COMMENTS ON SOVIET MILITARY EXPENDITURES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82-00047R000100240003-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 3
• Document Creation Date: December 22, 2016
• Document Release Date: June 15, 2009
• Sequence Number: 3
• Publication Date: February 14, 1952
• Content Type: REPORT

Approved For Release 2009/06/15: CIA-RDP82-00047R000100240003-0
CENTRAL INTELLIGENCE AGENCY
INFORMATION REPORT
COUNTRY USSR
SECRET
SUBJECT Comments on Soviet Military Expenditures
PLACE
ACQUIR~
DATE
AC.QUIR
DATE OF
THIS DOCUMENT CONTAINS INFORMATION AFFECTING THE NATIONAL DEFENSE
OF THE UNITED STATES, WITHIN THE MEANING OP TITLE 18, SECTIONS 783
D 794, Of THE U.S. CODE. AS AMENDED. ITS TNANEMIS510N ON REYE?
CATION OF ITS CONTENTS TO OR NECTEIPT SY AN UNAUTHORISED PERSON IS
PROHISITEO SY LAW. THE REPRODUCION OF THIS FORM IS PROHISITEO.
DATE DISTR. If Feb 52
NO. OF PAGES 3 25X1
NO. OF ENCLS.
(LISTED BELOW)
SUPPLEMENT TO 25X1
REPORT NO.
THIS IS UNEVALUATED INFORMATION
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Managers of military equipment and military construction enterprises and
trusts are in a privileged position in the USSR. Requests for additional
funds to meet payroll or material requirements are provided with very
little delay; while the Ministry of Finance has to decide from what. categories
of the Financial Plan to shift the funds to cover above-plan Defense Ministry
expenditures.
25X1
Industries producing goods for military as well as for civilian consumption
(such as textile and tractor industries), as a rule, supply goods to the
Ministry of Defense at prices below cost, and add the difference to the cost
of the civilian segment of their products. Since turn-over tax on civilian
goods is generally,a fixed percentage of costs,-such a pricing policy enhances
the State revenue sources and further limits the effective demands of the
populations Armament industries are not required to show profits, since
profits would only increase the costs to the State.
fall the indicated increase in
industrial and transportation profits in the Soviet economy are derived from 25X1
consumers' goods industries, or from the transportation.of consumers' goods
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FAMY P-1,1
ASSIFICATION SECRET/SECURITY INFORMATION , 11 25X1
DISTRIBUTION
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RETURN TO ARCHIVES & RECORDS CENTER
IMMEDIATELY AFTER USE
JOB BOX
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and civilians. Increased profits during the post-war economy in the Soviet
Union could have been accomplished through: Lowering the quality of some
segments of consumers' goods; increased labor productivity in the consumers' 25X1
goods industries; increase of prices to consumers (in goods and services).
UNCODED
The publicized 20 to 35% price reduction in 1950, of such industrial products
as iron, steel, and cement constitute a deliberate attempt to fool people
abroad. 'While some price reductions to the Union-important industries are
possible, the 20 to'35% reduction referred to may have applied to cement, iron.,
and steel products sold to the public at tremendously inflated retail prices
through turn-over tax. Thus it is quite possible that prices on nails, hardware
and cement sold to collective farmers in small quantities were reduced by the
publicized figures. Price reductions which have taken place in consumers' goods
since 1947,9 have been effected by the reduction of turn-over tax rates. Turn-
over tax rates during the World War II and post-war periods, up to 1947, were
increased over 100%, according to published revenue figures.
All military establishments buy food and other supplies at wholesale prides
which include profits, but do not include turn-over tax.
the Soviet military 25X1
establishments are paying turnover tax on their purchases of food and
supplies, then such a statement constitutes deliberate fraud,, One must
understand that the primary .function of the turnover tax in the Soviet Union
is to sponge up all the currency put into circulation, through wages and
salaries, for which no consumers' goods are available for the public., and by
this means to draw the currency back into the banking system. Since about
70% of all goods produced in the Soviet Union goes to the government in the
form of armaments or in the form of construction, machinery, and materials for
armament production, this vast sum representing 70% of costs in the form of wages,
salaries, upkeep and administration, must be mopped up, mostly through a turn-
over tax on consumers' goods, or material and equipment going into the 25X1
production of civilian goods.
Every economist and financial man should realize that the
well as for foreign propaganda, and to inflate the other budgetary categories,
where hidden military expenditures are included, in order to reduce the percent-
age magnitude of the announced military budget. It would be stupid for the
Soviet government to make purchases of food and supplies with turnover tax. It
would amount to taking money out of one account and putting it into another., while
at the same time inflating its military expenditure account. In the case of food
supplies, the Ministry of Defense pays the wholesale output or marketing price,
which includes profits but does not include the turnover tax. In purchasing
other supplies for the armed forces, such as clothing, footwear, and other persona.
items., these are bought on the average about 30% below production costs. The
difference is shifted by the manufacturers to the civilian section in arriving
at the production costs of commodities. Thus every enterprise has a so-called
military price list.
Soviet pu lszed military budget is formulated with two main objectives:
to reflect as small a percentage of t total budget as possible for domestic as
SECRET,
SECRET/SECURITY INFORMATION
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These price lists are issued to Company Quartermaster Sergeants, and they
reflect the prices charged to the military personnel in case of loss or other
disposal of their equipment as a penalty price; they have nothing whatsoever 25X1
to do with the cost to the Ministry of Defense. Costs to the Ministry of
Defense are from 12 to 24 times less than those indicated by the "penalty" price
lists.
To my knowledge the prices paid by the Defense Ministry to the Ministry of Food
supplies and other ministries for clothing, footwear, etc have remained at the
same the level as in 191.0. However, "penalty" prices have about doubled. 25X1
Of course, there are some 12 categories of menus of military mess within the
Soviet Union.; Army, Air Force, Navy, schools, hospitals, etc. Those Soviet
forces placed in occupied areas, living at the expense of the Satellites,
certainly are fed much better than those in the Soviet Union, since the Satellite
countries have to bear the cost of maintenance of the Soviet military personnel.
the ratio is about'3 rubles to $1, due to US superior skills in fields of
production and in administration and organization. In the case of military
aircraft the ratio may be about 3.5 rubles to $1.
equipment, the ratio is 2 rubles to $1; in'the purchase of finished products
In the purchase of raw and fabricated materials for the production of military
SECRET;
SECRET/SECURITY INFORMATION
Approved For Release 2009/06/15: CIA-RDP82-00047R000100240003-0