This new attempt to increase revenues was also motivated by what proved to be a mistaken assumption; that the changes to the system of liquor taxation and the introduction of excise duties would lead to a fall in the government's income from that source. In 1861 the Committee of Finances proposed making small increases to both the poll tax levied on state peasants and to the level of obrok that they paid to produce an additional 3.2 million roubles of income annually. Alongside this, a rise in the salt tax was proposed, together with increases in customs duties and in postal charges. Altogether, the government calculated that these measures would bring in an extra 7.5 million roubles which would help to offset the expected decline in liquor revenues.[79] These proposals represented only adjustments to existing sources of taxation and did not involve any overall review of Russia's system of taxation.
From the mid-i860s, however, the government began to move towards a more radical approach to restructuring its sources of income. The motivation for this was complex. First, the emancipation of the serfs had consequences in the financial sphere, as in almost every other area of Russian life. The emancipation settlement itself had been significantly conditioned by the government's financial position which had led to the peasantry paying the full price for the land that they gained, without any government subsidy.[80] The perception of contemporaries was that redemption payments from the peasantry were thus set at a level which was on the edge of affordability for many of them. This view has been challenged by modern analyses[81] but in the 1870s and 1880s the tsarist state was deeply concerned about the potential threat that it faced from a discontented peasantry that was perceived to be downtrodden and impoverished. Changing the system of taxation to reduce the burden on the peasants and thus lessen the threat of discontent was an important reason for the tax reforms that took place in the 1880s. At the same time, the Russian government recognised that it could not hope to achieve significant increases in revenue from the existing taxation system and therefore needed to take more radical steps. During the nineteenth century, the government had faced a series of financial problems which had been resolved without making structural changes to either expenditure patterns or sources of revenue. By the last quarter of the century, officials were coming to realise that this strategy could not be sustained and that, especially at a time when the nature of the Russian economy was changing with the development of an industrial sector, new sources of revenue had to be found.
***
The crises that affected the Russian government's finances were mostly precipitated either by war or by the threat of war. War with Persia and with Turkey in the late 1820s placed stresses on the budget and, in late 1830, the Ministry of Finance indicated that the outbreak of further conflict would cause significant problems. Expenditure was already likely to rise due to a series of poor harvests and the outbreak of cholera in some parts of the empire and the Finance Ministry warned that further war could not be financed from ordinary expenditure: Kankrin, the minister of finance, had already reported to Nicholas I that the government would face severe difficulties in finding the additional resources needed for conflict. Kankrin's view was not, however, shared by the government as a whole and the Finance Committee argued that any difficulties could be overcome by printing money and by a number of measures that would enable the government to raise internal loans.[82] This approach to dealing with the financial pressures of war continued throughout the reign of Nicholas I. Discussions about managing the costs of the Crimean War in the mid-i850s resulted in the same measures being proposed. The Ministry of Finance issued more paper money as its first reaction to the increase in expenditure that was required by war, more than doubling the amount of paper money in circulation, but the Ministry did acknowledge that this solution was only sustainable if the war was short. It also recognised that this was a risky move to take, since the outcome of printing money would become clear only once the war was over: if the economy prospered, all would be well, but difficulties would arise if it
weakened.[83]
The economic situation across Europe in the late 1850s was not propitious for a Russian recovery, and this was exacerbated by domestic conditions. A banking crisis, produced partly by a reduction in interest rates by the government, had effects that were felt right across the Russian economy. At the same time, the Ministry of Finance complained of a fall in exports as a result of both the war and poor domestic harvests. Combined with a growth in imports, this meant that Russia was suffering a net outflow of foreign capital and that government revenues were suffering. The national economy was facing serious difficulties, while the government's own financial position was looking increasingly precarious. Kniazhevich, the minister of finance, reported that the government had been using its traditional methods to deal with the budget deficit: loans and issuing paper money. But, by i860, the situation was such that it was difficult to solve the burgeoning budget deficit in these ways. The government already owed very large sums