From Table 8, p. 28, above.
d.
e. Figures in parentheses are estimates.
The bulk of allocations to Agriculture goes to MTS's,
which, as "gross budgetary institutions," turn all their revenues
into the budget and make all their outlays from budget funds.* In
1956 the MTS's will receive two-thirds of all budgetary allocations
to agriculture, an increase over their share of 59 percent in the
planned 1955 budget. Over one-fourth of MTS expenditures are esti-
mated to be spent on new fixed investment, with the remainder covering
operating expenses, including wages, fuel, materials, and repairs.
Although the 1956 allocation is virtually identical in ruble terms
with the 1955 allocation, allowance must be made for price reductions
on 1 July 1955 affecting fuel and machinery and equipment. Thus in
1956, 32.7 billion rubles will finance a substantially higher level
of investment and operations than the 32.6 billion rubles allocated
in 1955.
State farms will receive 8 billion rubles or one-
sixth of budget allocations to Agriculture in 1956. Of this, perhaps
two-thirds will be devoted to new fixed investment, primarily in state
farms in the "new lands." In 1955, 6 billion rubles of the total state
farm allocation of 9.7 billion rubles was spent in the "new lands"
area. /// The decline in state farm allocations from 9.7 billion rubles
in the 1955 budget to 8 billion rubles in 1956 can be explained in part
by the completion of basic expenditures for the creation of state farms
in the "new lands" /1_31 and in part by the reduction in state farm
expenditures resulting from the mid-1955 price reduction.
* See II, D, 2, above, for discussion of plans to convert the MTS's to
a self-supporting basis.
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In addition to financing new fixed investment, allocations
to state farms will provide increased working capital; will finance
various operational expenditures, such as measures against plant and
animal diseases, land surveys, and forest conservation 21; and appar-
ently will furnish subsidies to cover losses. A drive to eliminate state
farm subsidies was begun in 1954 by increasing their revenues and reducing
their costs. Revenues were increased by raising the prices paid to state
farms for their output. Cost reductions were to be obtained in part
through lower prices for inputs such as feed and mineral fertilizer and
through a redefinition of the cost of production to exclude expenditures
for housing services. The major part of cost reductions, however, was
planned to come from increased efficiency of operations. ,f3_91.1/ Because
the latter has not been achieved, the need for subsidies has evidently
not been eliminated. According to Zverev,
In 1954, 1,217 state farms gave profits
in the sum of 968 million rubles. In 1955
leading state farms gave profits in approxi-
mately that amount. However, many state farms
still continue to operate unsatisfactorily,
bringing large losses to the state. In 1954,
over two-thirds of the state farms of the
USSR Ministry of State Farms finished the
year with a loss in the sum of 1,763 million
rubles. In 1955 losses of these state farms
amounted to almost 2 billion rubles.
Although some of these losses are covered by the redistribution of the
profits of successful state farms, budget subsidies are apparently
still required.
The Other agricultural allocation in Table 9* includes
expenditures for a variety of purposes, including soil and water con-
servation; experiment stations; mass plant and animal protection
campaigns; formation of forest, water, and animal reservations; and
mass agricultural resettlement. ?.2/ The decline in these allocations
from 12.8 billion rubles in the 1955 budget to 7.9 billion rubles in
1956 can be attributed in part to the 1955 price reduction but pri-
marily to the virtual completion of the actual settlement phase of
the "new lands" program. In 1954 and 1955 the state budget paid for
the transfer of families and property to the "new lands" area and
* P. 31, above.
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gave grants to the new settlers. ?3./ In addition, budget grants were
made to collective farms in the "new lands" for surveying and clearing
the new areas; planning villages; building irrigation and drainage
works; and construction of roads, bridges, and water supplies. Li-/
With the virtual completion of the settlement phase of the "new lands"
program in 1955, these expenditures will not be repeated in 1956,
although state investment in MTS's and state farms in the "new lands"
will continue at a high level.
d. Domestic Trade.
Allocations to the Ministry of Trade in 1956 are 1.7
billion rubles, or approximately the same as in 1955, when Trade allo-
cations from the budget and organizational funds fell to one-third of
the 5.6 billion rubles allocated in the "new course" year of 1954.
About one-third of the 1956 allocations will be furnished by the
budget and two-thirds will come from organizational funds. Allocations
will be used to expand retail trade facilities in urban areas, where
the Ministry of Trade operates. In rural areas, retail trade is con-
ducted by the consumer cooperatives, which are not financed by the
budget.
e. Transport and Communications.
Allocations to Transport and Communications in 1956 are
planned to increase to 4o.6 billion rubles, or 9 percent above the
planned 1955 level (in comparable prices). These allocations will
finance the electrification and dieselization of railroads and the
construction of new rail lines as well as the expansion of other trans-
port services and communications scheduled in the Sixth Five Year Plan.
f. Procurement.
Budget allocations to Procurement under Financing the
National Economy have been estimated for 1952-55 in Table 6.* No
estimate can be made for 1956, however, because of recent changes in
the procedures for financing procurement organizations, which affect the
size of budget allocations to procurement. Allocations to procurement
organizations cover fixed investment; expansion of working capital; and
also a reimbursement to these organizations for overpayment of the turn-
over tax, which results from the Soviet multiprice system of agricultural
* P. 21, above.
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procurement. These tax rebates constitute the bulk of allocations to
Procurement in Financing the National Economy, estimated-at 11.5 bil-
lion rubles in the planned 1955 budget. In that year, fixed invest-
ment in the Ministry of Agricultural Procurement was planned at 2.6
billion rubles, and the Ministry's share of the total planned
increase of nonindustrial working capital of 2.4 billion rubles*
could not have been very large. Thus most of the allocation was
devoted to compensating procurement organizations for overpayment
of turnover tax.
These tax rebates are necessary because procurement
organizations buy agricultural products from producers at various
prices but sell them at a single price. Procurement organizations
buy agricultural products at the following prices: compulsory
delivery prices paid to collective farms for quota sales ("procure-
ment" prices), the higher prices paid to collective farms for above-
quota sales ("purchase" prices), and prices paid to state farms for
their deliveries (state farm "delivery" prices). When procurement
organizations sell to processing industries, however, they sell at
a single "accounting" price and pay to the budget a turnover tax
which represents the difference between the "accounting" price, on
the one hand, aid the low "procurement" price, plus a margin for the
services rendered by the procurement organizations, on the other. g,.y
On agricultural products actually purchased at "procurement" prices,
this level of taxation leaves the procurement organizations with a
small margin which enables them to cover expenses and show a profit.
