“Guns and butter” are both important, Putin tells military commanders

“Guns and butter” are both important, Putin tells military commanders
Spending on the military has soared to $140bn a year, but in parallel the budget for the National Projects has also expanded as Putin tries to find a balance between "guns and butter." / bne IntelliNews
By Ben Aris in Berlin May 17, 2024

Federal budget expenditures for implementation of National Projects will total RUB3.008 trillion ($33.3bn) in 2024, the Russian Finance Ministry told TASS, or just under a quarter of what is being spent on defence.

"The Federal Law "On the federal budget for 2024 and the planned period of 2025 and 2026" provides RUB3.008.4 trillion for implementation of National Projects in 2024. The largest amount of budget allocations in 2024 is provided for implementation of the following National Projects: Demography - RUB890bn ($9.9bn), Safe Quality Roads - RUB621.4bn ($6.9bn), Healthcare - RUB283.8bn ($3.15bn), and Education - RUB237.2bn ($2.6bn)," the ministry said.

Federal budget spending for National Projects provisionally totalled RUB2.53 trillion ($28bn) or 84.5% of planned allocations as of December 1, 2023, the ministry said earlier.

Following the recent cabinet reshuffle, technocratic economist and close Putin ally Andrei Belousov has been appointed Defence Minister in a move that is seen as an effort to improve the efficiency of the military spending.

However, spending on the 12 National Projects that were launched in 2019 has also been ramped up. Belousov played a leading role in drawing up that plan which has recently been dramatically expanded under National Projects 2.1.

“While increasing our defence and security expenditures, we bear in mind that all our social obligations to the people must be fulfilled, and that our national development goals must be achieved in all spheres, including in social protection,” Russian President Vladimir Putin  said at a meeting with his military district commanders on May 16.

Putin explained he was referring to education, healthcare, support for veterans, pensions and the like.

“All this must certainly be done while the growing defence spending is growing. At the same time, we see and understand that growing defence and security expenses are also intrinsically connected, one way or another, with civilian industries, which is boosting economic development as a whole and increasing the number of jobs (the unemployment rate is currently at a historic low in the country),” Putin added. “However, this connection between “guns” and “butter” must be organically incorporated into the general development strategy of the Russian state.”

While military spending has overtaken social spending for the first time ever, spending on the National projects is already equivalent to a quarter of what is being spent on defence and one of the budget’s biggest expenditures.

The total spending on the military this year is slated to be RUB12.8 trillion ($140) in the current budget plan, up nearly a third (29%) from last year’s RUB6.58 trillion ($84bn) and RUB4.7 trillion ($75bn) in 2022.

“Andrei Belousov has been appointed defence minister, not least because of the growing defence expenses. I would like to remind you that the Soviet Union’s aggregate defence and security spending amounted to approximately 13% [of GDP] in the mid-1980s. In 2024, our total spending on defence and security will be about or slightly more than 8.7%. The approximate figure will be 8.7%. This is less than the 13% the Soviet Union spent, but it is still a considerable sum and a major resource, which we should use sparingly yet effectively,” Putin said.

Andrei Belousov had been Minister of Economic Development and a president’s aide in the Presidential Executive Office, and for the past few years he was First Deputy Prime Minister in charge of economic matters.

"It goes without saying that he knows very well what should be done to incorporate the economy of our defence and security sector, and the Defence Ministry as its core element, into the national economy. This is extremely important. What I mean is that it will determine the innovative development of our industries with due regard for our economic and budget capabilities," Putin added. 

The danger the Russian economy faces is long-term stagnation. As a lot of civilian production has been switched to military output and capacity utilisation is already at a record high of 81%, at some point post-war this non-productive production will have to be switched back to civilian output.

The investments into the National Projects are intended to start this process now and support pro-growth sectors like construction, to soften the pain of that transition. In general, Putin is also keen to keep life at home as normal as possible to head off any potential protests against the war and its cost to the Russian economy in order to keep his grip on power. Everyday life in Russia has so far been largely unchanged by the war in Ukraine and indeed with nominal wages rising much faster than inflation real incomes have been rising, and that has been fuelling a consumption boom.