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Lets take a closer look at the situation with revenues of subnational budgets. Dynamics of basic elements of revenues of the consolidated budgets of the constituent territories of the Russian Federation in the period between 2008 and 2010 is presented in Fig. 14.

Section 2.

Monetary-Credit and Budgetary Spheres Data Source : The Federal Treasury, the estimates were made by the Gaidar Institute.

Fig. 14. Revenues of the consolidated budget of the constituent territories of the Russian Federation in 2008 2010, by component (in nominal terms) Tax revenues of consolidated budget of the constituent territories of the Russian Federation increased by 19.2% in nominal terms in 2010 against the previous year, their share in overall revenues of regional budgets increased from 64.0 to 69.1%. Tax revenues increased in volume by 9.5% in real terms against the level of 2009 whereas kept decreasing by 12.9% against the level of 2008. One may say that in general tax revenues of regional budgets therefore failed to catch up with the pre-recession values both in volume terms and as percentage of overall revenues of the consolidated budget of the constituent territories of the Russian Federation (this share was 70.7% in 2008). Tax revenues tended to decrease in volumes by 1.8% in nominal terms. As a result, while in 2008 these revenues accounted for 9.8% of the overall revenues of the budget of the constituent territories of the Russian Federation, they decreased to 8.7% in 2009 and 7.7% in 2010. Transfers from the federal budget also decreased in volume to 6.0% in nominal terms against the level of 2009. In spite of a slight reduction, however, volume of transfers remained beyond the level of 2008 in comparable prices (a 4.3% growth in real terms). A similar situation developed with regard to other non-repayable transfers to the consolidated budget of the constituent territories of the Russian Federation: a 14.1% reduction in nominal terms against the level of 2009 and a 32.3% growth in real terms against the level of 2008. It should be noted that most of the other non-repayable transfers from the Fund for the Promotion of the Reform in the Housing and Public Utility Sector. As a result, though a share of non-repayable transfers in revenues of subnational budgets reduced from 27.0% in 2009 to 22.8% in 2010, it kept outstripping the value of 2008 (19.1%). In general, revenues of the consolidated budget of the constituent territories of the Russian Federation increased by 1.4% in real terms in 2010 against the level of 2009 whereas reduced by 10.9% against the level of 2008.

RUSSIAN ECONOMY IN trends and outlooks Dynamics of basic tax revenues payable to subnational budgets in the period between and 2010 are shown in Table 17.

Table Tax revenues inflow to the consolidated budget of the constituent territories of the Russian Federation in 2007 2010, (as % of GDP) 2007 2008 2009 Tax revenues, total 10.88 10.63 9.78 10.including:

Corporate profit tax 4.60 4.25 2.76 3.Personal income tax 3.81 4.04 4.29 4.Excise taxes on goods sold on the territory of the Russian Federation 0.54 0.46 0.63 0.Lump-sum taxes 0.37 0.39 0.39 0.Property taxes 1.24 1.20 1.47 1.Natural resource taxes, dues and regular charges 0.23 0.25 0.19 0.For reference: GDP, t RUB 33.25 41.26 38.80 44.Data Source : The Federal Treasury, the estimates were made by the Gaidar Institute.

In general, tax revenues of consolidated budgets increased from 9.78% of GDP in up to 10.16% of GDP in 2010, however, failed to catch up with the level of 2008 (as 10.63% of GDP). Specific types of taxes were multidirectional. Traditionally, there are two taxes which provide basic tax revenues to consolidated regional budgets, namely corporate profit tax and personal income tax, which accounted for about 73% of the total tax revenues in 2010, slightly outstripping the level of 2009 (72%) but being far behind the level of (78%). The main reason is that though profit tax revenues increased by 0.66 p.p. of GDP to reach 3.42% of GDP, it was markedly below the revenues of 2008 (4.25% of GDP). It should be taken into account, however, that regional rate of this tax raised from 19.5 to 20% from January 1, 2009. Therefore, though a certain recovery in the Russian economy in 2010 resulted in growth in profit tax revenues, the revenues remained far from the pre-recession values as percentage of GDP. Another key tax personal income tax showed different dynamics. As reported in the previous review1, personal income tax was found to be one of the most stable types of tax revenues in consolidated regional revenues amidst the economic downturn.