On agricultural products acquired at the higher "purchase" or
"delivery" prices, however, this level of taxation causes the pro-
curement organizations a loss, as they pay out in "purchase" or
"delivery" prices to producers and in turnover tax to the budget
more than they receive from processing industries. The amount of
their loss corresponds to the difference between "procurement"
prices and "purchase" or "delivery" prices on agricultural products
acquired at the latter two prices. Procurement organizations are
compensated for these losses by allocations from the budget.
It appears that most of these reimbursements have been
made under allocations to Procurement under Financing the National
Economy. Some reimbursements, however, such as those on livestock,
have been made from Other Expenditures rather than from Financing
* See Tables 10 and 11, pp. 40 and 42, respectively, below.
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the National Economy fly./ In 1953, however, there was a shift of some
allocations for reimbursing procurement organizations from Financing
the National Economy to Other Expenditures. In connection with the
increase in agricultural prices in that year, reimbursements to agri-
cultural procurement organizations for grain acquired at "purchase"
prices from collective farms were shifted from Financing the National
Economy to Other Expenditures. 1L8/ The magnitude of this shift is not
known, but its effect was to place in Other Expenditures rather than
in Financing the National Economy the increase in procurement reim-
bursements that must have followed the increase in grain "purchase"
prices in 1953.
Estimation of the level of Procurement allocations in
1956 is complicated by two developments. It has been reported in a
journal of the Ministry of Procurement .g2/ that, effective 1 January
1956, the prices paid by the milling industry to grain procurement
organizations were changed in order to cover the cost of grain
acquired at "purchase" and "delivery" prices as well as "procure-
ment" prices. AS a result, reimbursement from the budget presumably
will no longer be required. Another change in Procurement allocations
may also be expected from the decree of 30 January 1956, sharply
increasing "procurement" and "purchase" prices for vegetables. 22/
Because of the unknown magnitude of these changes and a lack of infor-
.mation on agricultural prices and on the different amounts of agri-
cultural output acquired at "procurement" and "purchase" prices, no
estimate of allocations to Procurement can be made for 1956.
g. Other Expenditures in Financing the National Economy.
.In addition to Procurement allocations, the residual,
or Other Expenditures sector, in Table 8* includes allocations to a
number of activities not specified in recent budget speeches. In
prewar budgets, Financing the National Economy included the Munici-
pal Economy, State Reserves, the Chief Directorate of Precious
Metals of the Ministry of Finance (presumably the agency which pur-
chases gold from domestic producers), the Ministry of Foreign Trade,
and several minor activities, such as the Chief Directorate of
Rydrometeorology and Chief Directorate of Geodosy and Cartography. 21/
It is speculated that the development of atomic energy may also be
included under Financing the National Economy. It was suggested above,
* P. 28, above.
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however, that the hypothetical allocations for atomic energy may have
shifted from the unspecified residual to Heavy Industry in 1955.*
One component of the unspecified residual which may be
expected to grow in the future as a result of the new Soviet foreign
trade and aid program is allocations to the Ministry of Foreign Trade.
An examination of the internal financing procedures of Soviet foreign
trade organizations suggests that some type of allocations from the
budget, analogous to those provided to procurement organizations,
would be required. Allocations would appear to be necessary to
reimburse foreign trade organizations for bookkeeping losses
resulting from differences between Soviet internal prices and inter-
national prices,* which the foreign trade organizations incur because
they exchange rubles for foreign currency at the State Bank at the
rate of 4 rubles to the dollar. 22/ For example, if a foreign trade
organization imports an article with a world price of US $200 and a
Soviet internal price of 1,000 rubles, it would pay the State Bank
800 rubles to obtain $200 and receive a 200-ruble profit which
results not from the efficiency of the trading organization but from
price differences and the exchange rate used. Conversely, if a
foreign trade organization exports an article with a Soviet domestic
price of 1,000 rubles and gets US $200 on the world market, it will
receive only 800 rubles when it turns the US $200 over to the State
Bank. Its loss of 200 rubles likewise is attributable to the price
and exchange rate structure, not to inefficiency.
Soviet foreign trade organizations are self-sustaining
enterprises whose revenues are supposed to cover costs and provide a
profit representing a trader's commission. 22/ They would not be
expected, therefore, either to retain gains on imports or incur losses
on exports when these gains and losses are due to price differences
and exchange rates beyond the control of the organizations. It has
been pointed out above** that gains on imports are paid into the
budget as customs revenue. No discussion has been encountered in
Soviet foreign trade accounting literature of the treatment of losses
on exports, but it appears that such losses must exist so long as the
ruble-dollar ratio on any exports exceeds 4 to 1, 211/ the rate at
which the State Bank buys the dollars which foreign trade organizations
receive from sales of Soviet goods abroad. As ruble differences on
imports are paid into the budget, they are not available to trade
* P. 29, above.
** P. 17, above.
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organizations to offset ruble differences on exports. The latter pre-
sumably must therefore be covered by budget allocations. Allocations
to reimburse foreign trade organizations for bookkeeping losses on
exports would tend to rise as the volume of exports increased but
tend to diminish as the difference between the ruble-dollar ratio for
exports and the exchange rate of 4 to I narrowed.
Only a small portion of the unspecified residual may
be accurately estimated, in certain years. Thus in Table 6,* budget
allocations to the Municipal Economy for municipally operated housing
and public utilities have been estimated for 1952-56 from data in the
republican budgets. Procurement allocations are estimated for 1952-55
but not for 1956, for reasons discussed above. Sufficient information
is not available to make reliable estimates of the size of other
allocations in the unspecified residual.
