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FINANCE AND CREDIT IN THE US
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[BEGIN] V.PERESLEGIN __TITLE__ Finance and Credit in the USSR __TEXTFILE_BORN__ 2007-05-10T23:30:35-0700 __TRANSMARKUP__ "Y. Sverdlov" PROGRESS PUBLISHERS Moscow SEP 9 1977 [1] Translated from the Russian by Don Danemanis B. H. 0 E P E C JI E P H H *HHAHCbI H KPEflHT B CCCP Ha OHSMIUCKOM >!3blKe __COPYRIGHT__ First printing 1971The production, distribution and consumption of material things is the most important condition for the existence and development of human society. In modern times material production involves the manufacture, distribution and use of things not for personal consumption but for exchange, that is, they are made to be sold and bought.
For the producer of an article designed for the consumption of others to be able to acquire some other product in exchange, his product must undergo a metamorphosis---it must be transformed into money. This means that a commodity producing society inevitably uses money and inevitably engages in trade. Under these conditions the relations between people, groups and classes become commodity-money relations, that is, they are regulated by the exchange of commodities through the medium of money. The development of commodity-money relations thus gives rise to the need for finance and credit and to their extensive use.
Citizens of all countries have dealings with finance and credit institutions. Finance and credit matters are sources of controversy, and give rise to political and class struggles. Government 5 bodies and political parties, public institutions, organisers of production, individuals and entire classes, are all concerned with finance and credit. This is why most people take an interest in financial problems and want to know about the workings of finance and credit, and why they assume such an important rale in the life of ordinary people and in relations between states.
__ALPHA_LVL2__ What Is Finance?Finance is a necessary part of any modern economy. Finance concerns money and its utilisation in the economy. In essence, finance comprises the economic relations that arise in society in connection with monetary transactions and the formation of monetary incomes and expenditures.
Finance exists wherever there are money incomes and money is spent, i.e., where payments are made.^^1^^ Obviously, money incomes and expenditures are possible only where commodities are produced and distributed, that is, where commodity-money relations prevail. Incomes and expenditures relating to financial transactions have the following features: first, they are monetary in form; secondly, they are the result of the actions of people; and thirdly, the methods by which incomes are made, and the nature of payments, depend on definite conditions of social development. In particular, they are connected with the existence of the state. Monetary incomes and accumulations go to form financial reserves; their use provides the money for the various _-_-_
~^^1^^ The term ``finance'' derives from Latin ``financia'', meaning ``a money payment''.
6 requirements of individuals, institutions, classes and the state.The economic content of finance and credit, their role in social life and the range of relations they embrace, are determined by the mode of production, the level and the content of the productive forces, the relations of production within the framework of which these productive forces operate, the class nature of the state, and the extent to which commodity-money relations are developed.
It is not the private finances of individuals that are important in the life of people, classes and the state, in the development of a country and its economy, but public finances, that is, those expressing relations between groups and classes, and between the state and classes, and between the state and individuals and groups.
Financial science deals with public finance. It is concerned with the way monetary resources form and for what purpose they are used. These problems are important because public finance has a major bearing on the economic life of a country, on its government's activity, and fiscal policy and legislation, which affects the interests of all members of society, all classes, the financial interests and activities of all institutions and organisations. Taxes, duties, excises, loans, subsidies and grants are all closely connected with public finance.
__ALPHA_LVL2__ What Is Public Finance?Public finance has to do with the accumulation and utilisation of money resources by collectives of people and by society as a whole (and not by individuals). Therefore, the formation and utilisation of such money resources is linked with the activities of public organisations or institutions:~
7Public finance includes:~
a) state finance;~
b) finance of public institutions and enterprises;~
c) finance of public organisations.
State finance comprises the finance of the state (the budget, the finance of state-owned enterprises) and the finance of state bodies and institutions.
There are public institutions and enterprises in every country---co-operatives, credit institutions (societies), insurance companies, communal services, welfare services, etc. It is the monetary incomes, accumulations and expenditures of these institutions that comprise the finance of public institutions and enterprises.
The finances of various public organisations, such as political parties, trade unions and other voluntary organisations, also relate to. public finance.
The aggregate finances of state and public institutions and enterprises and voluntary organisations constitute public finance. But this designation of the parts of the aggregate, by a common name---public finance---is no more than superficial; common to them is only their difference from private finance. The specific economic content, the sources and forms of incomes, the methods and purposes of the distribution of financial resources, and the designation, purposes and nature of payments differ in the case of state finance from that of public institutions. The state, for example, imposes and collects taxes, while public institutions cannot and must not do it. The expenditures of the state too differ radically from those of public institutions and organisations. For example, there are pronounced differences in form and content between the finances of trade unions and those of the state.
8A clear distinction should be made between the public finances of capitalist and of socialist countries. Even though both are called public, there are fundamental differences between them.
__ALPHA_LVL2__ Public Finance in Capitalist CountriesThe fundamental differences between the economic and political systems of capitalist and socialist states, between the nature and functions of their economic systems make capitalist and socialist public finance quite different.
Private ownership of the means of production and of the products of labour is the typical feature of the capitalist system. Most of the national wealth and the key positions in the economy are in the hands of capitalist monopolies or individual owners. In capitalist countries, production and the economic activities of public institutions and enterprises are conducted solely for the sake of profit. State finances, including the state budgets, and the finances of state-owned enterprises and organisations account for the bulk of public finance under capitalism.
Under that system, state finances cover the finances used by the capitalist state to carry out its functions. Taxes are the principal source of revenue, accounting for 80 to 90 per cent of the state's finances. Karl Marx pointed out that taxes are the economic expression of the existence of the state.
The working classes---the workers and the peasants---are the principal makers of the money income of the state and of public institutions and enterprises. Their labour yields profits to stateowned enterprises. Besides, they put part of their earnings at the disposal of the state in the form of taxes and dues. Public financial resources 9 are formed from these profits, taxes and other payments.
Typical of modern capitalism is the growth, and the wide-spread activity and influence of monopolies and all other kinds of companies and corporations. The formation and growth of monopolies leads to the direct intervention of the state in the economy in the interests of the ruling class. The capitalist state takes various measures to regulate the economy and uses state finance in the interests of the ruling class.
The government seizes part of the working people's earnings by means of taxation and uses this revenue for subsidies, grants, compensation payments, armament orders, road construction, building and other state expenditure profitable to the capitalists. In this way it puts part of the meagre earnings of the working people back into the pockets of the capitalists. The capitalists and their monopoly associations thus exploit the state in their interests. The capitalist state spends part of its financial resources to maintain a police force, courts and jails, and to conduct political propaganda (press, radio, etc.) in favour of its system. Taxes, that is, the non-returnable and compulsory withdrawal from the population of part of its income are the main source from which these expenditures are covered. It follows that under capitalism public finance does not help to improve the living conditions of the people, but rather worsens them by redistributing part of their incomes to the capitalists.
__ALPHA_LVL2__ Public Finance in Socialist CountriesUnder socialism the means of production and the results of production belong to the people as a whole (state property) or to. individual 10 collectives (co-operative property). The state holds the key positions in the national economy. Public finance thus represents the finance of the whole national economy. It is a system of economic relations by which funds of money resources are formed and used in a planned way. The main purpose of public finance in socialist countries is to promote the most rational and effective utilisation of all national economic resources for the fullest satisfaction of the people's material and cultural requirements.
In socialist society, public production is the material basis of all finance. The incomes and accumulations of the state-operated and co-- operative enterprises provide the financial resources of the state and state-owned and public enterprises, which are used to develop the production of material wealth and to satisfy the growing economic, social and cultural requirements of the people. This makes the planning of public finance necessary. State and co-operative organisations determine the amount and the sources and dates of the money they expect to receive in the course of one, five or more years, and the amount, type and purpose of their expenditure. Thus, public finance in the socialist countries becomes a means of planned economic development.
__ALPHA_LVL2__ Public Finance in Developing CountriesIn those countries that have flung off the yoke of colonial dependence and embarked on independent political, economic and cultural development, social and economic reforms have extended to public finance. It is being reshaped to promote the creation and development of their own industry, carrying through land reforms, abolishing the vestiges of feudalism and the aftermath of 11 colonialism, struggling against neo-calonialism, and implementing measures for the organisation and advancement of education, public health and culture.
State finance is playing an increasing role in the public finance of these countries; the finances of public co-operative organisations and enterprises are gradually extending and becoming mare influential, and the finances of the state sector arc growing stronger and beginning to play a greater part in the economy. Public finance in these countries is thus becoming of increasing importance for their economic and cultural development.
[12] __NUMERIC_LVL1__ CHAPTER II __ALPHA_LVL1__ MODERN STATE FINANCIAL SYSTEMS __ALPHA_LVL2__ [introduction.]State finance has a long history. It emerged together with the state and developed with it.
__ALPHA_LVL2__ Definition of State FinanceState finance is a system of money relations between the state and the various classes and groups of the population on the basis of which the money funds of the state are formed and used for its many tasks and functions.
This concise definition does not fully reveal the content of state finance, but it shows that it is not money itself but money relations that determine its content, relations which have an economic and social character. The nature of these relations depends on the political system of the state. The state levies taxes, maintains the government machinery, issues bonds, and maintains an army. The state collects money resources and uses them for the performance of its numerous tasks and functions.
The tasks and functions of all capitalist states, and particularly of imperialist states such as the USA, West Germany, France and Great Britain, have little in common with the tasks and functions of the developing countries and differ entirely from the tasks and functions of the socialist 13 states---the USSR, Poland, the German Democratic Republic, etc. State finance in each group of countries has, therefore, a different economic content and structure, i.e., the character of the money relations and the aims and tasks assigned to state finance differ in each group.
__ALPHA_LVL2__ The Role of State FinanceIn the lives of different peoples and different countries state finance serves a different purpose and plays a different role. This is because the states themselves differ. Marx said that the capitalist state was a committee taking charge of the bourgeoisie's affairs. The socialist state, on the other hand, is a servant of the working people. Taxes paid by the working people are the main source of revenue in the capitalist countries. In fact, the working people pay about one-third of their income in taxes. The taxes imposed by the bourgeois state are a source of the additional exploitation of the people. The capitalist state uses most of its financial resources unproductively---to militarise the economy, pursue the arms race, maintain its machinery of suppression (the police, courts, jails, the army), and grant huge sums to capitalists in the form of subsidies, compensation payments and other privileges.
The content, structure, aims and purpose of state finance under socialism are entirely different from those under capitalism; they play an entirely different role in the lives of the people. The socialist state derives 80--95 per cent of its revenue from the income and accumulations of the national economy and not from the personal incomes of the working people. The bulk of the funds concentrated in the hands of the state is used productively---to develop and improve 14 production, to build new factories, to train and improve the skills of all categories of workers, to advance science and to raise the material and cultural level of the people.
In the countries which have flung off the colonial yoke and embarked on independent development, state finance is increasingly used to reorganise political and economic life, to wipe out the remnants of feudalism and colonialism, and to counter neo-colonialism. In these countries the role of the state grows from year to year and with it that of state finance. Financial resources are increasingly used to develop industry, advance agriculture and build cultural facilities. The economic and financial initiative of the local bodies of self-government in these countries is encouraged by the central governments.
In the course of their financial activities all states evole definite financial systems.