In 2010, personal income tax almost caught up with the level of 2008 as percentage of GDP (as 4.02 and 4.04% of GDP, respectively). The decrease of personal income tax against the level of 2009 can be explained by the fact that it slumped as percentage of GDP in amidst the economic downturn and increased in the period of recovery of the Russian economy in 2010. The following may be highlighted by examining the dynamics of other tax revenues of the consolidated budget of the constituent territories of the Russian Federation.

Excise tax revenues grew steadily as percentage of GDP in the period between 2009 and 2010, mostly because a part of excise tax revenues was transferred from the federal budget to regional budgets in 2009 and excise tax rates in increased in 2010. A share of taxes payable by SMEs (lump-sum tax) remained unchanged over the period under review, accounting for 0.4% of GDP in 2010. Property tax revenues, which increased visibly from 1.to 1.47% of GDP in 2009, slightly decreased down to 1.41% of GDP in 2010. Nevertheless, the revenues were visibly beyond the value of 2008. The role of mineral extraction tax and other natural resource charges in regional budget revenues decreased in the period between 2009 and 2010. Mineral extraction tax revenues decreased considerably in 2010, which was The Russian Economy in 2009. Trends and Outlooks., M. IET, Section 2.

Monetary-Credit and Budgetary Spheres connected mostly with centralization of mineral extraction tax revenues as hydrocarbon material in the federal budget1.

Dynamics of tax revenues in the consolidated budget of the constituent territories of the Russian Federation have been considered in general above. However, analysis by region is also of interest, because the constituent territories of the Russian Federation differed in recession severity and degree of economic recovery. It should be noted that differentiation of tax revenues in regional budget revenues decreased in 2009 and then increased again in 2010.

The relevant coefficient of variation of per capita tax revenues given the budget expenditures index was 87.2% in 2008 and 75.0% in 2009, but increased up to 91.3% in 2010, thus outstripping the level of 2008. Such a dynamics were to a large extent linked with the following aspects. As already noted in the previous review, it was the economically developed regions that were hit most by the economic recession, which resulted in some decrease in interregional differentiation. Late in 2009 the Russian economy began to recover but the constituent territories of the Russian Federation differed largely in degree of recovery and, consequently, growth rates of tax revenues, which resulted in increase of differentiation of per capita tax revenues. To better understand the situation with tax revenues by constituent territory, lets take a look at a breakdown of Russian regions in terms of changes in per capita tax revenues in the period between 2009 and 2010 (see Table 18).

Table A breakdown of the Russian regions in terms of changes in tax revenues of the consolidated budget of a constituent territory of the Russian Federation In nominal terms In real terms Number regions in which tax revenues in 2009 against the in 2010 against the in 2010 against the in 2010 against the level of 2008 level of 2009 level of 2008 level of 3 23 25 Increased by more than 25% 9 52 30 Increased by 10 to 25% 18 4 13 Increased by less than 10% 28 1 10 Decreased by less than 10% 18 2 3 Decreased by 10 to 25% Decreased by more than 6 0 1 25% Data Source : The Federal Treasury, the estimates were made by the Gaidar Institute.

As may be seen from the presented data, a share of tax revenues in consolidated regional revenues decreased in nominal terms in 52 of 822 constituent territories of the Russian Federation amidst the economic downturn in 2009. Exactly the converse situation was observed in 2010, when the Russian economy began to recover: tax revenues in 79 regions increased in nominal terms against the level of 2009. However, since tax revenues decreased at more than a half of the constituent territories in 2009, it was the base effect that had a serious impact on growth figures in 2010. Of special interest, therefore, is comparing volumes of tax revenues The regulation for crediting the mineral extraction tax revenues as hydrocarbon material (save for the flammable natural gas) to the federal budget was increased from 95 to 100% from January 1, 2010 (The Federal Law dd. September 22, 2009, No. 218-FZ On the Amendments to Certain Legislative Acts of the Russian Federation and Annulment of Certain Provisions of the Legal Entities of the Russian Federation).

The Archangelsk Region and the Nenets Autonomous District are regarded as a single constituent territory of the Russian Federation.