It is thus difficult to explain the sharp increase in
the unspecified residual shown in Table 8,** which rose from 31.7 bil-
lion rubles in the original 1955 budget to 56.3 billion rubles in the
1956 budget. Table 8 does show, however, that most of the increase
actually occurred sometime in 1955, for the revised 1955 figures,
presented in a 1956 journal article by Zverev, show an increase of
18 billion rubles over the original 1955 figures, which he had
presented in his budget speech on 3 February 1955. The revised figures
are described as planned 1955 allocations in new (effective 1 July 1955)
prices and are compared by Zverev with those for 1956. The specified
allocations to Industry, Agriculture, and Transport and Communications
show the effects to be expected from the wholesale price cut, which
apparently reduced these specified budget allocations by 11 to 14 per-
cent. The unspecified allocations increased by 18 billion rubles,
however, instead of falling as a result of the price reduction. It
appears, therefore, that in the revised figures some expenditures were
included whi6h were not in the original budget figures. Because the
activities included in the residual in the original budget figures.
should have benefited from the price reduction, like the specified
allocations, it is suggested that the additional expenditures must
have exceeded 18 billion rubles, perhaps amounting to 20 billion rubles.
* P. 21, above.
** P. 28, above.
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It is possible that these increased allocations to
Financing the National Economy could have come from a transfer of
expenditures from some other part of the budget or from new expendi-
tures not authorized in the budget of 3 February 1955. There is no
evidence of a reduction in real expenditures in other budget cate-
gories sufficient to permit a transfer of 20 billion rubles to
Financing the National Economy. Actual expenditures in 1955 for
Social-Cultural Measures, Loan Service, and Administration were
virtually the same as planned. Defense expenditures were probably
reduced as a result of the price cut and a claimed reduction in
troop strength, but in view of allocations authorized in the 1956
budget, the difference between planned and actual 1955 Defense
allocations would not have approached 20 billion rubles. No sub-
stantial shift from Other Expenditures seems likely either, in
view of the increase of this category from 34.8 billion rubles in
the planned 1955 budget to 41.8 billion rubles in the planned 1956
budget (see Table 6*).
Thus it appears likely that new expenditures classi-
fied in Financing the National Economy were authorized during 1955,
after the announcement of the budget on 3 February 1955, and
included in Zverev's revised figures. Whereas increases in some
components of the residual may have been authorized during 1955,
there is no indication of changes in these activities approaching
the order of magnitude of 20 billion rubles. It is not possible,
therefore, on the basis of available information to identify the
factors responsible for the sharp increase in the unspecified
residual in the revised 1955 figures.
2. Allocations by End Use.
Allocations to Financing the National Economy provide
funds for new fixed investment, expansion of working capital,
capital repairs, and various operational expenditures. Table 10**
shows the estimated distribution, by end use, of planned allocations
for Financing the National Economy in 1954-56. Although the esti-
mated character of virtually all the figures makes them subject to
some error, the table reveals the order of magnitude and general
trends of the categories indicated. Available data permit the dis-
tribution of capital allocations into fixed investment, expansion
* P. 21, above.
** Table 10 follows on p. 40.
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Table 10
Financing the National Economy of the USSR:
Distribution of Funds by End Use II
1954-56
Billion Rubles ',2/
1954
1955
1956
Capital allocations
Fixed investment si
(156.0)
(156.0)
(154.0)
Expansion of working capital 2/
15.9
12.0
11.7
Capital repairs 2/
(35-3)
(39.0)
(40.0)
Total
(207.2) V
(207.0)
(20577)
Operational allocations
Industry e
(25.7)
(55.1)
(46.7)
Other
(93.8)
(73.1)
(94.6)
Total
(119.5)
(128.2)
(141.3)
Total allocations for Financing
the National Economy 1/
326.7
335.2
347.0
a. Plan figures.
b. Current rubles except for fixed investment and total allocations to
Financing the National Economy.
c. Fixed investment outlays in allocations to Financing the National
Economy are equal to total state fixed investment outlays less those
financed under other allocations -- for example, under Social-Cultural
Measures or Administration. It is estimated that approximately one-
half of the residual investments in Table 12, p. 43, below, consists of
outlays financed under other allocations. 22/ Therefore, to obtain
the fixed investment figures in this table, one-half of the residual
line in Table 12, below, was subtracted from total investments in
Table 12. Figures for 1954 and 1955 are in investment planning prices'
of 1 July 1950; figures for 1956 are in investment planning prices of
1 July 1955.
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Table 10
Financing the National Economy of the USSR:
Distribution of Funds by End Use
1954-56
(Continued)
d. From Table 7, p. 26, above.
e. Total capital repairs, less 1 billion rubles per 50X1
year for estimated capital repairs in expenditures for Social-Cultural
Measures and Administration.
f. Figures in parentheses are estimates.
g. From Table 11, p. 42, below.
of working capital, and capital repairs for the economy as a whole.
Operational allocations can be divided only broadly into those for
industry and those for other sectors of the economy. Table 11* shows
the distribution by end use of allocations to Soviet industry. The
estimates for operational allocations to industry in Table 11 have
been derived by deducting from total allocations to industry those
allocations intended for capital purposes. From Table 10, it is
evident that capital allocations constitute about 60 percent and
operational allocations about 40 percent of all allocations to
Financing the National Economy. New fixed investment is the largest
single category, representing close to 50 percent of total allocations
for Financing the National Economy and 75 percent of capital allo-
cations. Within the operational allocations group, marked changes
took place during 1954-56, corresponding to the changes discussed
above in heavy industry allocations in 1955 and in the residual in
Financing the National Economy in 1956.**
a. Fixed Investment.
Most of fixed investment in the USSR is made by state
enterprises and institutions under the state investment plan. The
size and distribution of these investments in 1954-56 are shown in
Table 12.XXX Some investments, totaling 30 to 40 billion rubles, are
Table 11 follows on p. 42.
** See III, A, 1, a, and III, A, 1, g, above.
*** Table 12 follows on p. 43.
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Table 11
Financing Soviet Industry: Distribution of Funds by End Use 2/
1954-56
Billion Rubles -12/
1954 1955 2956
Fixed investment 2/ 104.0 (101.0) 1/ 104.4
Expansion of working capital 2/ (12.7) 9.6 (9.4)
Capital repairs f/ (21.8) (24.0) (24.6)
Operational outlays (25.7) (55.1) (46.7)
Total g/
164.2 189.7 185.1
a. Plan figures.
b. Current rubles, except for fixed investment and total.
c. From Table 12, p. 43, below. Figures for 1954 and 1955 are
in investment planning prices of 1 July 1950; the 1956 figure
is in investment planning prices of 1 July 1955.
d. Figures in parentheses are estimates.
e. In that year, planned
expansion of working capital in industry amounted to 80 percent
of total planned expansion of working capital. The same per-
centage was applied to figures for total planned expansion of
working capital in 1954 and 1956 in Table 7, p. 26, above.
f. Estimated at 60 percent of total capital repairs. 2L3/
g. From Table 8, p. 28, above.
also made outside the plan. The plan excludes small investments made
on a decentralized basis by state enterprises, the investments of
collective farms and cooperatives, and private investments in housing.