__ALPHA_LVL2__ General FeaturesThe state financial system comprises (a) the aggregate of money relations evolving from the forms and methods by which a state raises and employs its revenue, and (b) the system of financial bodies and institutions of a country procuring and employing the revenue of the state.
The first part of this definition refers to the socio-economic content of the state financial system, which is closely connected with the class nature of the state. The second part refers to the structure of the state financial bodies and institutions which implement the state's financial policy.
The state financial system consists of the following parts:~
the budget system, in which the leading role 15 is played by the state budget, the annual estimate of state income and expenditure;~
the taxation system, consisting of the sum-total of all taxes (compulsory contributions to the budget), and the forms and methods by which these are levied and organised;~
the state credit system, enabling the state temporarily to use moneys belonging to others which it later returns with interest. These funds are raised by floating loans, issuing bonds and drawing on the deposits of the population in savings banks (which invest their funds in state-issued securities);~
income from state-operated enterprises, which deposit part of their profits into the money funds of the state;~
customs revenues, consisting of moneys received as customs duties, i.e., as taxes on imported goods.
These are the principal links in the financial system, providing the state with financial resources.
As for the utilisation, state funds are channelled through the state financial system (a) to finance the various needs and undertakings of the state, i.e., to issue grants, subsidies and subventions, pay for the maintenance of the army, the government machinery, the police force, the development of science, etc.;
(b) to grant loans to other states, banks and organisations;
(c) to pay interest on loans previously received, and (d) to pay off state credits.
These are the main expenditures of the state. The economic content, structure and role of every part of the state financial system are determined by the social system and the class nature and functions of this or that state. Socio-economic conditions also determine the structure of financial bodies.
16As regards their organisational structure, state financial systems operate on two levels:~
a) central institutions acting on a country-wide scale and~
b) institutions acting on a local scale (regiun, district, community, province, etc.).
According to the nature of their financial operations, we distinguish:~
a) budget-financing bodies and institutions;~
b) tax offices;~
c) credit institutions (banks, savings banks, cooperatives, associations).
In capitalist countries the central financial bodies are generally represented by the Ministry of Finance (Treasury) which draws up and executes the budget, takes charge of tax collection, drafts financial laws and organises financing.
There are considerable differences in the financial, budget and taxation systems of various countries. We shall deal only with the characteristic features in the financial systems of capitalist and socialist states.
__ALPHA_LVL2__ Specific Features of the Financial SystemBecause of their identical class-economic content, the financial systems of all capitalist countries have much in common and there are no fundamental differences between them.
The typical features of the financial systems of all modern capitalist countries are:~
a) the limited nature of the state financial system, which is almost entirely concentrated in the budget system;~
b) the complicated, divided and anti-- democratic nature of the budget system.
In capitalist countries the means af production 17 are mainly in the hands of capitalists and their associations (monopolies). The state machinery is the servant of the bourgeoisie, the financial magnates, the true owners of the economy. For this reason, the state finance of these countries is limited to the state budget, which reflects the role, scope and functions of the state in safeguarding the interests of monopoly capital.
There is a great variety of capitalist budgets, estimates and funds. Yet the budget system lacks internal unity. Often, the state budget of a country does not unite the financial resources of the budgets of all administrative territorial units. The budgets of the many local state bodies are not subordinate to the central state budget. Budgets or separate estimates of state institutions and special extra-budgetary funds exist alongside the budgets of the administrative-territorial units. Thus, in the USA, the funds of the budgets of the individual states, local administrative bodies, the Agency for International Development, the Federal Aviation Agency and others are not part of the federal budget.
The US federal budget accounts for about twothirds of the budgetary system's financial resources, while one-third of the budgetary revenue and expenditure is accounted for by the budgets of the individual states and local administrative bodies: counties, municipalities, townships and towns. In all there are 85,000 administrative units having budgets af their own.
The income and expenditure of the British state budget is divided into two parts---the `` budget above the line" and the ``budget below the line''. The first covers all the ordinary revenue of the Treasury and the expense of maintaining the Royalty, most military spending and a few other expenditures. The second covers Treasury 18 operations connected with the issue of loans and the settlement of state debts, payment of subsidies to nationalised enterprises, etc. France has a state budget, special accounts, associated budgets, autonomous budgets, budgets of overseas departments and territories, special funds and extra-budgetary funds. At the time of the colonial war in Algeria, France also had an estimate for ``extraordinary expenditures in North Africa''. West Germany has an ordinary and an extraordinary budget. Italy also has two such budgets, and, in addition, a third named ``the movement of capital''. In Japan the state budget is supplemented by dozens of special accounts.
The abundance of budgets, funds, accounts and estimates complicates parliamentary control of state finance. The increasing centralisation of state finance and the limitation of the financial rights of local government bodies lends the budget system of the capitalist state an anti-- democratic complexion. The financial resources of the state are increasingly concentrated in the hands of the central government, while the financial resources and rights of local authorities are being continuously curtailed. Between 1913 and 1955 the share of local budgets in the general budget has decreased from 58 to 16 per cent in the USA and from 47 to 20 per cent in Britain.
The centralisation of state finance continues in these countries to this day. In the 1968/69 budgetary year the US federal budget included a number of extra-budgetary, so-called specialpurpose funds (social security, road construction, etc.) which accounted for 47,000 million dollars, that is, for almost 25 per cent of the total budget expenditure for the fiscal year.
In the principal capitalist countries taxes account for 85 to 95 per cent of the budget revenue. __PRINTERS_P_19_COMMENT__ 2* 19 Direct taxes from the population constitute 55 to 60 per cent of the total revenue of the US budget, and about 70 per cent of the British budget. If the taxes shifted by the capitalists to. the working people are taken into account, taxes from factory and office workers and farmers comprise over 80 per cent of all the revenue flowing into the US federal budget and the state budgets. The prime source of revenue in the latter are indirect taxes, comprising 75 per cent of all tax receipts. The states are entitled to introduce taxation. Between 1960 and 1964 the tax revenue in the state budgets increased by 50 per cent. Owing to the increase in prices on essentials, the main burden of indirect taxation is being borne by the working people. Since identical taxes are levied on goods by different bodies, the same commodity is taxed several times. The price of a cotton dress includes about 125 different taxes, of a man's suit---189, of petroleum---210. Taxes account for 56 per cent of the price of bread, for 64 per cent of the retail price of milk, 60 per cent of the price o.f footwear. In France, direct and indirect taxes paid largely by the working people constitute more than 90 per cent of the total budget revenue. Incomes other than taxes ( receipts from state-owned enterprises, sales of property, etc.) account for only five per cent of US budget revenue and for seven to eight per cent of British and six to seven per cent of French budget revenue.
Military appropriations constitute the principal item of expenditure in the budgets of capitalist countries. Direct military spending, indirect and concealed military expenditure, military pensions and payments an state debts (mainly connected with wars and war preparations) amount to 75 to 80 per cent of the federal budget expenditure 20 in the USA, 40 to 45 per cent in Britain, 30 to 35 per cent in France and over 35 per cent in West Germany.
Direct military expenditure has grown 70-- fold in the USA in the past 30 years, 2.5 times in Britain and nearly twice in France in the past fifteen years, and 3.5-fold in West Germany over the past ten years. In the 1967/68 fiscal year the direct military expenditures of these countries reached fantastic amounts: over 70,000 million dollars in the USA, 2,250 million pounds sterling in Britain, 23,500 million francs in France and almost 20,000 million marks in West Germany.
In connection with the enormous growth of expenditure on militarisation, deficits in the budgets of capitalist countries are becoming habitual. In the 46 years from 1914 to 1959 the US budget was drawn up with a deficit 29 times, that af Britain 32 times and France 42 times. In later years too the budgets of these countries were often drafted and executed with big deficits.
The figures given below show the rate at which the budget deficits of the principal capitalist countries are growing:
Budget deficit? (in current prices) 1951-- 1952 1954-- 1955 1958-- 1959 1962-- 1963 1966-- 1967 USA '000 rain, dollars 4 4.1 12.4 6.3 9.9 Britain mln. pounds sterling 149 763 182 74 948 France '000 mln. new francs 3.08 3 . 4 6 6.90 6.09 3.45 West Germany mln. marks 1,720 2,755 4,167 5,493 10,726 21To cover these budget deficits resulting mainly from the growing military expenditure, the capitalist states raise taxes and also issue bonds and large amounts of new paper money. The issue of bonds leads to the rapid growth of the national debt. In 1967 the US national debt was 326,300 million dollars as compared with 231,500 million dollars in 1955, that is, it increased in twelve years by 94,800 million dollars or by 41 per cent. The state pays annually about 14,000 million dollars interest on this debt alone. In Britain the national debt exceeds the total yearly national income. In France the national debt has increased by 30,000 million francs in the past ten years.
All this has weakened the state finances of the capitalist countries and thrown the capitalist world into a currency-financial crisis. The pound sterling and the franc have depreciated, and the purchasing power of the dollar has dropped. This has given a fresh impetus to the ``currency war": of the dollar against the pound and the franc, of the franc against the West German mark and the dollar, and of the West German mark against the pound, the franc and dollar. In these conditions the monopolies, aided by the governments of their respective states, do all they can to shift the economic burden of the currency crisis onto the shoulders of the working people. They have launched a new onslaught on the rights and basic interests of the people--- who as always have to pay for all the machinations of the financial magnates.
The militarisation of the economy and the budgets of the capitalist countries, the fall in the purchasing power of their currencies, the growth of the prices of consumer goods and of taxes, and the constantly increasing unemployment are all 22 impeding economic development and impoverishing the people.
__ALPHA_LVL2__ The Financial System of Socialist CountriesThe financial system of the socialist countries is entirely different. Its distinctive and advanced features are:~
a) it is a single, ramified system;~
b) its various parts are harmoniously linked;~
c) its material basis is stable;~
d) it develops and functions according to a plan;~
e) it serves the interests of the whole people.
The most important branches of the state financial system of the socialist countries are the budget system, credit, social insurance, property, life and accident insurance, and the finances of state and co-operative enterprises and organisations. Taken together they form a single state financial system. Each branch, and the system as a whole, has the same social basis.
The financial system of the socialist countries expresses the socialist principles and relations of these countries. It is subordinate to the people's state and the state uses it and directs the development of all its branches in the common interests and aims of the state and the people.
All the branches of the system are interrelated---the budget with credit, social insurance with the budget and the finances of enterprises; and property and private insurance with the budget and the finances of co-operative enterprises. The finances of socialist enterprises are linked primarily with the budget and with credit, but also with all other branches.
It is a distinctive feature of all the branches of the financial system, and of the system as a whole, that their material basis is stable. This 23 basis is formed by socialist production, which is in the hands of the state and serves the interests and requirements (if the working' people. The incomes and accumulations of the socialist econ omy are the main stable financial resources of the state and of every branch of the financial system.
The financial system of the socialist countries is planned. The sources of the revenue and its utilisation are planned for every branch of the system, and financial plans are binding. They determine the tasks and trends in the development of every branch and of the system as a whole. The state conducts its fiscal policy and influences the economic life of the country through its financial plans.
Centralised planning is combined with the initiative of local administrative, financial and economic government bodies.
The socialist financial system serves the people's state, whose basic functions are economic organisation, cultural and educational work, and the defence of the country. In keeping with these functions the socialist state uses the financial resources at its disposal mainly to expand production, develop science, culture and education, guard the health of the nation, improve living standards, and reinforce the country's defences.
