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Procedures for cash distribution between the recipients of the budget fiscal system24;

Procedure of cash service, provided to the budget system subjects25;

Procedure for opening and serveice of personal accounts RF Ministry of Finance Order dated 1.09.08 . 88 RF Ministry of Finance Order dated 15.08.08 . 80 RF Ministry of Finance Order dated 15.08.08 . 80 RF Ministry of Finance Order dated 15.08.08 . 80 RF Ministry of Finance Order dated 15.08.08 . 80 RF Ministry of Finance Order dated 15.08.08 . 80 RF Ministry of Finance Order dated 15.08.08 . 80 RF Ministry of Finance Order dated 15.08.08 . 80 RF Ministry of Finance Order dated 15.08.08 . 80 RF Ministry of Justice Order dated 15.08.08 . 80 Those innovations imply the extension of the budget process participants, for instance in regard to medium-term expenditures planning.

Moreover, in view of adoption of the three-year budget, the registration budget performance processes by its participants are getting changed. The details of the budget as broken down by items and sub-items can be delegated by the RF Ministry of Finance to the Chief Administrator, who can delegate the functions to an Administrator and further down, ending with the recipient of budgetary funds. These changes are reflected in the above regulations.

Therefore, the Chief Administrator of budgetary funds is given an opportunity to vary the level of detail of the budget assets distribution to the subordinated recipients. This flexible approach will allow the Chief Administrator to improve the efficiency of financial management system through the delegation of certain powers and responsibilities to the level of the recipients of budget funds.

Those innovations are aimed at increasing the involvement of the budget process participants in the electronic workflow of the Federal Treasury. Currently, electronic document management system is used by more than 75 thousand Chief Administrators, which is only about 30 per cent of the total number of the budget process participants. At the federal level, there are 63 per cent of users of the electronic document flow, 47 per cent at the level of Federal budgets subjects and 29 per cent at the level of local budgets.

Table Parameters of the RF Federal Budget in 2006 2008 (% in GDP) 2006 2007 Revenues 23,5 23,9 21,Expenditures 16,2 18,4 17,Deficit ()/ Surplus (+) 7,4 5,5 4,Source: RF Ministry of Finance, IET estimates Federal budget revenues for 2008 amounted to 21,8 per cent of GDP, or 103.3 per cent of the updated budget estimates for 2008. The federal budget expenditures made 17,8 per cent of GDP or 97.7 per cent of the updated budget estimates for 2008. Herewith, it is worth noting, that the problem of irregular expenditures in the past year was not resolved despite the measures taken to do so.

Monthly figures show how the budget funds were spent during the year. For example, in December 2008 the federal budget amounted to 35.8 per cent of GDP. December expenditures made 20.percentage points more than the budget revenue for that month (Fig. 1).

Fig. 1. RF federal budget expenditures within 2005-2008 as broken down by months, per cent in GDP As of January 1, 2009, the cumulative volume of the RF Reserve Fund, denominated in RUR, amounted to RUR 4,027.64 billion, or 9.5 per cent of GDP and the National Welfare Fund made RUR 2,584.49 bln, or 6.1 per cent of GDP. The negative dynamics in revenues to those funds at the beginning of the year (see Fig.2) is based on the fact that oil and gas revenues are accumulated in the federal budget until they reach the annual level of the oil and gas transfer, and only then they are transferred to the Reserve Fund and National Welfare Fund. Revenues from oil and gas sectors transfer to the accounts of national reserve funds is started in August. Therefore, in 2008 the cumulative amount of the Fund of National Welfare and the Reserve Fund has been increased by 5.per cent of GDP and amounted to 15.57 per cent of GDP.

Fig. 2. Cumulative volume of the RF Reserve Fund and National Welfare Fund within 2006-2008, per cent in GDP On the new system of money allowances for servicemen of the RF Armed ForcesE. Trofimova The switching over to the new system of forming and paying money allowances to servicemen, which was announced in 2008, began with the introduction, from 1 January 2009 onwards, of a special form of money awards for servicemen. Although this initiative improves the financial status of some servicemen, the new system clearly fails to resolve the major problems of money allowance. According to the head of the General Staff of the RF Armed Forces General N. Makarov, the ongoing military reform, which envisages both a reduction in the number of officers and praporshchiks (top NCO rank) and an increase in the amount of money allowances being paid to the remaining officers and NCOs, will not require allocation of additional budget resources. However, the IETs estimates point to the contrary.

The methodological part of the research was carried out with the financial assistance from the Russian Foundation for Humanities in accordance with Project No 08-02-00038a The Improving of the Methodology for Assessing the Socio Economic Importance and Rationality of the Russian Army Being Switched Over to the New Method of Recruitment.