Virtually all of the investments under the state investment plan are
made in various sectors of activity financed by allocations for
Financing the National Economy. Part of the residual line in Table 12,
however, corresponds to fixed investment in schools, hospitals, general
administrative buildings, and probably some basic defense construction.
These investments are financed under other budget allocations, such as
those for Social-Cultural Measures, Administration, and probably Defense.
During the Fifth Five Year Plan period, Social-Cultural investments
amounted to about 25 billion rubles. 9
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Table 12
Soviet State Capital Investment 21
1954-56
Billion Rubles
1954 12/
1955 12/
1956
Plan
Actual
Plan
Actual
Plan 2/
Industry
Heavy
90.0
(90.0)
1/
93.5
(97.2)
96.6
Light
14.0
(11.8)
N.A.
(7.2)
7.8
Subtotal
104.0
(101.8)
N.A.
(10)4.4)
io4.4
Agriculture
21.0
(19.0)
N.A.
(20.6)
21.3
Transport and
communications
18.6
(18.0)
N.A.
(19.0)
21.5
Other
25.4
(18.2)
N.A.
(22.0)
13.6
Total
169.0
(157.0)
167.2
(166.0)
160.8
50X1
b. In investment planning prices of 1 July 1950.
c. In investment planning prices of 1 July 1955.
d. Figures in parentheses are estimates.
Fixed investment is financed in part from budget allo-
cations and in part from organizational funds. The distribution of
financing between these two sources has been indicated above in
Table 7,* where it is shown that approximately two-thirds of total
financing is supplied by budget allocations. The remainder, fur-
nished by organizational funds, consists of three parts: a portion
of amortization allowances, part of retained profits, and an
allowance for savings in investment costs. The last named results
from price reductions or increases in the efficiency of construction
* P. 26, above.
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since the date on which investment planning prices were fixed, and from
the "mobilization of internal reserves of construction," such as the
use of excess stocks of materials. Thus of planned organizational allo-
cations of 57.9 billion rubles in 1955, profits were to furnish 11.9
billion rubles; amortization allowances, 21.8 billion rubles; and the
reduction in investment costs below the level of the investment planning
prices of 1 July 1950, the remaining 24.2 billion rubles. 101/ In 1956,
on the other hand, of the 42.4 billion rubles planned for organizational
allocations, profits represent 15.3 billion rubles and amortization
funds represent 23.1 billion rubles; cost savings below the investment
planning prices of 1 July 1955, in effect for the Sixth Five Year Plan
period, represent only 4.0 billion rubles. 1021 Organizational allo-
cations, therefore, consist only in part of actual outlays from current
funds; the remainder represents the difference between actual invest-
ment costs and costs calculated according to base-date investment
planning prices.
Because the figures for 1954 and 1955 in Table 12 are
expressed in investment planning prices of 1 July 1950, which were used
for the Fifth Five Year Plan, and because figures for 1956 are expressed
in prices of 1 July 1955, in effect for the Sixth Five Year Plan,
allowance for the 16-percent drop in aggregate investment costs between
those two dates* must be made in comparing allocations in different
years. According to Zverev, the 160.8 billion rubles of investment
planned for 1956 actually represents an increase of 15 percent over
realized 1955 investment when adjustment is made for price differ-
ences. 103/ Investment in each of the sectors will also increase by
more than it appears from a direct comparison of the 1956 figures (in
1955 prices) with the earlier figures (in 1950 prices). In 1956, as
in the past, Heavy Industry receives the largest share of investment --
60 percent, or more than 12 times the share of Light Industry. Although
investment in Light Industry in 1956 will exceed the level of 1955, it
will still be well below the level achieved in 1954, the "new course"
year, even after adjustment for price differences. Of the remaining
sectors, the shares. both of Agriculture and of Transport and Communi-
cations in total investment will increase in 1956, compared with 1955,
chiefly at the expense of the residual category.
Although virtually all investments in Industry, Trans-
port and Communications, and Social-Cultural Measures are made within
the national investment plan, this is not true of investment in Agri-
culture. Only about half of total investment in Agriculture is made in
* See I, B, above.
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state agriculture under the national investment plan; the remaining
half consists of collective farm investment. In Table 13 the dis-
tribution of total agricultural money investment between state and
collective farm investment is shown for 1953-56. It is estimated
that total investment in 1956 is planned at 46 billion rubles.
Table 13
Soviet Money Investment in Agriculture
1953-56
Billion Rubles
1953
Actual
1954
Actual
1955
Actual
1956
Plan
State investment
12.0
(19.0)
12/
(20.6)
21.3
Collective farm money investment 21
Long-term bank loans si
2.6
3.8
4.1
5.0
Own funds s/
10.3
12.8
16.5
(20.0)
Total
12.9
16.6
20.6
(25.0)
Grand total
24.9
(35.6)
(41.2)
(46.3)
a. Figures
figures for
Table 12, p
b. Figures
c. Current
for 1953-55 are in investment planning prices of 1 July 1950;
1956 are in investment planning prices of 1 July 1955. From
. 43, above,
in parentheses are estimates.
rubles.
State investment in agriculture includes investments in
the MTS's, in state farms, and in general projects such as irrigation,
electrification, and afforestation. In 1955, planned investment in the
MTS's is estimated at 9.3 billion rubles, whereas planned state farm
investment was announced as 6.6 billion rubles.* Investment in general
projects may have been about 4 billion rubles. The distribution of
* See Table 9, p. 31, above.
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planned 1956 investMent of 21.3 billion rubles in state agriculture has
not been announced, but it is probable that the total will be distri-
buted approximately as in 1955. State agricultural investment will
increase in 1956 by considerably more than appears from a comparison
of 1955 and 1956 figures in Table 13, because of the difference in the
prices in which these figures are expressed.
Collective farm money investment finances all types of
agricultural investment, including construction, purchase of livestock,
acquisition of machinery and equipment, electrification, and irrigation
and land improvement. In addition, collective farms make investments-
in-kind in the form of the labor of their members on construction pro-
jects and in the form of natural increases in herds. Because of the
difficulty of valuing investments-in-kind, they have been omitted in
Table 13.