Even a casual examination of the state budget of socialist countries, its revenues and appropriations, reveals the progressive character of socialist finance. In the budgets of most socialist countries the income from the socialist economy comprises 80 to 93 per cent of the total revenue. Taxes collected from the population constitute only 5 to 10 per cent. Appropriations for economic development account for 43 to 65 per cent, and for 24 social and cultural measures (education, public health, etc.) for 22 to 38 per cent.
The budgets of all socialist countries have a stable economic basis and are usually drawn up and executed with a credit balance (income exceeding expenditure). This ensures the stability and soundness of the whole financial system and of currency circulation.
In the socialist countries state finance serves the interests of the people by helping to satisfy diverse social needs. It serves to replace used productive assets and to expand existing ones; to pay the people who work in material production in accordance with the socialist principle of distribution according to the quantity and quality of work done; to provide material incentives for increasing production and higher labour productivity; to accumulate and preserve stocks of materials and financial reserves in the national economy; to maintain the apparatus administrating the various branches of the economy and government institutions; to protect state frontiers; to maintain the armed forces and carry out measures for the country's defence; to take measures to safeguard the life and health of citizens; to ensure public education, cultural development and the right of every member of society to rest, work and education; and to provide for citizens in the event of temporary or permanent disability (old age, sickness). The money incomes and accumulations of state-owned and co-operative enterprises provide the resources necessary to satisfy the above requirements. They are the main source of revenue. Other sources, including a certain share of the incomes and savings of the population also form part of the revenue. In the socialist countries the financial system is used to distribute and redistribute the national income 25 between the branches of the economy, between the various forms of property (that of the whole people [state property], co-operative and personal property), between the economic and administrative territorial districts of the country, between the enterprises of each branch of the economy, and between the various social groups of the population. The financial system carries out its distributive functions according to plan.
By distributing incomes and accumulations by means of its financial system, socialist society, as represented by the state and its various bodies, controls the production and distribution of the social product and the national income, checks the fulfilment of financial plans and commitments, the correct formation and utilisation of funds of maney at enterprises, institutions and organisations, and sees to it that financial discipline be strictly observed. This, in short, is the control function of state and public finances in socialist society.
This control function enables the state to enlist the assistance of financial bodies in safeguarding and multiplying socialist property (the property of the whole people and co-operative property), in raising the effectiveness of social production, in ensuring strict economy, and in raising the profitability of socialist enterprises and economic organisations.
Socialist finance plays a progressive role not only in the economy. It exerts a certain influence on every individual citizen, on every member of socialist society. The financial system helps to raise the people's living standards. The social insurance of factory and office workers and collective farmers serves this purpose. It provides for the employees of state and co-operative enterprises and institutions in the event of 26 temporary or permanent disability (old age, sickness, pregnancy and the post-natal period), and finances health measures and public welfare and cultural facilities. State enterprises and institutions provide the money for these purposes by remitting to the social insurance funds an amount proportional to the total wages. These sums arc not part of the wage fund; they are deducted from the profits of enterprises. In socialist countries the social insurance system is run by the trade unions.
The practical experience of the socialist countries shows that their financial system is both stable and sound. It is based on the steadily growing socialist economy, promotes production and improves cultural and communal services.
__ALPHA_LVL2__ The Financial SystemThe state financial system of the countries that have freed themselves from colonial dependence and embarked on the path of independent development has special features of its own. The economic and financial systems which these countries have inherited from colonial times are being radically reorganised.
The developing countries have large natural and human resources. They account for over 68 per cent of the world's territory, about 70 per cent of the world's population, close on 86 per cent of the capitalist world's oil reserves, 94 per cent of its tin, 62 per cent of its iron ore and about 70 per cent of its copper.
The former colonial oppression, the economic dependence of the developing countries on the imperialist states and their monopolies, still tells on their economies. Typical of them is the low 27 level of development of then forces of production.
The developing countries face the task of abolishing their economic dependence, reorganising their economy and gaining their independence from the imperialist monopolies and former metropolitan countries. Some of the newly-free countries have chosen a socialist orientation in their development and have begun to reorganise their economy on democratic lines. The financial systems of these countries are subordinated to this aim. The social and economic changes in these countries have a bearing on their finances, too.
The state finances of many developing countries are still in a very early stage of development. In countries whose governments are taking effective steps to transform finances from an instrument preserving the rule of foreign monopolies, feudal lords and the compradore bourgeoisie into an active lever for national economic development and for winning and strengthening economic independence, the reorganisation of state finance is proceeding quickly and is beginning to serve the interests of the nation.
The budget system is the most important part of the financial system of these countries. The budget system includes the central state budget and the local budgets of territorial units, such as states, provinces and districts. In addition to defraying the usual expenditures on the maintenance of the state machinery and the army, etc., the state budget is used to reorganise and develop the national economy, to expand and strengthen the state sector in the economy.
Every year a greater portion of the state budget resources of the developing countries is appropriated for capital investments provided for 28 in long-term economic reconstruction and development programmes.
Democratic changes are taking place in the financial systems of the countries which have chosen the socialist path of development: the development of local budgets keeps pace with that of the central state budget, taxes levied on the working people are gradually being reduced, while those imposed on the rich and feudal lords are being raised, and more money is being spent on education, public health, social insurance and defence. Part of the budget is used to organise and maintain national armies and the machinery of state.
In most newly-free countries the government is constantly increasing its spending on economic development. In the UAR, for example, such spending increased sevenfold between 1959 and 1963, and in India it grew fourfold between 1954 and 1963. This spending accounts for 20 to 50 per cent of the total budget expenditure in the developing countries. In those countries that have embarked on the non-capitalist path of development the expenditure on the national economy is much higher (as a percentage of the total budgetary expenditure) than in those countries that are still dependent on the former metropolitan countries. Capital investments play a major role in any country's rate of economic development. In the developed capitalist countries capital investments account for 20 to 30 per cent of the GNP (in Japan they accounted for 40 per cent between 1960 and 1965), but in the developing countries they account for only 12 to 18 per cent. Some countries (the UAR, Algeria, Kenya, Uganda, etc.) are appropriating a greater share of their budgetary resources to investments, but in most developing countries (especially in 29 Southeast Asia), capital investments are increasing exceedingly slowly, and in some (Burma, Ceylon) they have even exhibited a tendency to fall in recent years.
Lack of funds greatly hampers economic and cultural development in the newly-free countries. The national economy, which is only just beginning to advance, accumulates far too little. Taxes still account for 70 to 90 per cent of the budget revenue, indirect taxes making up the lion's share---they account for 60 to 80 per cent of all tax receipts. Customs duties account for up to 33 per cent af the indirect taxes.
Having far too few financial resources of their own the developing countries often have to seek outside financial assistance. They pay a heavy price for the ``aid'' they receive from the developed capitalist countries and monopolies, and this only retards the process of their liberation from economic dependence.
The difficult financial position of the developing countries can be seen from the deficits in their budgets. Of the 40 countries whose budgets are published in the UN Statistical Yearbook, about 35 have a budget deficit. Between 1959 and 1963 the average yearly deficit (expressed as a percentage of the total budget expenditure) ranged from 9 per cent in Iran to 35 per cent in Pakistan and 62 per cent in Jordan.
The foreign state debt and the governmentguaranteed long- and short-term debts of the developing countries grow every year. In 1955 they amounted to 10,000 million dollars, and in 1967 to 45,000 million dollars, a figure approximately equal to their total yearly exports.
One of the main reasons for the deficit in the balance of payments of most developing 30 countries and for the deterioration of their currency and financial positions is the unfavourable terms of foreign trade that result from the steady fall in world prices of the goods exported by them and the simultaneous rise in the prices of the goods imported by them.
The figures given below show the capital sums exported by the developed capitalist countries to the developing countries and the yield.^^1^^
Unit Yearly average between 1961 and 1965 19G6 1 . Means granted to developing countries (loans, credits, investments, subsidies) including ....... '000 mln. 8.46 9.09 a) loans, investments, credits percentage of total .... dollars » % 4.25 50.2 4.92 54.1 b) subsidies .... percentage of total ..... '000 mln. dollars % 4.21 49.8 4.17 45.9 2. Yield on capital : profit, interest, dividends . '000 mln. 4.25 5. 56 percentage of total means granted . . dollars % 50.2 61.2 percentage of investments, loans, credits % 100 113 _-_-_~^^1^^ See Finansy SSSR (USSR Finances) No. 11, 1968, p. 85.
31The export of private capital to the developing countries and the repatriation of profits also serves to aggravate the position of these countries. Between 1962 and 1966 private capital granted the developing countries and international agencies f4,400 million dollars for loans, credits and investments, and in return received from them 21,500 million dollars as profits, dividends and interest. Thus, the capitalists netted a profit of 7,100 million dollars, that is, far every 100 dollars of exported capital they collected from those who had availed themselves of their credits and loans a profit of 150 dollars.
In an attempt to improve the developing countries' financial position and to resolve some of the problems facing them, their delegates at international conferences (the Algiers meeting in October 1967 and UNCTAD 11 in FebruaryMarch 1968) have asked for greater funds at more favourable terms, and for the introduction of an international tax for development purposes. They have also asked for the revision of the terms on which ``aid'' is granted, the lowering of interest rates, an extension of the period for which credits are granted and the period of grace, and the setting up of a multilateral fund to level interest rates---in order to cover the difference between the rates on loans obtained on international capital markets and low-cost loans for development purposes.
Obviously, the imperialist states and private capital will grant financial assistance to the developing countries only if this is profitable to them, if such ``aid'' holds out the prospect of fresh profits. The metropolitan countries give this ``aid'' in order to maintain their commanding position in the ex-colonies, and in some cases succeed in their purpose. In a number of 32 countries, however, especially those steering a socialist course, economic changes and financial reforms are stabilising the state financial system, making it more and more independent of their former masters. These countries include the UAR, Algeria, India, Kenya, Guinea, and some others. The financial basis e.f these countries is steadily growing more stable, the national financial resources at the disposal of the state are increasing, and this enables them to speed up their socio-economic development.
The financial assistance selflessly rendered to the newly-free countries by the USSR and other socialist countries helps them to reorganise and develop their national economy, quickly rid themselves of their economic dependence on the imperialist powers, build up their productive forces, and abolish poverty and cultural backwardness.
By the beginning of 1967 the socialist countries in CMEA (the Council of Mutual Economic Assistance) alone had rendered economic assistance to more than fifty developing countries, and had granted them about 5,500 million rubles' worth of credits. They are helping the young states in the building of some 2,000 industrial enterprises, in the construction of such big projects as the Aswan High Dam in the UAR and many educational establishments. Between 1955 and 1965 the CMEA countries granted the young states longterm credits to the amount of 4,500 million rubles. This includes 3,000 million rubles granted by the USSR, 400 million by Czechoslovakia, and 229 million by Poland. These credits are granted on easy terms---for periods ranging from 8 to 12 or more years and at an interest of 2 to 2.5 per cent per annum, which is one-half to onethird of the interest rates charged for credits by 33 the capitalist countries. Moreover, (lie developing countries pay off the credits through deliveries of their staple export commodities, an arrangement favourable both to the creditor and debtor countries.
The financial assistance of the socialist countries is helping to put the national economies of the young developing countries on their feet. Credits granted by the socialist countries accounted, for example, for a large share of the resources used to finance the first three-year national development plan of the Guinean Republic.
