Get rich!

The government is pushing regions to earn more

Work on the 2007 budget has entered a decisive stage. On the eve of the “zero reading” of the budget in the State Duma, the government, during the tripartite commission on interbudgetary relations, decided to work on one of the most difficult areas, namely to formulate what the principles of providing assistance to the regions would be. As a result, it was decided to create more incentives for them to increase their own income. The rights of regions to dispose of additional funds received from the center will also be expanded. This was announced yesterday by Deputy Prime Minister Alexander Zhukov at a meeting between Vladimir Putin and members of the Cabinet of Ministers.

The traditional August budgetary effort has doubled this year: at the same time as the financial plan for next year, the government is working on drawing up a budget for the three-year period - from 2007 to 2009. As Alexander Zhukov explained, the Cabinet of Ministers plans to consider draft budgets next week, on August 17. At the same time, according to him, work is actively underway to coordinate the budget with State Duma deputies and members of the Federation Council. For his part, Vladimir Putin repeated his repeatedly expressed request to speed up the pace of preparation of the draft budget for 2008. “Let's not forget that we agreed to speed up work on the next budget and complete it earlier than this and previous years,” he recalled. By insisting on a faster budget process next year, the president wants to ensure that the budget does not become hostage to the election fight before the State Duma elections, which, as is known, will take place in December.

The main changes in the draft budget for next year, according to Mr. Zhukov, are expected in interbudgetary relations. The first innovation is to encourage regions to generate greater income. For this purpose, those subsidized regions that achieve additional income will not have their transfers from the federal budget reduced. The President (who voiced the same thesis in his May budget address) approved this idea, recalling that it has long been used in a number of countries. The Deputy Prime Minister confirmed that this particular scheme, based on the experience of other states, has shown its effectiveness in inter-budgetary relations.

Another innovation will concern the financing of small projects implemented in the region with the support of the federal center. According to Alexander Zhukov, “numerous small objects will be excluded from the federal investment program, and the regional development fund will increase by the same amount.” Subjects of the federation will have to determine for themselves which objects to allocate additional funds to, he explained.

Experts, however, believe that the regions are unlikely to gain more leverage over additional revenue. “The small items were given to the regional development fund in order to make the distribution of funds more transparent, because within the framework of the fund, projects will be subject to a competitive procedure. The fund assumes a strict formalized procedure for distributing funds, and the regions will prove that these projects are important and necessary for them,” says Alexander Andryakov from the Economic Expert Group. But the new method of calculating transfers, in his opinion, will bring more convenience to the regions than problems. “When calculating transfers, the average Russian rate of development will be taken into account, and if a region has a higher rate of development, then when calculating the transfer of money it will receive as much as if its GRP (gross regional product - Ed. ) grew at the level of the national average. Consequently, there will be a reason for the regions to increase both GRP and, accordingly, their tax base,” the expert believes.

“You just need to understand that if the growth rate is high and the region becomes subsidized, it will move to a different status,” adds Igor Nikolaev, head of the strategic analysis department at FBK-Pravo. Accordingly, he is sure, this measure is good in that it helps reduce the number of subsidized regions and subsidies in interbudgetary relations in general. “As for the transfer of financing for small projects to funds, in this way it is possible to combat both the dissipation of funds and the long-term construction being built with federal money, which it is beneficial for the regions to stretch out for years,” says Mr. Nikolaev. It is also important, in his opinion, that when financing through the regional development fund, corruption risks are reduced.

Irina SKLYAROVA