As Table 13 shows, both collective farm and state
investment have risen steadily above the 1953 level, reflecting the
inauguration of the "new lands" program and the current emphasis of
Soviet agricultural policy on expanding wheat, corn, and livestock
production. Increases in agricultural prices since 1953 have provided
collective farms with increased income, from which they have made pro-
gressively larger investments. In addition, the Agricultural Bank has
made loans to the collective farms. Although loans have also increased
since 1953, it is estimated that in 1956 they will finance only about
one-fifth of total collective farm money investment. The retained
income of the collective farms thus remains the principal source of
their investments and a major source of total Soviet investment in
agriculture.
b. Expansion of Working Capital.
Soviet enterprises operate with two types of working
capital -- their "own" working capital and borrowed working capital.
"Own" working capital is increased both from budget grants and from
organizational funds. Working capital may be expanded from organi-
zational funds either through the allocation of profits to working
capital or through an increase in funds earmarked to offset accruing
current liabilities. 106/ In 1956, for example, it is planned that
10.2 billion rubles from profits will be allocated to the expansion
of working capital (see Table 4*), but working capital from.
* P. 12, above.
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organizational funds will increase by only 7.9 billion rubles (see
Table 7*), as a result of a decline of 2.3 billion rubles in funds for
offsetting accruing current liabilities.
In addition to budget and organizational allocations of
"own" working capital, Soviet enterprises get short-term credit from
the State Bank. In Table 14 the level of State Bank credit outstanding
has been estimated for 1951-56. From this table the annual increase
in working capital from short-term credit may be derived. In Table 15,**
the increases in working capital of Soviet enterprises are shown for
1952-56. From Table 15 it appears that less than half of the annual
increase in working capital has been obtained from borrowed funds.
Table 14
Soviet State Bank Credit
1951-56
Billion Current Rubles
Credit Outstanding
on 1 January of Year
1951
2/
(190)
12/
1952
(196)
1953
2/
203
1954
1/
208
1955
(215)
1956
2/
(223)
a. 107/
b. Figures in parentheses are
estimates.
c. ic8/
d. 109/
e. .40,/
* P. 26, above.
** Table 15 follows on p. 48.
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Table 15
Increases in Working Capital of Soviet Enterprises
1952-56
Billion Current Rubles
Planned Increase
In Own Working Capital 2/
Actual Increase
Year
From
Budget
From Organi-
zational Funds
Total
in Borrowed
Working Capital h/
1952
4.6
6.1
10.7
(7) 2/
1953
4.3
10.8
15.1
5
1954
4.8
11.1
15.9
(7)
1955
5.5
6.5
12.0
(8)
1956
3.8
7.9
11.7
N.A.
a. From Table 7, p. 26, above.
b. From Table 14, p. 47, above.
c. Figures in parentheses are estimates.
In 1953 the actual increase in borrowed capital was only one-third of
the planned increase in "own" working capital. In 1954 and 1955 it
appears that a greater share of the increase in working capital came
from bank credit than in previous years. This increased dependence of
Soviet .enterprises on bank credit for working capital is probably one
of the results of the August 1954 financial reforms, which were intended
to strengthen the control of the State Bank over the financial trans-
actions of Soviet enterprises. 111/
c. Capital Repairs.
Capital repairs are financed in part from the budget and
In part from organizational funds. Soviet enterprises devote a part of
amortization allowances to capital repairs, and, in addition, some
retained profits may be allocated to finance capital repairs. Very
little has been published in the postwar period about either the amount
of total capital repairs or the relative importance of the different
sources of financing. In 1951, total capital repairs were planned at
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29.4 billion rubles, 112/ and in 1955 it was planned that 18.7 billion
rubles would be spent for the repair of industrial machinery and equip-
ment. 113/ In Table 10,* capital repairs financed by allocations for
Financing the National Economy are estimated at 40 billion rubles in
1956. In addition, it is thought that perhaps 1 billion rubles may be
spent for capital repairs of social-cultural and administrative struc-
tures and equipment. No postwar information is available on the shares
of the different sources of financing capital repairs, but it appears
reasonable to assume that the budget provides at least 25 percent, the
share which it furnished in the 1941 capital repair plan. 114/
d. Operational Allocations.
Operational allocations under Financing the National
Economy comprise a variety of noncapital expenditures. They include
the operating expenditures of "budgetary" institutions like the MTS's;
government purchases of goods and services, such as the cost of
operating agricultural experiment stations; reimbursements for price
differentials**; subsidies; and a number of developmental expenditures,
such as expenditures for inventions and new products. In addition to
allocations under Financing the National Economy, operational funds
are furnished to enterprises from the Social-Cultural Measures cate-
gory of the budget for scientific research, factory education, and
maintenance of nurseries. 115/
Although most subsidies were abolished as a result of
the increase in wholesale prices and freight rates in 1949, subsidies
are still granted to selected industries and activities where prices
are not fixed high enough to cover costs of production. In most
industries, losses are covered by the redistribution of profits with-
in a given chief directorate. Budget subsidies, however, are still
granted to the timber industry, 116/ state farms,*** 112/ and prob-
ably other activities whose subsidies have not been identified. Large
losses are reported in the Ministry of the Fish Industry 118/ and also
in the Ministries of the Coal Industry and of Machinery and Instruments
Building, 119/ and it is possible that some subsidies are provided to
these activities.
* P. 40, above.
** See III, A, 1, f and g, above.
xxx See III, A, 1, c, above.
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Several types of developmental outlays financed from the
budget as operational allocations for Financing the National Economy
may be distinguished. They include (1) expenditures for "mastering the
production of new products," (2) outlays for technical improvements and
inventions, (3) "starting expenditures" of new enterprises, (4) expendi-
tures of investment-planning organizations, and (5) outlays for "state
measures" of interest to the economy as a whole.