The iron and steel works under construction in Annaba with assistance from the Soviet Union will satisfy Algeria's needs for rolled ferrous metal. And Bulgaria is helping Algeria to expand its cotton-growing areas tenfold.
The newly-free countries are taking steps to decrease their budget deficits by abolishing a series of unproductive expenses and introducing measures to promote the rational and thrifty expenditure of budget finance. At the same time they are looking for ways and means to develop further and reinforce their state finances and to use growing incomes to. accelerate their economic and cultural advance.
Every country that has freed itself from colonial dependence, or is in the process of doing so, faces the task of securing its economic independence. It has to decide the question of what road it should take in its socio-economic development---the capitalist road or the socialist road.
The peoples and governments of many young countries know from experience that capitalism has brought them nothing but poverty, unemployment, illiteracy and economic stagnation. Their sad experience in the past and the economic and political developtoent attained by some 34 former colonies, who arc now conducting an independent policy, increasingly prompt progressive leaders and members of the governments of these countries to adopt the ideas of scientific socialism. Progressive tendencies are becoming ever more pronounced in these countries and they are building up the prerequisites for taking the socialist road. This is leading to a decrease in unemployment, to the abolition of illiteracy, to the allotment of land to landless peasants, the promotion of the co-operative movement and the nationalisation of some corporations.
The young national states insistently look for sources and methods to finance industrialisation and the progressive development of agriculture, raise the cultural level of their peoples and improve their welfare, and thus to win complete independence. This is no easy task. It cannot be done by capitalist ways and means, which only leave countries in the firm grip of the imperialist powers and make them victims of neo-- colonialist policies. Practical experience has demonstrated, however, that the economic development, industrialisation and the cultural development of a country and the raising of living standards can be achieved without the fettering loans and ``aid'' of monopoly capital by taking the socialist road of development and applying democratic methods for the formation and the use of financial resources.
For historical reasons the Soviet Union was the first country in the world to throw off the fetters of feudal landownership and capitalism and to take up the building of socialism, a task now completed. From the very first days of its existence the Soviet Union placed its entire financial system at the service of socialism, peace and democracy.
35In the USSR finances played a major role in abolishing feudal relations, in destroying the capitalist system of economy and in building socialism. The effective fiscal policy of the Soviet Government, the flexible organisation of the financial system and the rational use af financial resources all played their part in establishing socialism in the Soviet Union.
Soviet experience in the organisation of finance and credit could be of great help to the peoples of the developing countries, especially those following the socialist path. It could help them in their efforts to accelerate their economic and cultural development and achieve their aim of socialist development.
[36] __NUMERIC_LVL1__ CHAPTER III __ALPHA_LVL1__ STATE FINANCIAL SYSTEM OF THE USSR __ALPHA_LVL2__ [introduction.]Finance and credit are component parts of the Soviet economy. In socialist society finance and credit have much in common. Both concern money relations and serve the socialist state as instruments for farming and using social, notably state, funds, and both financial and credit resources are made up from the incomes of enterprises, economic and public organisations, and the incomes and savings of the population. They also have common tasks and functions: both serve the cause of socialist and communist construction, both serve to distribute and redistribute the social product and the national income, and both have a distributive and control function to play in society. The content and aims of the measures taken by the socialist state in the financial and credit fields are similar in many respects and comprise in aggregate the financial policy of the state, which is part of its general economic policy.
At the same time the finance and the credit systems have distinctive features as regards the methods and forms for forming and utilising funds of money. The one-way and non-returnable movement of money is typical of finance, both in the process of the formation of money funds 37 (money income, taxes, dues, deductions, customs duties) and also in their utilisation (financing, subsidies, grants, payment of insurance premiums, pensions, etc.). But the two-way ( returnable) movement of money is typical of credit: funds belonging to third parties (savings, current receipts) are turned over to others for temporary use and are eventually returned to their owners.
The planned system of money relations in socialist society farms in fact a single system of finance and credit, but because ot the specific ways and means by which the movement of money is organised, it is necessary to treat finance and credit in planning, organisation, accounting and control as two separate systems.
In the more than half-century's existence of the Soviet financial system, it has traversed a complicated and difficult path. At the different historical stages in the building of socialism, the Soviet state has adapted the financial system to the prevailing economic conditions and to the tasks arising in connection with the socialist reorganisation of society.
We shall consider the questions connected with the organisation and utilisation of the Soviet financial system in the following four periods:~
a) the emergence of the financial system;~
b) the building of the economic foundations of socialism;~
c) the building of socialism;~
d) the building of communism.
__ALPHA_LVL2__ The Emergence of the Soviet Financial SystemOver half a century ago, in October 1917, a new type of state---the Soviet socialist state---was born in the October Socialist Revolution. This 38 made it necessary to create a new financial system in the country, one suited to the tasks of the revolution, one able to help the state and the people steer a socialist course.
The measures adopted by the young Soviet state in the financial field were successful because they relied on such economic reforms as the nationalisation of the land, railways, large-scale industry, the introduction of state monopoly in foreign trade, public ownership of the means of production in the decisive branches of the economy and the transformation of all natural resources into the property of the people.
For the first time in history state finance became a tool for undermining private ownership and for the expropriation of the expropriators. For the first time it began to promote the emergence and growth of socialist relations in society.
The Soviet government inherited from the old system a war-devastated economy. Industry and the railways were working inefficiently, there was a financial crisis in the country and the black market, hunger and poverty reigned supreme. The Soviet state faced the task of abolishing the dislocation and poverty, of rehabilitating all economic branches and launching the construction of a socialist economy.
The Soviet government destroyed the former tsarist government's state machinery, created a new Soviet state machinery, abolished all class privileges and national oppression, and seized the key positions in the economy.
Financial measures played an important part in all this. The most important of them were: 1) the nationalisation of the banks; 2) the abrogation, because of foreign intervention and the enormous damages incurred through the temporary occupation of part of the Soviet land, of 39 debts contracted by the former government of the Russian landowners and bourgeoisie and 3) the establishment of state control over all types of insurance and, later, of a state monopoly of insurance.
The financial system had to secure a large increase in revenue and the strictest economy of funds. Emission of money had to be reduced and ultimately discontinued. Banking had to be expanded in order to promote the growth of the state sector in the economy.
One of the most important factors in normalising the financial and credit system was the money reform completed in 1924. The old depreciated paper money was replaced by new Soviet treasury notes and silver and copper coins. Hand in hand with the money reform, budget and tax reforms were carried into effect. These furthered the aims of the economic policy of the state, strengthened the alliance between the working class and the peasantry, and strengthened the role of socialist elements to the detriment of exploiting elements.
Measures were taken to do away with the deficit in the budget: state expenditures were reduced, and the income from state-owned enterprises was increased primarily by introducing payments for goods and services and augmenting tax revenue, notably by substituting cash taxes for taxes in kind, and by developing credit operations to supply enterprises with circulating assets. The practice of financing enterprises directly from the budget was abandoned. Before the reforms all the needs of enterprises were paid for by the budget but enterprises did not receive money from the state for the goods they produced. Concurrently, local budgets were introduced (regional, district, territorial and 40 Republican). Some expenditures (mainly for local needs) were transferred from the central state budget to local budgets. And to reduce the cost of maintaining the state machinery, the number of government offices and their staffs were reduced.
While budget expenditures were decreased, new sources of revenue were looked for. State bonds sold to the population by voluntary subscription became an important source o.f cash. In the three budget years 1922--23 to 1925--26 budget revenue increased fourfold. By 1925 the budget deficit had been wiped out. Most of the available funds were earmarked for the development of the economy, and for culture and public health. State and social insurance was established at that time and the Soviet government made insurance of all kinds and forms a state monopoly.
Since the end of 1921 social insurance was carried out by insurance offices, which gave financial help to workers in the event of temporary disability, during pregnancy and in the postnatal period, issued maternity grants, defrayed funeral expenses, paid unemployment benefits (through the then existing special unemployment insurance offices) and pensions to invalids disabled by disease, mutilation ar old age, and paid for the medical treatment of factory and office workers.
It took some four or five years to create a new financial system with a sound socio-- economic basis. A resolution of the Third Congress of Soviets of the USSR (May 1925) noted that the Soviet Union ``had set up a sound financial system not only without foreign assistance but, moreover, in conditions of financial blockade, a system that enables the Soviet state to carry on 41 efficient work in all branches of the economy".^^1^^ By 1925--26 the Soviet financial system was able to promote the active implementation of the scientific plan of socialist construction evolved by Lenin, which provided for the industrialisation of the country, the socialist co-operation of farms and a sweeping cultural revolution.
Once the Soviet economy had regained its prewar level (1926--27), the Soviet state was able to begin building the material and technical basis of socialism, that is, to create the economic foundations of a socialist economy. For this it was necessary to accelerate the development of industry, notably heavy industry, to encourage co-operative farming and to increase the size of farms, to develop the socialist (public) sector of the economy and to raise the cultural level and living standards of the people.
The country's financial system was called upon to assist in the solution of these tasks.
__ALPHA_LVL2__ Organisation and FunctionsIn order to, build the material and technical basis of socialism the Soviet Union had first to lay emphasis on the production of means of production (machines, tools, coal, metal).
Without the industrialisation of the country it would have been impossible to ensure its defence and to raise the living standards of its people.
The Soviet state could not adopt the capitalist _-_-_
~^^1^^ Directives of the. CPSU and Soviet Government, on Economic Questions, Gospolitizdat, Moscow, 1957, Vol. 1, pp. 537--38 (Russ. cd.).
42 methods of industrialisation, that is, resort to colonial plunder, looting, unequal loans and binding concessions. These were incompatible with the principles of Soviet government.Lenin said: ``Our position is particularly difficult because we lack the means to restore our fixed assets, i.e., machinery, tools, buildings, etc.; and it is precisely that part of industry known as heavy industry which is the main basis o.f socialism. In capitalist countries these fixed assets are usually restored by means of loans. We are refused loans until we restore the property of the capitalists and landowners; but this we cannot and will not do. The only road open to us is the long and extremely arduous road of slowly accumulating our savings, of raising taxes in order to be able gradually to repair our destroyed railways, machinery, buildings, etc."^^1^^
The Soviet government adopted these methods. It industrialised the country without foreign loans, raised the funds within the country and practised the strictest economy.
The accumulation of funds alone does not resolve the tasks of industrialisation. It is no less important to spend these funds economically and rationally. All misappropriations and waste had therefore to be eliminated. Ten days after the establishment of Soviet power Lenin appealed to the population, saying: ``Be watchful and guard like the apple of your eye your land, grain, factories, equipment, products, transport---all that from now onwards will be entirely your property, public property."^^2^^ Lenin described the hardships the country was going through and added: ``At such a time---and for a genuinely _-_-_
~^^1^^ V. I. Lenin, Collected Works, Vol. 33, [>. 370.
~^^2^^ Ibid., Vol. 26, pp. 297--98.
43 communist society, it is always true---every pood of grain and fuel is veritably sacred...."^^1^^Lenin linked the safeguarding of socialist property not only with the preservation of public wealth but also with the inculcation of a communist consciousness in the masses, the spread of socialist and communist ideas among the people.
