| Andrey Vavilov, senator, scientific director of the Institute for Financial Research, former first deputy minister of finance of the Russian Federation:
A package of bills on local government reform, recently submitted to the State Duma, was presented by Deputy Head of the Presidential Administration Kozak. It seems that the reform started from above received unexpected and strong support from below. A notable event of the past week was the all-Russian protest action of trade unions of non-production workers against the new system of remuneration for public sector employees. And the action did not take place because the trade unions “did not understand” the advantages of the sectoral wage system, as the Ministry of Labor tried to present it. In fact, the problem is much deeper. On the Gorbaty Bridge near the Government House, doctors, teachers and other public sector employees protested against transferring the main burden of obligations and responsibility for remuneration to the regional and local level of government, where there are often no resources even to fulfill current obligations. The government today is not concerned with finding new methods for solving pressing problems before they spill out onto the Gorbaty Bridge, but with preserving the current state - the stability of the federal budget, paying off debts and further increasing the financial reserve. By the way, this same financial reserve was formed, in particular, due to the receipt of taxes from excess profits from the oil sector into the federal budget. The burden on local and regional budgets is only increasing, and in addition there is uncertainty about the reimbursement of tax revenues that are lost during the reform of local self-government, that is, even what is already there. Although the LSG reform itself initially implies the creation of a stable financial base for local and regional budgets. Despite the fact that the protest itself is more of a political phenomenon, it illustrates the main problem associated with the implementation of the LSG reform, which is closely related to the ongoing reform of interbudgetary relations. The general principle of reform in this area is, on the one hand, to delimit spending powers between levels of government, and on the other hand, to divide sources of income in accordance with delegated expenses. In other words, ideally, it is planned to ensure that one specific level of government is responsible for a certain type of public service, having sufficient financial resources to properly fulfill its obligations. The same principle, in fact, forms the basis of the new wage system for public sector employees, which trade unions actively opposed. In both cases, the ideas seem quite sound; the question, as always, is the implementation of good intentions. So far, the work on delimiting spending powers is significantly ahead of the distribution of revenue sources. In fact, to solve these problems, it was enough for the government to timely calculate and explain the financial prospects of the proposed changes to each of the stakeholders, as long as government officials claim that the issue of adequacy of funding has been calculated.
In this regard, I would like to note another event of the past week - the planned but not held discussion of tax reform at a government meeting. It was expected that this meeting would consider the conceptual issue of tax reform and reducing the fiscal burden on the economy, but in the end the cabinet of ministers limited itself to considering a package of bills on property taxation, which, on the contrary, envisage an increase in the tax burden. The current tax reform significantly affects local and regional budgets. According to the Ministry of Finance, only the abolition of the sales tax from 2004 will lead to a decrease in budget revenues of the constituent entities of the Russian Federation by 70-80 billion rubles. In itself, tax cuts are necessary to stimulate economic growth, and ideally, the losses of entities should be compensated by transfers from the federal budget. It is the federal budget that has many alternative sources of covering the financial gap, including the financial reserve and new borrowings. However, instead, the government proposes to increase the burden of property taxes, already under the jurisdiction of local and regional authorities, by almost 50 billion rubles, thereby minimizing the need for federal budget assistance. As a result, instead of real tax liberalization, one tax is replaced by another, and the burden on regional and local budgets again increases. In such a situation, the stability of the federal budget is actually based on the instability of regional and local budgets. And as long as this state of affairs continues, people will take to the streets after the next innovations affecting inter-budgetary relations. Recorded by Olga KOLEVA
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