Expenditures for mastering the production of new prod-
ucts include those for the design of new products, construction and
testing of experimental models, development of production processes,
and cost analysis and norm setting. 1.g2/ Budget funds are granted for
these outlays when it is not considered desirable to set product prices
high enough to cover initial development costs. 121/
Expenditures for technical improvements and inventions
comprise those for studies, experiments, and tests; manufacture of
models; bonuses for inventions and improvements; and modification of
norms and standards. 122/ Budget grants are made only for improve-
ments and inventions of interest to an entire branch of industry or
the economy as a whole. The cost of improvements and inventions of
interest only to the individual enterprise is covered by revenue from
the sale of product. 12
Starting expenditures of new enterprises, such as the
cost of organizing production and training workers, may also be
financed from the budget rather than included in the price of the
product. 124/ Because these expenses are ordinarily connected with
bringing new fixed assets into operation, however, they are some-
times included in allocations for fixed investment. 125/ On the
other hand, the cost of operating investment-planning organizations
is not included in fixed investment allocations but is instead
covered by operational allocations from the budget. 126/
Finally, budget funds are allocated to enterprises to
cover expenditures which are made by the enterprise but which have
implications for the development of the economy as a whole, duch as
expenditures for resettlement of workers, forest conservation, and
awards to workers under nationwide productivity drives. 12//
It is not possible at present to determine the size of
these different developmental outlays or to estimate the shares which
the different types of operational expenditures represent of the total
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operational allocations shown in Table 10.* Operational allocations
may, however, be roughly estimated between those to industry (see
Table 11**) and those to other sectors. As Table 10 indicates,
operational allocations have risen in recent years, and planned
allocations in 1956 are estimated at 141 billion rubles, or 10 per-
cent more than the planned 1955 level, despite the wholesale price
reduction of mid-1955. This rising trend reflects increased allo-
cations for MTS's and other agricultural activities, larger allo-
cations to Procurement and possibly foreign trade organizations, and
growing developmental expenditures. If the cost of developing
modern weapons is borne by allocations to the defense industry under
Financing the National Economy, current emphasis on expensive, highly
complex military end items would also be responsible for a rising
trend in operational allocations. The initial use of atomic power
in industry may likewise require operational allocations.
The marked changes in the industry and other oper-
ational allocations shown in Table 10 appear to correspond to the
changes analyzed above in the discussion of the sectoral distribution
of allocations for Financing the National Economy.*** The increase in
industrial operational allocations and decrease in other operational
allocations from 1954 to 1955, as shown in Table 10, result from the
apparent shift of allocations from the residual in 1954 to Heavy Indus-
try in 1955, as shown in Table 8.**** Industrial operational allo-
cations in Table 10, however, increased by more than the decline in
other operational allocations, indicating a net increase in industrial
operational allocations, which would be expected as the activities
financed by these allocations expanded. In 1956, as compared with
1955, industrial operational allocations in Table 10 decline by about
8 billion rubles, or 15 percent, whereas other operational allocations
increase by 20 billion rubles. The decline in industrial allocations
is due in large part to savings from the 1955 price cut and possibly
also to the elimination of some subsidies. The increase in other
operational allocations, on the other hand, is connected with the
increase in the unspecified residual in Financing the National Economy,
most of which, it was suggested above,***** actually occurred during
1955. Although the specific nature of the allocations which increased
cannot be definitely identified, it appears from Table 10 that they
P. 40, above.
P. 42, above.
See III, A, 1,
P. 28, above.
P. 38, above.
g,
above.
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were primarily operational in character rather than representing a
significant increase in investment.
B. Social-Cultural Measures.
Allocations for Social-Cultural Measures in 1956 are planned at
161.5 billion rubles, or 28 percent of total budget expenditures.
Social-cultural expenditures are planned to increase 10 percent over
actual 1955 expenditures of 146.7 billion rubles. The increase of
15 billion rubles is shared almost equally by the three major types
of social-cultural expenditures -- education, health, and social
welfare.
1. Education.
Educational allocations in 1956 are 72.8 billion rubles, or
45 percent of total social-cultural expenditures. They include current
expenditures for primary and secondary schools, trade and vocational
schools, higher education, adult education, nursery schools and orphan-
ages, scientific research, and museums, as well as fixed investment and
capital repair outlays in these fields. In 1955, several items in
educational expenditures were announced for the first time in recent
years. Table 16* shows planned budget allocations to education in 1955
and 1956. In the 1956 budget, only one item, preparation of cadres
(professional and skilled workers), was specified.
Planned allocations to scientific research in 1956 are
13.6 billion rubles, of which it is estimated that about two-thirds
will come from the budget and one-third from organizational funds.
Allocations in 1956 are 17 percent greater than actual 1955 allocations,
which in turn were 16 percent higher than planned (see Table 17**).
Scientific research allocations will finance research by the Academy
of Sciences, ministerial research institutes, and universities and will
cover both basic or theoretical research and applied science.
2. Health and Physical Culture.
Allocations for Health and Physical Culture in 1956 are
planned at 35.1 billion rubles, or 15 percent more than actual 1955
expenditures. These include funds for hospitals and dispensaries,
* Table 16 follows on p. 53.
** Table 17 follows on p. 54.
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Table 16
Soviet Planned Budget Allocations for Education
1955 and 1956
Billion Current Rubles
Maintenance of primary and secondary schools
Preparation of cadres
1955 2/ 1956 12/
23.0 N.A.
Trade and agricultural labor training
schools (secondary level) 6.9 N.A.
Vocational technical schools (advanced
level) o.4 N.A.
Higher education and secondary semi-
professional schools 15.0 N.A.
Subtotal (2211) 2/ 23.5
Scientific research (6.7) (9.1)
Other (16.4) N .A .
Total 68.4 72.8
a. 128/
b. 129/
c. Figures in parentheses are estimates.
sanatoriums, medical services for children, antiepidemic activities,
medical aid to invalid veterans, and other expenditures, including
capital repairs and investment in medical facilities. Of the 5-
billion-ruble increase in health expenditures over the 1955 level,
2.6 billion rubles is due to an increase in salaries for medical
workers introduced on 1 November 1955. 130/
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Table 17
Soviet Allocations for Scientific Research 2/
1951-56
Billion Current Rubles
Year
Budget
Organizational
Funds
Total
1951 (plan)
5.3
2.7
8.0
1951 (actual)
5.4
N.A.
N.A.
1952 (actual)
5.6
N.A.
N.A.
1953
N.A.
N.A.
N.A.
1954 (plan)
N.A.
N.A.
9.5
1955 (plan)
N.A.
N.A.
10.0
1955 (actual)
N.A.
N.A.
11.6
1956 (plan)
N.A.
N.A.