In his article ``Better Fewer But Better'', written in 1923, Lenin said that we must build a state in which we could ''. . . by exercising the greatest economy remove every trace of extravagance from our social relations".^^2^^
Lenin not only called for economy, but in his practical work saw to it that it was practised in every field. He took measures to save fuel, food and expenditure on the administrative machinery. In his speech on the occasion of the 5th anniversary of the Russian revolution Lenin said: ``We are economising in all things, even in schools."^^3^^ This was done to o.btain the funds to rehabilitate and develop industry, primarily heavy industry.
Lenin drew the attention of the Communist Party of the Soviet Union to the fact that it was not only necessary to use social funds thriftily, but also to ``accumulate'' more grain and coal, that is, to run the economy effectively and rationally, to achieve the best possible results in all economic fields. In his article ``Fourth Anniversary of the October Revolution'', he wrote: ``The proletarian state must become a cautious, assiduous and shrewd `Businessman'."^^4^^
Thus at all the stages of the building and _-_-_
~^^1^^ V. I. Lenin, Collected Works, Vol. 27, p. 397.
~^^2^^ Ibid., Vol. 33, p. 501.
~^^3^^ Ibid., Vol. 33, p. 426.
~^^4^^ Ibid., Vol. 33, p. 59.
44 development of the socialist economy, the Communist Party and the Soviet Government have attached the utmost importance to strict economy. This applied during the industrialisation period, during the period of the full-scale construction of socialism, when the building of socialism had been completed and the transition to the building of communism begun.The First Five-Year Plan (1928--32) was drawn up to govern the building of the economic basis of socialism. The finance and credit system of the USSR concentrated at that time on increasing socialist accumulations, on mobilising the funds of the population for the country's socialist industrialisation. The progress of industrialisation was attended by a steep rise in state incomes. In the 1927/28 budget year these incomes accounted for 5,700 million rubles (in the then valid currency), and in 1932 for 31,900 million rubles, i.e., a 5.6-fold increase.
Industrialisation resulted in the steady and rapid growth of the socialist sector, while rich exploiters in the villages and capitalist elements in the towns were increasingly restricted and ousted. On the one hand, taxation policy served as a means of mobilising resources for socialist industrialisation and, on the other, of restricting and ousting capitalist elements and furthering the development of socialist forms of economy and co-operative forms of agriculture.
The state's financial resources were used to accelerate the development of socialist industry, to form peasants' co-aperatives, to help provide agricultural co-operatives with machinery, seed and credits, and to raise the living standards of the people. Of the total of 120,100 million rubles spent under the First Five-Year Plan, 66.8 per cent went on financing the national 45 economy, 20 per cent on .social and cultural measures (public health, education, the development of science), 7.5 per cent on administration and deience, 1.9 per cent to pay for winnings and interest on internal loans, and 3.8 per cent on other expenses (maintenance of the procurator's office, courts, etc.).
Capital investments in industry amounted during the First Five-Year Plan period to 27,600 million rubles, of which 23,100 million rubles went to heavy industry.
During the First Five-Year Plan period the socialist sector became the dominant sector of the economy and small farms generally amalgamated in co-operatives based on machine farming. Formerly an agrarian country, the Soviet Union became an industrial-agrarian country and won technical and economic independence. The living standards of the people improved considerably. The foundations of the socialist economy had been laid.
__ALPHA_LVL2__ DevelopmentBy the end of the First Five-Year Plan (1932) socialist forms af economy had become dominant in the Soviet Union. The accumulations of socialist industry and trade grew steadily. The private capitalist sector had to all intents and purposes vanished, and the peasants were increasingly taking up co-operative forms of farming. The tax system that had been patterned before the First Five-Year Plan, when the private sector was still prominent in the economy, no longer suited the changed conditions. The complicated system of taxes obstructed economic 46 planning and price-fixing. The time had come, therefore, to unify the system of payments made by enterprises and organisations of the socialist economy and to simplify their relations with the state budget.
In 1930--31 a tax reform was introduced. The wide range of taxes paid until then by the socialised economy was reduced to two principal payments to the budget---a turnover tax and deductions from profits in the case of state-owned enterprises, and turnover and income taxes for co-operatives.
The financial basis of the rural budgets also had to be consolidated. The sources of revenue of Republican and local budgets had to be reinforced and stabilised. The Republican, territorial, regional and district (in towns) bodies had to be encouraged to fulfil state and local revenue plans. This was achieved by turning over part of the turnover tax to the Republican budgets (a certain percentage of the total collected). The Republican budget, in turn, turned over part of this revenue to the local budgets.
Compulsory agricultural insurance was reorganised at the same time. On October 1, 1931, differential insurance rates were introduced instead of the then existing unified rates. They were considerably reduced for co-operatives, while exploiters paid double the rates levied on individual working peasant households.
Agricultural taxation was reorganised to assist the organisational and economic consolidation of co-operatives and to encourage them to develop agricultural production.
To decrease the cost of industrial production lower rates were charged for operations of the USSR State Bank and long-term deposit and savings banks. At the same time the interest paid 47 by the state on bonds was lowered from 8 to 4 per cent, and the maturity of loans was extended from 10 to 20 years.
To improve financial discipline, financial control bodies were reorganised and a special Supervision and Inspection Department subordinated to the People's Commissariat of Finance was set up.
In 1936, changes were made in the method of taxing collective farms. Until then collective farms had paid an agricultural tax per hectare of the planned sown area and planned harvest. This agricultural tax was replaced by an income tax, payable on the gross income of the past year as recorded in the annual report of the farm concerned.
The growth of the socialist economy, the greater profitability of industrial production and the growth of incomes from agriculture helped to fulfil the financial programme of the Second Five-Year Plan (1933--37). A revenue af 469,400 million rubles^^1^^ was collected during this period, almost four times more than during the period of the First Five-Year Plan. The structure of the financial system that took shape during the building and the completion of the building of socialism is shown in the diagram on p. 49.
The present-day structure of the financial system of the USSR has in the main preserved the same socio-economic links and their interrelations.
The German invasion in 1941 interrupted the peaceful efforts of the Soviet people and made it necessary to mobilise enormous financial resources for defence against the aggressors. The Soviet financial system coped successfully with its _-_-_
~^^1^^ At 1937 prices.
48 __MISSING__ Organizational Chart. __PRINTERS_P_49_COMMENT__ 4---2729 49 new tasks and supplied the funds necessary to vanquish the enemy.During the war (1941--45) 55,100 million rubles (in current prices) were spent on direct military expenditure. These expenditures accounted for over 50 per cent of the total budget expenditure.
During these years the country's finances were concentrated in the hands of the state to the utmost possible extent. The obligatory and voluntary contributions of the population grew considerably. They accounted for 27,000 million rubles (26 per cent of the budget revenue) with the socialist economy providing over 70 per cent of the revenue. A war tax and taxes on bachelors, single persons and persons with small families were introduced during the war. Receipts from internal loans subscribed by the population also increased substantially. Many Soviet people contributed voluntarily to the defence fund and the Red Army fund to finance the building of tanks, aircraft and other military equipment.
A monetary reform was carried through in the Soviet Union soon after the war (in 1947). This raised the real value of wages and increased the importance of other financial levers in economic development such as cost accounting, costs, profits, finance and credit. Steps were taken to raise living and cultural standards: the working day was shortened, the wages of people in the lowerpaid brackets increased, social security improved, pensions raised and given to more people, tuition fees in the higher classes of secondary schools and at university-level establishments abolished, and the taxes on people in the lowerpaid bracket reduced and partly abolished. Later, on January 1, 1961, new money was issued, worth ten times as much as the old.
50The 1947 monetary reform had a beneficial effect on national economic development and on the growth of the Soviet people's living and cultural standards. In 1949--50, wholesale prices were adjusted and this made it possible to. put an end to the granting of state subsidies to industrial enterprises, and to raise the profitability of enterprises and the various branches of industry as a whole.
During the Fourth (1946--50), Fifth and Sixth (1951--60) Five-Year Plan periods the incomes of socialist enterprises and economic branches were the principal sources of revenue. These incomes were paid into the budget in the form of turnover tax, deductions from profits and income tax (from co-operative enterprises). The share of taxes from the population in the revenue decreased.
Expenditure on the national economy and on social and cultural measures accounted for the bulk of the budget expenditure. As compared with the war period (1941--45) there was a major cutback in defence spending. All parts of the Soviet financial system continued to develop, and began to play a greater role in the implementation of the economic, social and political tasks outlined in the Five-Year Plans.
In 1957 a new system of income taxes was introduced for collective farms (agricultural cooperative enterprises): instead of four rates (for different kinds of incomes), a single rate (12.5 per cent) was introduced, with differentials for the various Republics, regions and districts.
From January 1, 1957, income tax was no longer imposed on earnings below a certain minimum. In 1958 a considerable segment of the population was exempted from the payment of the tax levied on bachelors, single persons and 51 persons with small families. In I960 the Soviet government decided to discontinue floating loans for public subscription.
With the complete and final victory of socialism in the USSR, the economic, social, political and spiritual prerequisites for the transition to the building of communist society had been created, and the financial system of the Soviet Union was now subordinated to this task.
__ALPHA_LVL2__ The Soviet Financial System DuringThe 22nd Congress of the Communist Party of the Soviet Union (October 1961) adopted a new programme which maps out the basic tasks of communist construction in the USSR: the creation of the material and technical basis of communism, the formation of communist social relations, and the education of the new man.
The creation of the material and technical basis of communism on the basis of the development of science and technology, mechanisation and automation, and the constant growth of labour productivity has been declared the main economic task of Soviet society.
The decisions of the 23rd Congress of the CPSU (March-April 1966), which approved the Directives on the Five-Year Plan for 1966--70, laid a comprehensive basis for the fulfilment af the tasks outlined by the 22nd Congress.
All parts of the Soviet financial system are called upon to achieve an improvement in the wages system and in financial control over the quality and quantity of the work of enterprises and their workers, to encourage and extend cast accounting (a method of economic management in socialist society based on the commensuration 52 of expenditure and income from production), and in this way to achieve a saving of resources, a reduction of costs and an increase in the profits of enterprises.
The successful fulfilment of financial plans by every link of the financial system, strict economy and the rational spending of every ruble belonging to the people will hasten the advance of the Soviet people towards communism.
The state budget plays a cardinal role in marshalling resources for the building of the material and technical basis of communism, for raising the material and cultural level of the people and rendering financial assistance to the developing countries.
``The important role of the state budget in distributing the social product and national income,'' the Programme of the CPSU reads, ``will prevail throughout the period of full-scale communist construction."^^1^^
The role of the state budget in ensuring the economical and effective use of state finances is also enormous. Let us therefore examine how the Soviet budget system took shape and developed.
_-_-_~^^1^^ ``Programme of the CPSU'', 'the Road to Communism, Moscow, p. 536.
[53] __NUMERIC_LVL1__ CHAPTER IV __ALPHA_LVL1__ THE SOVIET BUDGET SYSTEM __ALPHA_LVL2__ [introduction.]The budget system is the principal link in the Soviet financial system. If we view any budget system apart from the social system of the country in which it exists, we may define it as the sum total of the budgets of all the administrativeterritorial regions and institutions of the country. In the Soviet Union the budget system covers the aggregate of all budgets plus all the juridical standards determining the competence of central and local organs in the compiling, approving and executing of budgets.
