Russian Regions Unhappy with Budgetary Revenues Allocation

The federal center takes the lion’s share of revenues, violating the Russian law

Moscow Mayor Yury Luzhkov repeatedly set out his dissatisfaction regarding the allocation of revenues between the Moscow treasury and the federal center. Yury Luzhkov said that again at a session of the Moscow government yesterday. The struggle for a more fair allocation of income in favor of regions was lost during the discussion of the budget 2003 in the State Duma last year. However, economic consequences of the fact that the federal center obtained the lion’s share of that income are rather explicit at present.

Moscow Mayor Yury Luzhkov acknowledged that for the first time during his stay at the post that the execution of the Moscow budget would be very tense. As the mayor believes, the federal center is guilty of that. Luzhkov said that the income allocation proportion of 68% and 32% in favor of the federal center was absurd. He added that such an allocation violated the Russian law. According to the law of the Russian Federation, the funds are supposed to be allocated on the base of the 50x50 principle. There can be one conclusion made from Luzhkov’s statement: this norm is supposed to be either cancelled or executed. None of that happens today.

In connection with that fact, the Moscow Mayor is going to settle this problem with the Russian Finance Ministry, with the Revenue Ministry and with the Ministry for Economic Development and Trade. On the threshold of the deal, Yury Luzhkov demanded the government should increase non-fiscal revenues by means of extending the base of “that kind of income,” as he said.

Yury Luzhkov stated at yesterday’s session of the Moscow government that the budget of the current year has a gap of more than 21.5 billion rubles. The revenues of the budget make up 293.3 billion rubles, while the expenditure is almost 315 billion rubles. This makes the budgetary deficit of 21.5 billion. Of course, as the mayor stated, the gap would be covered at the expense of attracting additional income and loans. However, the Moscow authorities will have to mobilize all internal sources for that. Yury Luzhkov stated that the Moscow small business was the main support for the mobilization. There is nothing surprising about that, for, as the mayor said, a half of Muscovites, who do not wish to work in state structures, are employed for the small business. “Some people have their own businesses, while others work for them,” Yury Luzhkov believes.

Such an approach to the problem on the part of the Moscow mayor is not really exotic. It is well known that almost the entire small business of Moscow develops and grows on the base of the shadow economy. However, it is the shadow economy that allows Moscow to settle monstrous social issues and to find huge sums of money for construction and other ambitious projects of the Moscow mayor. As experience shows, the scheme of the budget funding is very exquisite in Moscow. The Russian Federation Office of the Prosecutor General has a lot of questions pertaining to Moscow constructions. Yet, federal prosecutors have not found anything that would be good for instituting criminal proceedings about that. The only thing that they found was about little occasions of untargeted use of the funds.

As a matter of fact, Moscow has suffered a lot from the allocation of revenues this year. As Valery Draganov, the chairman of the budgetary committee of the State Duma, said in one of his interviews, that there was a lot of money invested in the tobacco industry of Russia lately. As the official added, that was registered in Russia’s eleven territories, including Moscow. It goes without saying that tobacco producers became large tax-payers. However, tobacco production excises were taken by the federal center. Moscow lost at least 5.5 billion rubles on account of such an allocation. What did the Moscow government say to investors? They just thanked them for good quality cigarettes  and said that it was up to the federal center to deal with their problems. Farewell, so to speak. There will be nothing surprising, if nothing is invested in the tobacco production this year.

It is worth mentioning here that other regions of Russia have the same attitude to the issue of budgetary revenues allocation. Governors and regional budgets have already experienced the results of such allocation in favor of the federal center. One of adversaries of the federal center’s excessive financial nourishment, Sergey Sobyanin,  the governor of the Tyumen region, sets his hopes for the local self-government law. As the Tyumen regional governor believes, the law will probably help to correct the situation.  However, he believes that the power in Russia suffers from the system crisis of all levels. Sergey Sobyanin is certain that it was all caused with unbalanced budgetary economy of all levels.

State Duma faction Yabloko is also an adversary of the center-favored cash flow allocation. Coming parliamentary and presidential elections will definitely make the faction change its stand, it will make it tougher. For the time being, Yabloko claims that the policy to centralize financial resources and to reduce the share of regional budgets in the consolidated budget of the Russian Federation is absolutely unacceptable. “This policy makes people’s living worse, while regional educational, healthcare, public utilities, transport, budget institutions suffer from the lack of funding.” This is the pre-election verdict of the civilized opposition to the incumbent Russian government. That is why, Yabloko is determined to strive for the increase of the revenues share for regional budgets. The final goal is to achieve the 50x50 level in the allocation of revenues between the federal center and regions, as it is registered in the Budget Code.

On the threshold of the parliamentary elections, such a common position of the conservative party of the regional elite and of the socially-oriented Yabloko faction might result in an expected union and an unexpected surprise during the pre-election campaign. By the way, the Yabloko faction and Russian regional governors have the same position regarding unpopular power industry reforms too.

On the photo: Moscow Mayor Yury Luzhkov

Akhtyam Akhtyrov

Translated by Dmitry Sudakov

Author`s name Olga Savka