13.6
a. 131/
3. Social Welfare.
Social Welfare allocations, including social security,
social insurance, and aid to mothers, are planned to increase from
48.1 billion rubles in 1955 to 53.6 billion rubles in 1956. The
distribution of Social Welfare allocations among these three groups
in the planned 1955 and 1956 budgets is shown in Table 18,* which
shows that the increase in 1956 is due to larger social security
expenditures. This category includes pensions to disabled veterans
and other invalids; funds for rehabilitation of disabled persons; and
retirement pensions to scientific, administrative, and other employees
not covered by the social insurance system. It excludes, however,
pensions to retired members of the armed forces and internal security
forces, which are included in the expenditures of the corresponding
ministries. Little change was indicated in the 1956 budget speech in
allocations for social insurance, which provides temporary disability,
retirement, and survivor's benefits for workers in industries where
social insurance payments are made to the budget by enterprises, or aid
to unmarried mothers and mothers of many children.
* Table 18 follows on p. 55.
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Table 18
Soviet Planned Budget Allocations for Social Welfare
1955 and 1956
Billion Current Rubles
Allocation
1955 2/
1956 12/
Social security
25.0
30.5
Social insurance
18.0
17.9
Aid to mothers
5.0
5.2
Total
48.o
53.6
a. 132/
b. 133/
Both social security and social insurance expenditures should
increase when the new Soviet pension law, announced on 9 May 1956, goes
into effect on 1 October 1956. In the 1956 budget, allowance for this
increase was apparently made in the social security allocation but not
in the social insurance allocation. Some overfulfillment of the latter
may therefore be expected in 1956.
C. Administration.
Allocations to Administration include expenditures of all central
administrative-control organs, such as the Ministry of Foreign Affairs,
the State Planning Commission, judicial bodies, and the administrative
overhead of the economic ministries. Two-thirds of these allocations
go for the payment of wages and the remaining third covers the purchase
of office supplies and equipment, travel funds, and the construction
and repair of administrative buildings. l34/ In connection with
administrative reorganizations after Stalin's death, the number of
persons on administrative staffs was reduced by 750,000 in 1954-55,
causing a saving of 7.2 billion rubles per year. 135/ Most of these
people, however, were on the payrolls of factories, trusts, and com-
bines and were paid out of revenue from the sale of product, rather
than from budget allocations for central administration. 116./ Thus
budget allocations for Administration were reduced by only 1.8 bil-
lion rubles -- from 14.3 billion rubles in 1953 to 12.5 billion
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rubles in 1955. The remainder of the saving in administrative per-
sonnel costs represented "economies in administration." These savings
are treated in Soviet budgetary accounting as revenue, since ministries
are required to pay into the budget an amount corresponding to the
planned reduction in administrative overhead.*
D. Defense.
1. Explicit Defense Expenditures.
The Defense allocation mentioned in budget speeches is the
allocation to the Ministry of Defense for maintaining the land, sea,
and air forces of the USSR. These allocations cover expenditures for
personnel, including food, clothing, pay, housing, and services; prob-
ably capital construction of some military facilities; re-pairs and
other expenditures on operations and maintenance; and procurement of
military end items.
Much was made in the 1956 budget speech, and also in sub-
sequent speeches by Soviet leaders, of the reduction in Defense
expenditures from 112.1 billion rubles in the planned 1955 budget to
102.5 billion rubles in the 1956 budget, Analysis of these figures
and related developments, however, indicates that the 1956 allocation
will purchase at least as much military capability as the 1955 allo-
cation, and possibly more. First, the mid-1955 industrial price
reduction may have cut procurement costs by about 5 billion rubles,
accounting for half of the 10-billion-ruble difference between the
1955 and 1956 allocations. If military personnel strength remained
unchanged, this would imply a decrease in procurement of military end
items of about 5 billion rubles. If a 640,000-man reduction in the
Soviet Armed Forces was carried out by 15 December 1955 as claimed,
however, 131/ it would have decreased personnel costs by about 5 bil-
lion rubles, freeing this sum for procurement. The combined effect of
the price cut and the reduction in the armed forces would therefore be
about 10 billion rubles, or enough to maintain military procurement at
approximately the 1955 level. In 1956, however, procurement costs will
decline as various recently introduced models of military equipment --
particularly aircraft -- advance further into quantity production. 138/
It is thus possible, in view of the 1955 price reduction, the claimed
reduction in troop strength, and cost savings from quantity production,
* See II, D, 4, above.
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that the 1956 allocation of 102.5 billion rubles will finance the pro-
curement of more military end items than the 1955 allocation of 112.1
billion rubles.
If a further force reduction of 1.2 million men, announced
on 14 May 1956, is carried out as scheduled, actual explicit defense
expenditures in 1956 should be substantially below planned outlays.
Nonexplicit defense expenditures, however, may be increasing at the
same time explicit defense outlays are reduced.
2. Other Defense Expenditui-es.
In addition to the announced allocations to the Ministry of
Defense, there are outlays of a defense character in budget allocations
to the defense industry, the atomic energy program, and guided missile
development.
Allocations for capital and operational expenditures to the
various ministries concerned with defense production, such as the Minis-
tries of Defense Industry, Aviation Industry, and Shipbuilding, are
included in allocations to Heavy Industry in Financing the National
Economy. The magnitude of these defense-oriented allocations cannot be
estimated, however.
The location in the budget of expenditures for the develop-
ment of atomic energy is purely speculative, but it is possible that
they are also included in Financing the National Economy. According
to Soviet atomic expert Kurchatov
The matter of building and operating
atomic power plants is a national one. An
especially large amount of work will have
to be done by builders, engineers, and
workers of the Ministry of Electric Power
Stations, the construction ministries, and.
the Ministries of Heavy Machine Building,
Machine Building, and Electrotechnical
Industry.
The prominent role in the atomic energy program assigned to
these ministries would support the hypothesis that atomic energy allo-
cations are included in Financing the National Economy and possibly in
the Heavy Industry portion of that budget category.
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No evidence is available to indicate the location of budget
allocations for guided missile development, but it is possible that
such outlays, like allocations to the defense industry, are included
in Financing the National Economy.