__ALPHA_LVL2__ Composition of the Soviet Budget SystemThe budget system of the Soviet Union includes: a) the Union budget; b) the budgets of the 15 Union Republics comprising the Union of Soviet Socialist Republics; and c) the state social insurance budget. Taken together these budgets comprise the USSR state budget.
The USSR state budget is the principal financial plan for the formation and utilisation of the ail-Union centralised fund of the Soviet state. The state uses the state budget to distribute and redistribute a considerable part of the national income among the two social sectors of the 54 national economy (the state sector and the cooperative sector), the branches of the economy, the Union Republics and the economic regions. Part of the national income flows through the budget to the centralised state fund and is distributed for the planned development of the national economy, for public education, the training of personnel, the public health service, social maintenance and for strengthening the country's defences and the maintenance of the state apparatus. In other words, the Union budget finances measures of ail-Union, country-wide significance.
The Soviet state budget also includes the state social insurance budget, which is drawn up and executed by the trade unions. The revenue of the social insurance budget consists of payments made by enterprises, organisations and institutions. Hence, social insurance in the USSR is paid for out of the incomes of the national economy and is ultimately effected at the expense of the state. Resources from the state social insurance fund are used to pay pensions, sick benefits and grants during pregnancy and the post-natal period, to send people to sanatoria and rest homes, and to pay for other measures aimed at securing improvements in the people's living and cultural standards.
The state budgets of the 15 Union Republics finance the economic and cultural construction carried out by the Republican authorities. The state budgets of the Union Republics consist of the Republican budgets and the state budgets of the Autonomous Republics (within Union Republics) and local budgets. The state budgets of the Autonomous Republics comprise the Republican budgets of the Autonomous Republics and local budgets.
55Every territory, region, autonomous region, area, district, city, town and village Soviet in each Autonomous or Union Republic has its own budget, known as the local budget.
The divison of revenues and expenditures of the state budgets of the Union Republics among the Republican budgets of the Union Republics, the state budgets of the Autonomous Republics and local budgets is governed by the legislation of each Union Republic.
The present structure of the USSR budget system may be depicted as shown on p. 57.
Even though there are tens of thousands of budgets in the Soviet Union at present, they together comprise an integrated and harmonious budget system. This is ensured by the fact that they are all component parts of the state budget of the USSR. Their unity is a consequence of the unified political and economic basis of the socialist state and of the unity of the aims and tasks of all organs of state power and administration. This unity also means that the development of the budget system is governed by the national economic plan, which is based on the conditions and targets of economic and social development in accordance with the policy of the Soviet state.
The unity of the Soviet budget system is
secured by the socialist economic system, which is
based on socialist (public) ownership of the means
of production and develops according to a unified
economic plan. All the parts of the budget
system are governed by a unified system of
government based on the principle of democratic
centralism and this ensures the organisational unity
of the budget system. The unity of the Soviet
state budget determines the organisation of the
budget system as a whole---it served the build--
56
USSR State Budget
State budgets
State
social
Union
budget
of the Union
insurance
Republics
budget
Budget of
region, territory,
Autonomous
Republic
District
budgets
Budgets of
cities and
towns of
regional, territorial
(Autonomous
Republican)
subordination
Town, workers'
Budgets of
District
township and
towns of
budget
village
Soviet
d istrict
budgets
subordination
[57]
ing of socialism and now serves the building of
communism. In these circumstances there can be
no, opposition between the interests of central and
local bodies.
The Soviet budget system developed gradually over a number of years into what it is today. At the time of the foreign military intervention and the Civil War the Soviet state had no stable budget system. It began to develop only when the country set out on the rehabilitation of the economy and the creation of the prerequisites for the building of socialism in 1922, and had taken final shape by the end of this period (1926). Its organisational structure was recorded in the Constitution of the USSR adopted in 1924. According to the Constitution, the Soviet state budget comprised: the all-Union state budget, the state budgets of the Union Republics, the state budgets of the Autonomous Republics and the budgets of the local organs of power. The Constitution laid down the economic and juridical standards fo.r the distribution of incomes and expenditure among the various budgets. It also stipulated that the right to ratify the unified state budget, introduce all-Union taxes and dues, and determine the deductions from the all-Union revenue to the budgets of the Union Republics be vested in the supreme organ of state power--- the Central Executive Committee of the USSR.
The all-Union budget included the whole revenue of the state other than taxes, all revenue from direct taxes, dues and duties, all indirect taxes (excises and customs duties) and 58 extraordinary income from the realisation of all-Union assets.
The expenditure of the all-Union budget included all expenditures specified in the financial estimates of all-Union People's Commissariats and departments.
The revenue of the Union Republican budgets included all revenue of the state other than taxes, established according to the financial estimates of the Central Executive Committees and Councils of People's Commissars of the Union Republics. The sources of revenue of these budgets also included all direct taxes and dues established for the Republic, deductions from all-Union taxes and duties, and additions to them; deductions from state loans; and subsidies from the allUnion budget when the budget of the Republic concerned showed a deficit.
Budget expenditures covered maintenance of the departments and institutions of the Union Republics and the financing of some economic measures in the Republics related by special decision to the Republican budget.
The local Soviets, the local organs of power, were in charge of the local economy and were therefore also given budgetary rights. According to the Statute on Local Finances (1924) the revenue of local budgets consisted of: 1) incomes other than taxes from enterprises and properties under the jurisdiction of local Soviets; 2) deductions from all-Union taxes and other revenue and additions to them; 3) special local taxes and dues.
State budget revenue increased from 925 million rubles in the 1922/23 fiscal year to 5,877 million in 1926/27, i.e., more than sixfold. State expenditure grew correspondingly. The growth of the resources of other budgets kept pace with the Union budget. The development of all 59 budgets is illustrated by (in million rubles).
Fiscal year Total expenditure Union budget Republican budgets Local budgets 1923---24 ..... 2,022 1,227 272 523 1924---25 . . 3,065 1,825 388 852 1925---26 ..... 4,210 2,344 654 1,212 1926---27 . . . 5,779 3,259 858 1,662The Union budget accounted for more than 50 per cent of all expenditure, while local budgets expended 27 to 30 per cent of all state resources, and Republican budgets---12 to 17 per cent. The Republican and local budgets grew at a very rapid rate.
The building of the basis of the socialist economy (1928--32), industrialisation and the transition to collective farming caused no major changes in the structure of the budget system.
__ALPHA_LVL2__ State Budget Revenue DuringThe Soviet Union needed large financial resources to reconstruct the economy and create the foundations of a socialist economy. This was to be achieved by the all-out development of largescale industry and the collectivisation of growing agriculture. The necessary funds were accumulated as revenue by the state budget. The sources of this revenue are shown in the table below:~
60 the budget expenditures USSR STATE liUDGET REVENUE (million rubles) ] ncluding Fiscal year 1923--24 1925--26 1927--28 Total revenue ..... 2,056 4,246 7,320 including: a) taxes of all kinds . . 991 2 . 193 3,523 b) revenue other than taxes . 538 1 237 2 018 c) state loans ..... 184 146 727 d) social insurance dues 670 1,052During the four years that the national economy was being rehabilitated the budget revenue increased more than 250 per cent. Taxes accounted for almost 50 per cent of the total revenue. Other-than-tax revenue increased more than threefold. By the end of the rehabilitation period it accounted for 28 per cent of the total budget revenue.
The taxation policy was at that time influenced by the central problem facing the state, i.e., to collect resources for the reconstruction of all branches of the economy, and also by the economic conditions in the country. In those years there were three basic economic sectors in the country---the socialised state sector, the private capitalist sector and the small-commodity sector, consisting of the working peasantry and petty craftsmen. The basic tasks of the Soviet state at that time were to reconstruct and develop the socialised state sector, to contain and oust private capitalist elements from the economy in town and country, and to help the working peasantry run their farms and the petty craftsmen their 61 workshops and to encourage them to adopt the co-operative path. The taxation policy of the state in those years was designed to further these aims.
Much of the taxes were paid by capitalist elements. By taxing the private capitalist sector the state not only collected considerable cash funds but limited accumulation in the capitalist sector and gradually ousted it from the economy.
A differentiated tax policy was applied to the peasantry: poor peasants were exempted from taxation, middle working peasants were granted tax privileges, and rich, essentially capitalist, peasants paid higher taxes.
The table below shows the main types of taxes then in existence and their role in the budget revenue.
COMPOSITION OF BUDGET TAX REVENUE (million rubles) Fiscal year 1923--24 1925--26 1927--28 Total tax revenue . . . 991 2,193 3,523 including: a) agricultural tax . . . 231 252 354 b) industrial tax .... 234 483 704 c) income tax ..... 76 186 297 d) excises ....... 241 842 1,492 e) customs duties . . . 67 151 260Let us now see how these taxes were levied and who had to pay them.
The agricultural tax was paid by the peasants. It constituted a certain fixed percentage of the total farm income, with allowances for the size 62 of the family, area of arable land, haying, available livestock and crop yields.
The industrial tax played a more important role in those years. It was divided into two subgroups---licence fees and equalising levies. Licence fees were paid by trading and industrial enterprises (state, co-operative and private) for the right to operate. Different types of enterprises paid different licence fees, depending on their class.
The equalising levy was collected from the turnover of the enterprise (the sale of goods or output) as a percentage of the turnover.
In 1924 income tax replaced the former incomeproperty tax. It became the principal type of direct tax levied on the income received by physical or legal persons (enterprises, firms). It was levied on profits, wages and other incomes. In those days it was paid by people with independent incomes, joint-stock companies, all private and state-owned enterprises, credit institutions and foreign firms allowed to operate in the country. There were different rates for different categories of taxpayers. The greater the income of the taxpayer, the higher was the rate.
Excises, i.e., indirect taxes, constituted a considerable part of the revenue. These taxes were included in the prices of goods. This indirect form of taxation was prompted by the multiplicity of economic sectors and by the fact that the state had no efficient revenue machinery at its disposal. Besides, the state urgently needed huge amounts of money to reconstruct the national economy.
The Soviet state also used excises to combat the bourgeoisie. Very high excises were imposed on luxury items and relatively high taxes on certain consumer goods such as wine and liquor and some groups of textiles and imported luxury 63 items. Essential items such as salt, kerosene, sugar, etc., were taxed lightly.
Revenue other than taxes accounted for a smaller portion of the budget. It consisted mainly of deductions from the profits of state industrial and trading enterprises, credit institutions, housing, transport, etc.
Forestry dues were another source of revenue. They consisted of a tax on the felling of timber, income from the accessory use of forests, fines for violations of forestry by-laws, and fines imposed on buyers of timber for overdue payments.
Revenue from mineral resources included charges for areas leased to mining enterprises and rent by contract.
The state also received an income from rents on leased peat-bogs, fisheries, hunting districts and deductions from the profits of farming enterprises working on a cost-accounting basis and from the profits of state insurance.
The internal state loans floated by the Soviet state and the money accumulated by savings banks (known as state credit) played an important role as sources of budget revenue. Loans were distributed among factory and office workers by collective subscription and also among stateowned and co-operative enterprises. Among capitalist elements, who. sought to sabotage this measure, bonds were distributed compulsorily. When acquiring licences and paying the incomeproperty tax, capitalists were compelled to buy bonds in proportion to taxes paid. A ramified network of savings banks was opened during the rehabilitation period; these placed their idle funds at the disposal of the state budget.