RUSSIAN ECONOMY IN trends and outlooks with the level of 2008 in both nominal and real terms in order to assess how the situation with regional budget revenues is improved in 2010. Tax revenues increased in nominal terms against the level of 2008 at 68 regions and by more than 10% at 55 constituent territories of the Russian Federation. However, after allowing for inflation in the period between 2009 and 2010, the picture would change substantially. Tax revenues increased in real terms in against the level of 2008 at 45 regions, accounting for a bit more than a half of the total.

Therefore, almost 50% of the constituent territories of the Russian Federation were facing problems with tax revenues inflow in their budgets, of which 16 constituent territories experienced a 10% decrease in tax revenues, at 2008 values, against 2008. The following constituent territories of the Russian Federation experienced most a negative decrease in real terms in 2010 against the level of 2008: the Tyumen Region ( 42.7%), the Vologda Region ( 33.3%), Moscow ( 24.8%), the Perm Territory ( 24.3%), the Kemerovo Region ( 23.3%), the Lipetsk Region ( 22.5%) and the Khanty-Mansi Autonomous Area ( 18.9%). Hence, in 2010, tax revenues decreased in real terms against the level of 2008 mostly at the high-fiscalcapacity economically developed constituent territories of the Russian Federation, which reinforces the foregoing opinion on that these regions were hit most by the economic downturn.

Lets consider the changes which took place in consolidated budget revenues of the constituent territories of the Russian Federation. In 2009, overall expenditures of the consolidated budget of the constituent territories of the Russian Federation remained at the level of (RUB 6,256.3 bln and RUB 6,253.5 bln, respectively). In 2010 regional expenditures increased by 6.1% in nominal terms against the level of 20082009 whereas decreased by 2.5%.

in real terms against the level of 2009 and by 10.3% against the level of 2008. The structure of expenditures of the consolidated budget of the constituent territories of the Russian Federation was changed as well (see Table 19).

Table Structure of expenditures of the consolidated budget of the constituent territories of the Russian Federation in 2008 2010, ( % ) 2008 2009 Nationwide issues 7.1 7.3 7.Including state and municipal debt servicing 0.6 1.0 1.National defense 0.0 0.0 0.National security and law enforcement 4.1 3.9 3.National economy 19.6 18.1 16.Housing and public utility sector 16.3 13.7 12.Environmental protection 0.3 0.3 0.Education 20.8 21.5 21.Culture, cinematography and mass media 3.5 3.4 3.Healthcare and sports 12.7 12.1 12.Social policy 12.2 15.3 17.Intergovernmental fiscal transfers 3.3 4.4 4.Data Source : The Federal Treasury, the estimates were made by the Gaidar Institute.

The following can be highlighted by examining changes in major subsections of regional budgets. In general, the trends which emerged as early as the pre-recession year of 2009, continued in 2010. Expenditures under national economy and housing and public utility sector kept decreasing to reach 16.6% and 12.6% (against 18.1% and 13.7% in 2009 ), respectively, whereas expenditures on social policy increased even more to account for 17.6% of the overall expenditures in 2010 (against 15.3% in 2009). Expenditures under education as well as healthcare and sports changed insignificantly in 2010: the former kept increasing Section 2.

Monetary-Credit and Budgetary Spheres gradually to reach 21.9% in 2010, whereas the latter kept decreasing gradually down to 12.0%. A slight decrease in expenditures under healthcare was also related to increase in transfers from regional budgets to territorial funds of compulsory medical insurance. As a result, in 2010 a cumulative percentage of sections healthcare and sports and intergovernmental fiscal transfers remained at the level of 2009 (16.5%). Expenditures under nationwide issues also remained at the level of 2009 (7.3%), and expenditures on servicing public and municipal debt increased insignificantly from 1.0 to 1.1% of the total regional expenditures.

With the regard to expenditures under national economy, it is important to consider dynamics of both the entire section and subsections, because this type of expenditures is heterogeneous as opposed to most of the other expenditure sections. Examining the dynamics for certain major subsections under national economy in 2010, we see once again that the trends of 2009 continued developing. Expenditures allocated to support the agricultural industry continued to grow to account for 3.4% of the overall expenditures (3.1% in 2009), whereas expenditures under road facilities and other national economy issues decreased even more to 5.5% and 2.8% (against 6.0% and 3.9% in 2009), respectively.

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