E. Internal Security.
Internal Security allocations include appropriations for the
Ministry of Internal Affairs (MVD) and the Committee on State Security
(KGB). The former controls the ordinary police and the border troops,
whereas the latter is concerned with investigating crimes against the
state such as treason, espionage, and the disclosure of state secrets,
and with conducting espionage abroad. The economic activities of the
MVD are included in Financing the National Economy. Information from
which Internal Security allocations could be estimated has not been
available since 1952. In that year, it is estimated that Internal
Security allocations were planned at 22.8 billion rubles. Allocations
must have declined since then, because of the reduction in the prison
population resulting from amnesties after Stalin's death1122/ and
because of the consolidation of the old Ministry of State Security
(MGB) with the MVD in 1953. Although the present KGB became independent
of the MVD in 1954, its status as a committee is more modest than that
of the old WB, and it is probable that its expenditures are less than
those of the MCB. This suggested decline in Internal Security alloca-
tions is supported by the decline in the budget category Other Expendi-
tures, half of which was devoted to Internal Security in 1952.
F. Other Expenditures.
Other Expenditures include service on the state loan, allocations
to the reserve funds of the Councils of Ministers, grants to long-term
investment banks, and minor expenditures.
Loan service has been increasing steadily, as the number of out-
standing bond issues rises. Since 1952, loan service figures refer only
to payments to the population, which in 1956 are planned at 14 billion
rubles. In addition, loan service is paid to institutional holders of
state debt, such as the savings banks. In 1952, loan service to
institutional holders was planned at 1.9 billion rubles, and it has
probably risen since then, as a result of further investment of savings
banks deposits in the state loan each year.
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Allocations to the reserve funds of the USSR Council of Minis-
ters and the Councils of Ministers of the union republics were 6 billion
rubles and 100 million rubles, respectively, in the 1952 planned
budget. 141/ No figures have been released for later years, but it is
probable that these allocations have increased somewhat. The reserve
funds consist both of ruble balances intended to meet emergencies
(such as losses suffered by enterprises as a result of natural calam-
ities) and of commodity holdings intended to meet unforeseen demands
for materials and equipment.
Allocations to long-term investment banks provide funds to
these institutions to make loans for investments in activities not
directly financed by the budget. Allocations to investment banks were
planned at 1.4 billion rubles in the 1952 budget, but it is probable
that they have risen substantially in later years, as a result of the
increase in credit granted to collective farms by the Agricultural
Bank* and the increase in loans for private housing granted by the
Communal Bank. 142/
G. Summary of Expenditures.
Soviet budget expenditures in 1956 are planned at 570 billion
rubles -- an increase of 6 percent over actual 1955 expenditures.
Greater allocations for Social-Cultural Measures (Education, Health
and Physical Culture, and Social Welfare) will account for almost
half of the 32-billion-ruble increase over 1955. Additional allo-
cations for Financing the National Economy are only 7 billion rubles,
less than one-fourth of the increase in total expenditures. Allo-
cations for Financing the National Economy, however, were overful-
filled in 1955, and overfulfillment is possible also in 1956, in
view of the modest increase planned. Fixed investment is planned to
rise 15 percent above the 1955 level, with Heavy Industry receiving
60 percent of total investment in 1956.
Explicit defense expenditures, consisting of allocations to
the Ministry of Defense, represent 18 percent of the 1956 budget, as
compared with 20 percent of the planned 1955 budget. Actual 1955
defense expenditures were not announced, and they may well have been
below plan, as has occurred in previous years. It appears that the
decline in the explicit defense allocation from 1955 to 1956 can be
explained by the mid-1955 price reduction, the claimed cut in the
* See III, A, 2, a, above.
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armed forces, and savings from mass production of certain military end
items. When allowance is made for these factors, it is possible that
the 1956 allocation may finance as much military end-item procurement
as in 1955, or even more. Nonexplicit defense expenditures such as
those for atomic energy and guided missiles may also have risen.
Budget expenditures of the first year of the Sixth Five Year
Plan reflect the priorities of Soviet economic policy. First place
in both investment allocations and allocations for Financing the
National Economy is given to Heavy Industry, the prime mover of
economic growth and the technical and production base upon which the
development of modern, highly complex weapons depends. The increased
emphasis accorded Agriculture in 1954 continues, as shown by the
maintenance of a high level of budget allocations to Agriculture after
the completion of the initial settlement phase of the "new lands" pro-
gram. Light Industry fares slightly better in the 1956 budget than in
1955, but allocations are well below the 1954 peak. Thus Soviet eco-
nomic policy in 1956, as manifested in the budget, pursues essentially
the same objectives as in 1955 -- seeking economic growth and military
strength, with secondary emphasis on consumer welfare.
IV. Budgets of the Union Republics.
In 1956 the budgets of the union republics are planned to total
139.6 billion rubles, as compared with 127.3 billion rubles planned in
1955. Of total planned expenditures of 139.6 billion rubles, 44.2
billion rubles will be spent for Financing the National Economy, 85.5
billion rubles for Social-Cultural Measures, and 9.9 billion rubles
for other purposes. 143/ Thus about 19 percent of total budget expendi-
tures for Financing the National Economy and 53 percent of expenditures
for Social-Cultural Measures will be disbursed through the union-
republic budgets. The budgets of each of the republics except the
Kazakh SSR will share in the 10-percent increase of republic budget
allocations over 1955. The Kazakh budget, on the other hand, will fall
from 10.1 billion rubles in 1955 to 8.8 billion rubles in 1956, as a
result of the completion of part of the "new lands" program expendi-
tures. 144/
The increase in republic budgets is due in part to the growth of
the state budget and in part to the continuation of the movement toward
decentralization which began in 1954. In the 1956 budget speech,
Zverev mentioned several steps taken to increase the authority exercised
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at the union-republic level. First, many additional enterprises in
heavy and light industry, construction organizations, and state farms
have been placed under the direct jurisdiction of union-republic
ministries. Second, the Councils of Ministers of the union republics
have been given greater authority to plan capital investment, pro-
duction, and wages as well as outlays for health, education, social
welfare, and municipal services. Thus the state budget will provide
block grants for economic and social-cultural expenditures, to be
distributed by the union-republic authorities. Third, the planning
of local budgets has been transferred from Moscow to the union-
republic level. Finally, republic and local authorities will be
permitted to make larger investments in social-cultural and municipal
facilities outside the state plan for capital investment. 145/
Although these measures will further decentralize the administration
of the economy and provide greater flexibility in the solution of
local problems, the control of the Soviet economy remains highly
centralized, with over 80 percent of the funds allocated in the 1956
budget for Financing the National Economy being controlled by Moscow
and less than 20 percent being administered by the union-republic
authorities.
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