During the First Five-Year Plan period, when the basis of the socialist society was being laid, two major changes were made in the budget 64 system: 1) as from 1931 the fiscal year was made to coincide with the calendar year (Jan. 1 to Dec. 31), and 2) the taxation system was reformed. In 1930 the multiple taxes in the socialised economy were fused into ane tax, the turnover tax. By that time the socialised sector had grown considerably (especially in industry) and the private sector diminished, while the number of cooperative enterprises and organisations had increased greatly. The many taxes and payments imposed, and the complexity of calculating and collecting them, made it difficult to control production and obstructed the exchange of commodities. It also made price policies extremely complicated.
It was essential, therefore, to reform the taxation system. The government replaced the 61 different state and local taxes then being paid by the socialised economy with two types of payments into the budget---the turnover tax, which amalgamated 54 different payments, and deductions from profits, which amalgamated seven payments.
In a socialist economy the turnover tax is not an excise in the real meaning of the word but part of the money accumulations of socialist enterprises (part of the value of the socialist surplus product), and is preliminarily included in the planned prices of goods as part of the centralised income of the socialist state. Its economic content also differs from that of excises. It constitutes a part of pure profit made by society and is not a deduction from the wages or the private incomes of working people collected by raising prices (as in the case of excises). It is created in the sphere of material production and is placed wholly at the disposal of the state.
On the face of it, the turnover tax resembles __PRINTERS_P_1931_COMMENT__ 5---2729 65 accumulation by taxation (payment is compulsory, the terms and size of payment are strictly defined, and it is not returnable to the taxpayer). But its external features, like its name, do not reflect its true economic content.
The second type of payment introduced was the system of deductions from the profits of state enterprises and organisations. Only profits which, according to plan, cannot and must not be used by the enterprise itself, are taken by the budget. The minimum deduction was set at ten per cent and the maximum at 81 per cent of the total profit.
During the First Five-Year Plan period the state budget revenue grew considerably. Here are the indices showing its growth by types of revenue.
REVENUE OF THE STATE BUDGET (million rubles) Fiscal year 1928--29 1931 1932 Total revenue . 8 830 25 264 38 042 including: a) turnover tax .... b) deductions from profits . 3,146 557 11,672 2 158 19,595 2 023 c) taxes from co-- operatives and other enterprises and organisations ....... 162 402 791 d) taxes from the population . . 1 029 1 876 2 500 e) state loans . . . 725 3,269 3,922 f) customs duties . . . g) receipts from state social insurance . . . 258 1,221 281 2,242 282 3,577 66The considerable increase in the budget revenue from the socialised economy (turnover tax, deductions from profits, social insurance dues) reflected the changes in the country's economy--- the rapid growth of state industry, agriculture and trade.
__ALPHA_LVL2__ State Budget Expenditures DuringIn the rehabilitation period it was necessary to reconstruct existing factories, revive agriculture and normalise the country's economic and cultural life. This purpose was served by finances entering the budget as revenue.
The following table shows the pattern of the budget expenditures during those years.
EXPENDITURES OF THE USSR STATE BUDGET (million rubles) Fiscal year 1923--24 1925--26 1927--28 Total budget expenditure including: a) economic rehabilitation b) social and cultural development 2,022 557 355 4,210 1,224 746 7,205 2,815 1,275 c)defence . . 402 569 765 d) maintenance of stale machinery ...... c) payment of winnings and interest on state loans ........ [) social insurance . . . 283 75 532 123 670 477 300 1,052 67Most of the budgetary spending (45 to 55 per cent) went on economic rehabilitation and for social and cultural measures. From the total appropriated far the national economy, 25 to 35 per cent was spent on industry (mainly on major repairs and the reconstruction of factories), 15 to 25 per cent on the rehabilitation of agriculture, principally the development of various kinds of co-operatives (consumer, supply, credit and agricultural).
In four years expenditure on social and cultural measures increased nearly fourfold, while that on the maintenance of the state machinery decreased in the last two years of the period by over ten per cent.
During the period of industrialisation and the transition to co-operative farming state expenditure on national economic development rose steeply. This can be seen from the following figures:~
BUDGET EXPENDITURES (million rubles) Fiscal year 1928--29 1931 1932 Total budget expenditure including: a) economic development b) social and cultural measures ..... 8,784 3,687 2,627 25,097 15,976 5 396 37,995 24,784 7 580 c) social insurance . . . 1,221 2,242 3,577During the First Five-Year Plan period all budget expenditures increased 330 per cent, while appropriations for economic development increased 570 per cent.
State allocations for the development of industry grew 970 per cent, and of agriculture 450 per cent.
68The bulk of the budget appropriations for the development of industry was spent on the building of new factories and mines (investments).
During the Five-Year Plan period the budget appropriated 9,540 million rubles for the development and collectivisation of agriculture. State resources (budget, credits) were instrumental in supplying agriculture with modern equipment (tractors, sowers, mowers, etc.). In addition to helping the collectivised farmers acquire equipment, the state granted them tax privileges, gave them loans on favourable terms to acquire seeds and food, and sometimes wrote their debts off. By the end of the First Five-Year Plan period (1932) almost two-thirds of all peasant households had joined producer co-operatives, and these accounted for 75 per cent of the total area sown by the peasants. During the First Five-Year Plan period the budget helped lay the economic foundations of socialism: industry became the dominant branch of the national economy, a heavy industry was built up anew, most of the farms were collectivised, and the living and cultural standards were raised.
__ALPHA_LVL2__ The Budget System DuringThe 1936 Constitution of the USSR stipulated that the approval of the consolidated state budget of the USSR and of the report on its fulfilment, and the determination of taxes and revenues of the Union, Republican and local budgets, was the responsibility of the Union of Soviet Socialist Republics as represented by its higher organs of state power and administration. The rights of Union Republics and local organs were considerably extended. A number of enterprises were 69 transferred to Republican subordination. This increased the role of the Republics in organising their budget revenue and in financing industry, agriculture, trade and social and cultural measures. The development of the socialist economy and the extension of the competence of local bodies also led to the growth and consolidation of local budgets. These processes, however, did not reduce the importance of the Union budget in procuring finances for all-Union measures and in redistributing the financial resources among the Union Republics and the various branches of the national economy in accordance with the national economic development plan.
The changes in the structure of the state budget and in the role played by the various budgets are shown in the following figures on budget spending during the Second to Sixth Five-Year Plan periods.
BURDEN OF SPENDING BORNE BY THE VARIOUS BUDGETS Fiscal year 1933 1940 1950 I960 USSR state budget (thous. mln. rubles) ........ 3.7 17.4 41 3 73 2 including (per cent): a) Union budget 70 75.8 76 8 41 2 b) Budgets of the Union Republics including: Budgets of Autonomous Republics and local budgets ...... 21 10 2 24.2 17.2 23.2 15.1 58.8 19 ?,The growth of the Republican budgets by 1960 was due to the reorganisation of the management of industry---to the transfer of many enterprises to Union Republican subordination.
The increase in the expenditures of the 70 Republican budgets made it essential to provide stable sources of revenue. This was done by raising the share of the deductions from the turnover tax to the Republican budgets, by allocating to them part of the incomes of enterprises of all-Union subordination and all sums received from forestry revenue, income taxes paid by consumer cooperatives and collective farms, and from the agricultural tax.
There were no other fundamental changes in the budget system of the Soviet Union between 1936 and 1960. In 1936 the agricultural tax on co-operative farms was replaced by an income tax, which is valid to this day.
On the expenditure side of the budget, the principal state spending went to finance the national economy and social and cultural measures. These expenditures continued to grow steadily.
In 1960, 80.8 per cent of the budget resources were spent on financing the national economy and social and cultural measures; 12.7 per cent on defence; 1.5 per cent on administration and 1.0 per cent c.n payments on state loans.
__ALPHA_LVL2__ Development of the Soviet State BudgetLike all previous budgets, the budgets for 1961 to 1971 reflected the policy of the Soviet state to encourage the peaceful economic and cultural development of all Soviet Republics, and the policy of mutual assistance between the peoples aimed at consolidating the multi-national Soviet state and strengthening the friendship of the peoples inhabiting the country, now marching along the road to communism.
After the 22nd Congress of the CPSU, the 71 state budget began to develop at a particularly rapid rate. The budget revenue and its structure changed between 1960 and 1971 as follows:
(in thousand million rubles)^^1^^ I960 1965 1971 (plan) amount % amount o/o amount o/o Total revenue 77.1 100 102.3 100 160.8 100 including: a) from the so-- cialist eco-- nomy 70.1 91.0 93.9 91.8 147.0 91.4 including: turnover tax 31.3 40.7 38.7 37.8 54.1 33.8 deductions from profits 18.6 24.2 30.9 30.2 54.8 34.3 b) from the population 6.9 9.0 8.4 8.2 13.8 8.6The budget revenue increased during this period 100 per cent. Revenue from the socialist economy (state-owned enterprises, collective farms and consumer co-operatives) accounted for more than 90 per cent of the total budget revenue. Revenue from the population (state taxes and bonds sold to the population) grew by 60 per cent, mainly as a result of increases in the wages of factory and other workers. However, their share in the total budget revenue remained practically unchanged at about 9 per cent.
Changes in Soviet state budget expenditures between 1960 and 1971 are shown in the table below:
_-_-_~^^1^^ USSR National Economy in Figures for 1967, p. 886; Pravda, December 9, 1970 (Report by Garbuzov on the State Budget for 1971).
72 (in thousand million rubles)~^^1^^ I960 1965 1971 (plan) amount o/o amount Vo amount o/o 1 . Total expen-- lan) diture 73.1 100 101.6 100 160.7 100 ------ including: °'° a) national eco-- nomy . . . 34.1 40. 7 44.9 44.2 77.0 48.1 100 including: industrial deve-- lopment and construction . . 15.6 21.3 21.0 20.7 29.5 18.4 91.4 b) social and cultural oo Q measures . . 24.9 34.1 38.2 37.6 55.5 34.6 c) defence . . 9.3 12.7 12.8 12.6 17.8 10.2 34.3 d) administra-- tion . . . 1.1 1.5 1.3 1.3 1.7 1.1 8.6During that period the total budget expenditure increased 120 per cent, including 130 per cent on the national economy and 120 per cent on social and cultural measures. In the 1971 plan expenditure on the national economy and social and cultural measures accounts for 82.7 per cent of the total budget expenditure. In addition to budget expenditure, large internal resources--- profits, depreciation deductions, etc., were also spent on developing the various branches of the economy.
A comparison of the main items in the 1969 budget with the national income and its division into consumption and accumulation given below^^2^^ will help the reader to appreciate the economic _-_-_
~^^1^^ Soviet National Economy in Figures for 1967, p. 886, Pravda, December 9, 1971; USSR Finances No. 1, 1969, p. 11.
~^^2^^ Soviet National Economy in Figures for 1967, p. 886, Pravda, December 11, 1968.
73 Amount thous. mln. rubles As a percentage of the national income 1. National income used for consumption and accumulation^^1^^ ...... 252 4 100 2. State budget revenue . . 3. Budget expenditure a) on national economic development .... b) on social and cultural measures ...... 134.1 58.3 51 1 53.1 23.1 20 3 c) on defence ..... d) on administration . . 4. Payment of pensions . . 17.7 1.6 15.0 7.0 0.6 5.0 role of the Soviet state budget, its peaceful and constructive nature, and its progressive effect in advancing the economy and welfare of the population.The 1969 state budget redistributed 53.1 per cent of the national income---43.4 per cent (23.1+20.3) to the development of the national economy and to raising the people's living and cultural standards, 7 per cent to defence, and only 0.6 per cent to state administration. Pensions and grants accounted for 5.9 per cent of the total national income. This is proof of the progressive content of the budget under socialism.