to the banks, its debts having grown from i66 million roubles in 1845 to 441 million roubles in 1859. Over the same period, the amount of paper money in circulation had more than quadrupled, reaching 93 million roubles in 1859. Foreign debts had also increased, totalling 365 million roubles in 1859. Kniazhevich argued that while it would be possible, in an extreme case, to issue yet more paper money, this would threaten the whole financial system, since the population could easily lose confidence in the currency. The minister of finance was prepared to print money to finance one-off items of expenditure, but he argued that this method could no longer be used as a permanent means of monetary policy. Further loans, whether from domestic sources or from abroad, were unsustainable, given Russia's huge burden of debt. The government was faced with a growingbudget deficit and the Finance Ministry could see no easy way of financing it.[84] This crisis demonstrated the weakness ofthe government's budget-setting process. The Ministry ofFinance could only implore that expenditure be kept at its projected levels, and that any requests for additional spending must be communicated to the ministry before being sent for the emperor's approval. At the same time, ministries were presented with suggestions for reducing their expenditure, in one of the first examples of the Russian government as a whole taking responsibility for financial policy. Not surprisingly, ministries resented these attempts at central direction of their spending and argued fiercely against proposals that came from the Committee of Finances.[85]
The government was helped out of its immediate difficulties by the success of the new liquor taxation system in raising revenue but, without making any structural changes to the state's fiscal and spending systems, Russia's finances remained problematic. M. Kh. Reutern had been appointed as minister of finance in 1862 and recognised that the issues raised by his predecessor Kni- azhevich in i860 had still not been solved. In 1866 Reutern wrote a lengthy report on the financial and economic condition of Russia that attracted the attention of Alexander II who presided at the meeting of the Committee of Finances in September 1866 where Reutern's report was considered. As his predecessors had done, Reutern identified a pressing need to cease using domestic loans as a means of covering government expenditure. He argued that it was now difficult for the government to raise money at home, as the financial markets were exhausted. But Reutern did recognise that he could not be over-prescriptive here, since the state had an urgent need to borrow to finance railway construction, and the long-term economic interests of the state over-rode these temporary financial difficulties. He was also prepared to use the state's slender credit resources to try to find a more permanent way out of Russia's financial difficulties, despite the risks that this presented. Reutern also wanted to protect the value of the rouble and proposed measures to stop the outflow of funds abroad. He wanted the government to stop making purchases abroad, and included the War Ministry and the Ministry of Communications in his strictures here, and was intent on stopping costly foreign visits by Russia's navy. Reutern argued that the budget deficit could be eliminated only by both raising additional revenue and by placing curbs on expenditure. As successive finance ministers had discovered, it was difficult to squeeze extra income from existing sources and the suggestion by P. A. Valuev that an income tax should be introduced was thus placed on the agenda for further investigation.[86] The government's good intention of relying less on loans could not be implemented immediately: in i868 the Committee of Finance resolved that the only way in which it could finance a projected budget deficit for the year of 12.5 million roubles, as well as meet railway construction costs of more than 36 million roubles, was to take a loan from foreign bankers.[87]
79
'Komitet finansov, zasedaniia 2, 13, 16, 20 & 23 dekabria 1861', RGIA, Fond 563, op. 2,
d. i44, ll. 52-66.
80
S. L. Hoch, 'The Banking Crisis, Peasant Reform and Economic Developmentin Russia, 1857-1861',
81
D. Moon,
82
'Ob otyskanii denezhnykh ressursov na sluchai voiny', 1830-1, RGIA, Fond 563, op. 2, d. 21, ll. 3-5 & 14.
83
'O sredstvakh k pokrytiiu raskhodov po sluchaiu voiny', February 1856, RGIA, Fond 563, op. 1, d. 6, ll. 2-6.
84
'Po predstavleniiu Ministra Finansov o khoziaistvennom i finansovom polozhenii Rossii, 30 ianvaria i860', RGIA, Fond 563, op. 2, d. 115, ll. 6-13.
85
For example, it was suggested to the Ministry of the Imperial Court that its buildings department be abolished, that the ministry's Committee on St Isaac's Cathedral be disbanded, since the cathedral was now complete, and that the Imperial Theatres be placed in private hands. The ministry rejected all these proposals and argued that any expenditure on the court should remain outside audit and control by central government. RGIA, Fond 563, op. 2,d. 115, II, 13-16. 'Zhurnal Komiteta Finansov, 4,11,18 & 25 noiabria i86i'.
86
'Zhurnal komiteta finansov, 29 sentiabria 1866', RGIA, Fond 560, op. 22, d. 120, ll. 23-5. Reutern's original report is published in Shepelev (ed.),
87
'Komitet finansov. O sredstvakh dlia pokrytiia defitsita po gosudarstvennoi rospisi na i868g.', RGIA, Fond 563, op. 1, d. 16,1.1.