The correct execution of the state budget depends to a great extent on the procedures governing its compilation and approval, as well as on the organisation and methods of its execution. The USSR state budget is drawn up, approved and executed in accordance with the principle _-_-_
~^^1^^ The national income has been computed on the basis of data of the Central Statistics Board for 1967, 7.2 per cent being added for 1968, and 6.5 per cent on the planned figure for 1969.
74 of democratic centralism (combining guidance by the central authorities with local initiative). This principle safeguards the sovereign rights of the Union and Autonomous Republics, the local Soviets of Working People's Deputies (the local organs of power), and the integrity of the budget system and the fiscal policy of the Soviet state. __ALPHA_LVL2__ Compilation of the Draft State BudgetIn the Soviet Union the national economy is managed according to plan, and the USSR state budget is drawn up to accord with the national economic development plan and the plans of the Union Republics.
The fiscal year begins on January 1 and ends on December 31. The draft state budget is drawn up at the same time as the draft economic development plan. Compilation of the draft budget is begun by the local authorities, continued by the competent bodies of the Union Republics and completed by the USSR Ministry of Finance.
When the budget revenue is drafted, account is taken of the economic plan targets for the production and realisation of output, the growth of profits and the profitability of enterprises, the relative decrease in the cost of production and the marketing of goods, and the expansion of trade and extension of services to the population.
Budget expenditures cover planned capital investment, public education, public health, the training of specialists and other measures.
The drafts of the various budgets are drawn up on the basis of financial plans and estimates. Financial plans are drawn up by all enterprises working on a cost-accounting basis, and by Ministries and departments. These plans reflect the 75 incomes and expenditures of the various enterprises and branches of the economy and their relation to the state budget, i.e., they specify turnover tax, deductions from profits and other payments to the budget, and financing by the budget.
Estimates are the main documents governing the financing of enterprises, organisations and institutions covered, fully or in part, by the state budget. Estimates may be individual or summary (by branches). Individual estimates set out the expenditure of an institution (school, kindergarten, hospital, etc.). The branch or summary estimate covers the expenditures of a group of identical institutions located in a certain area---for example, the schools or hospitals of a district, town, region or Republic.
When planning the budget it is important to ensure unity in the incomes and expenditures planned for similar institutions, enterprises and undertakings. Such unification is facilitated by the budgetary classification of revenues and expenditures. According to this classification all revenues and expenditures are grouped in definite sections, paragraphs and articles. The various types of revenue are shown in the sections, the sources of state revenue (branch of the economy, Ministry) in the paragraphs, and the branches of industry paying turnover tax and the categories of other payers of revenue in the articles.
Budget expenditures are divided into groups, sections, paragraphs and articles. Expenditures related to the national economy are classed in the first group, social and cultural measures in the second group, and defence, etc., in the third group.Within these groups expenditures are divided into sections arranged according to territories and branches of the economy. For example, 76 the expenditures of the various Ministries and departments are shown in separate sections of the first group. Expenditures on social and cultural development are divided into branches (education, public health, etc.). The sections are divided into paragraphs, which contain the outlays on separate types of institutions (schools, orphanages, etc.). The paragraphs, in their turn, are divided into articles classifying expenditures into wages, office and other overheads, travelling expenses, tuition, etc.
The USSR Ministry of Finance, the Ministries of Finance of the Union and Autonomous Republics and local finance bodies organise the drafting of the budgets. They direct the work of subordinate financial bodies, the financial departments of Executive Committees, and budgetary institutions and economic bodies, the drawing up of estimates and financial plans. They then study the materials received from these institutions (draft budgets of subordinate government bodies, financial plans, estimates and other accounts and documents), co-ordinate them in a summary draft budget and submit it for approval to the relevant Executive Committee or Council of Ministers. After the draft budget has been considered by the local organs, the finance bodies submit it to their superior finance bodies for endorsement and inclusion in the draft of the higher level budget: local budgets to the Republican budget, the latter to the ail-Union budget. The USSR Ministry of Finance submits its final draft for consideration to the USSR Council of Ministers, and the latter submits it for approval to the USSR Supreme Soviet of Working People's Deputies.
Compilation of the budget usually begins with an examination of the execution of the current budget. This is done by analysing budget 77 execution for the period from the beginning of the fiscal year and estimated execution for the remaining period.
The finance bodies give thorough consideration to the financial plans and estimates submitted by enterprises, institutions, Ministries and departments. They check the revenue estimates for correctness and completeness and see whether outlays and work targets, on which the income and expenditure of enterprises are based, are justified and in accordance with the draft national economic plan.
Work on the compilation of budget drafts proceeds as follows: the USSR Ministry of Finance draws up the draft Union budget on the basis of draft financial plans and estimates of the USSR Ministries and departments. The drafts are examined jointly with representatives of the respective Ministries and departments. The USSR Ministry of Finance makes a preliminary examination of the draft social insurance budget in consultation with representatives of the trade unions, and the drafts of the Union Republican budgets with representatives of the Union Republics. The draft USSR state budget is based on the drafts of the Union budget, the Union Republican budgets and the social insurance budget. The draft of the USSR state budget is then submitted to the USSR Council of Ministers.
__ALPHA_LVL2__ Approval of the State BudgetThe USSR state budget, the state budgets of Union Republics and local budgets are approved in an identical manner.
The draft USSR state budget is submitted by the Ministry of Finance to the government, the USSR Council of Ministers.
78The USSR Council of Ministers considers the draft budget and the resolution on it by the State Planning Commission, resolves differences that may have arisen between the Ministries and departments over the financial plans and estimates, the draft social insurance budget and the Union Republican budgets. After approval by the government the budget is submitted to the Supreme Soviet of the USSR. Here it is considered together with the draft of the national economic development plan for the corresponding year by the permanent commissions of the Soviet of the Union and the Soviet of Nationalities of the Supreme Soviet of the USSR. For this purpose a planning and budgetary commission and branch commissions for industry, transport and communications, for construction and the building materials industry, for agriculture, for public health and social security, for education, science and culture, for trade and communal services have been set up both in the Soviet of the Union and the Soviet of Nationalities.
The Commissions of the Soviet of the Union and the Soviet of Nationalities of the Supreme Soviet of the USSR hear the reports of the USSR Ministries and departments on their work, on the draft development plans for the relevant branches, on financial plans and estimates, the reports of the Councils of Ministers of the Union Republics on the fulfilment of plans for the past year and on the draft plans for the coming year relating to the revenue and expenditure of the budgets of the Union Republics, and the report of the All-Union Central Council of Trade Unions on the social insurance budget. These commissions consider all proposals on amendments in the relevant sections of the draft national development plans relating to budget 79 revenue and expenditures, and draw up resolutions and recommendations on the draft national development plan and on the USSR state budget for the coming year, which they submit to the Supreme Soviet of the USSR for approval at its session.
The Supreme Soviet of the USSR considers the USSR state budget according to the report made on it by the USSR Council of Ministers, takes into account the resolutions of the planning and budget and other commissions of the Soviet of the Union and the Soviet of Nationalities and also any proposals made by deputies to the Supreme Soviet of the USSR during debates on the plan and the budget. The debate and approval of the budget is based on democratic principles. The production, financial and economic activities of Ministries, departments, as well as enterprises, organisations and institutions under their jurisdiction, are thoroughly examined during the debate. The USSR state budget for the following year is approved at the close of the current fiscal year and acquires the force of law.
The Supreme Soviet of the USSR approves:
a) the revenue of the USSR state budget as a whole, itemising the main sources of income ---payments by state-owned and ca-operative enterprises and organisations---and total expenditures detailing appropriations for economic, social and cultural development, defence, and maintenance of the machinery of state and the courts and procurator's office;
b) the Union budget;
c) the total revenue and expenditure of the state budget of each Union Republic;
d) the deductions allocated from ail-Union state taxes and revenues to the state budgets of the Union Republics.
80The draft Union Republican budgets, considered and approved by the Union Republican Councils of Ministers, are submitted for approval to the Republican Supreme Soviets.
The Supreme Soviet of each Union Republic considers the draft budget. It hears the Minister of Finance, who reports on behalf of the Council of Ministers of the Republic concerned, and the co-report of the Planning and Budgetary Commission. The Supreme Soviet of the Republic also considers the findings and proposals of the Planning and Budgetary Commission and the proposals of deputies made during the budget debate. The extensive discussion of the budget by the deputies and the fact that they have the right to propose amendments on budget revenue and expenditure, combined with the widespread publicity the debate is given, guarantee the democratic character of the Soviet budget system.
When the Supreme Soviets of the Union Republics consider the Republican state budgets they are allowed to increase the sum totals of revenue and expenditure established for the Union Republic by the Supreme Soviet of the USSR, but cannot alter the deductions from the all-Union revenues and taxes. Revenue received in excess of plan during the execution of the Union Republican state budgets is used to finance the national economy and social and cultural development in the Republic.
The Supreme Soviet of the Union Republic approves: a) the revenue of the state budget of the Union Republic as a whole, itemising the main sources of revenue, and the expenditure as a whole, itemising appropriations for the national economy, social and cultural needs, maintenance of the organs of state power and administration, and the courts; b) the total revenues and __PRINTERS_P_82_COMMENT__ 6---2729 81 expenditures of the Republican budget and the budgets of every Autonomous Republic, and every region (territory) and town of Republican subordination; c) the deductions from all-Union state revenue and taxes to the local budgets; d) the cash balance (money reserves at the disposal of the budget executors).
The budgets of territories, regions and towns of Republican subordination are approved in an identical manner. The regional Soviet of Working People's Deputies, for example, considers the budget of the region according to the report of the Executive Committee and the findings of the Planning and Budgetary Commission, and takes into account proposals by the deputies of the Soviet submitted during the debate of the regional budget.
The budgets of districts, small towns and village Soviets are approved in the same manner as those of regions. The draft drawn up by the district finance department is submitted to the Executive Committee of the district Soviet, which considers it together with the findings of the Planning Commission in the presence of the chairmen of the Executive Committees of village and town Soviets of Working People's Deputies. If there are differences of opinion on the submitted draft budget, they are resolved by the Executive Committee or by a specially appointed commission. The draft budget approved by the district Executive Committee, with all the amendments made during its debate, is submitted for approval to a full meeting of the district Soviet of Working People's Deputies.
Before the district Soviet discusses the draft budget, the latter must be examined by the Budgetary Commission. The district Soviet takes into account the amendments proposed by the 82 Budgetary Commission and individual deputies before approving the district budget.
Regional, district and town Soviets approve: a) the total revenue of the budget of the region or district, itemising the main sources of revenue, and the total expenditure, itemising appropriations for the local economy, social and cultural needs, and maintenance of the local administration; b) the total revenue and expenditure of the regional or district budget; c) the deductions from all-Union state revenue and expenditure, and taxes to the budgets of districts or village Soviets; d) the cash balance.
The budgets of districts and towns under regional jurisdiction and of village Soviets are established in lump sums for the revenue and expenditure of each district, village Soviet and town, in the budget of the region or the corresponding district.
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