The major five principles of the new stage of modernizing the Armed Forces of Russia in the shortest-term perspective were announced by President Medvedev in September 2008. One of the principles was stated to be the social status of the Armed Forces, including adequate wages and proper housing conditions. The President said that from 2009 onwards a new structure of money allowances was to be introduced 28.

The forthcoming changes in the money allowances of military servicemen are matters of interest not only for the countrys leadership but also for society as a whole - because of the sheer numbers of those involved in the process. Unlike all the other citizens of this country, the military serviceman is legally restricted in performing his labor activity. He (or she) does not have the right to engage in any type of labor activity other than that specified as his service duty except for educational, scientific and other creative activity29. It should be noted that, in the past, military serviceman had certain nonmonetary and in-kind incomes (benefits in paying for household utilities, rations in kind, etc.), but in the period between 2002 and 2004 most of them were replaced with equivalent money compensation30. Starting from that time, all the incomes of the serviceman the monthly pay he or she is entitled to (salary) and the money compensation for non-monetary incomes - are combined in the money allowance (MA), representing a single payment for labor. According to the news media, the Minister of Defense has approved a strategic plan for improving the system of money allowances31.

The development of the new structure of MA for military servicemen is taking place within the Ministry of Defense without the community being openly involved in the process32. However, the concrete steps being taken by the countrys leadership and the Ministry of Defense are, on the one hand, impressive, while give rise to certain questions, on the other.

From 1 January 2009 onwards, a new system of payments to servicemen of the RF Armed Forces is being implemented. In accordance with the directive of the RF Head of State, the leadership of the RF Ministry of Defense will pay bonuses to the officers who will have achieved the best results by the end of a year33. In order to materialize the order, a special Inducement Fund in the amount of 100 billion rubles was created. The money will be paid to the military servicemen in the form of money allowance increments. In 2009, 2010 and 2011 the sums earmarked for these purposes will amount to 25, 33 and 42 billion roubles respectively.34 The specific amount of money to be paid to each of the persons to be awarded with a money allowance increment should be specified in a special order of the RF Minister of Defense. In 2009, such bonuses were paid to 34 thousand officers who had achieved the best results by the end of 2008. The amounts of these bonuses are really considerable. Thus, for example, a platoon leader in the airborne troops will be paid monthly up to 60 thousand rubles, a battalion commander about 100 thousand rubles, and a regiment commander more than 130 thousand ru Baranets V. Armiia poluchit noveishee oruzhie, kvartiry i izbavitsiia ot dedovshchiny. Dmitrii Medvedev sformuliroval piat printsipov razvitiia Vooruzhennykh sil (The Army will get the most modern weapons and apartments, and will get rid of bullying. Dmitrii Medvedev has formulated the five principles of the Armed Forces development) // Komsomolskaia Pravda. 29 September 2008.

The Federal Law On the Status of Military Servicemen, of 27 May 1998, No 76 FZ. Article 10, Paragraph 7.

For more details concerning the replacement of the non-monetary and in-kind allowances for military servicemen by money allowances, see Slivkov A. S.. Osnovnye napravleniia materialnogo obespecheniia voennosluzhashchikh v period s 2002 goda (The main directions of reforming the system of material support for military servicemen in the period from the year 2002) // Pravo v Vooruzhennykh Silakh (Law in the Armed Forces).

2005. No 5.

Gafutulin N. K armii budushchego (Towards the Army of the Future) // Krasnaiia Zvezda. The weekly issue of 24 30 December 2008.

Bogdanov S. Bezopasnost prioritet (Security is our priority) // Krasnaia Zvezda. 11 September 2008; Solovev V., Litovkin V. Revoliutsionnye shagi Serdiukova (The revolutionary deeds of Serdiukov) // Nezavisimaia Gazeta. 9 October 2008.

Order of the RF Minister of Defense, of 2 August 2008, No 400 On Money Awards to Officers of the Armed Forces of the Russian Federation.

Gavrilov Iu. Ministr oborony utochnil, kto poluchit dengi iz pooshchritelnogo fonda (The Minister of Defense has clarified who will receive the money from the inducement fund) // Rossiiskaia Gazeta. 25 June 2008.

bles.35 According to Minister of Defense A. Serdiukov, by the end of January, the relevant monetary means should begin to be paid out36.

One cannot but feel joy that the efforts and achievements of some of the Russian military men have been at last highly appreciated by the countrys leadership. However, such a system of awarding cannot resolve some of the most acute problems of MA for military servicemen, which are as follows:

1) Bonuses will not be received by everybody - only by 30 thousand officers, which account for percent of their total number. Of course, this is better than nothing. Nevertheless, such payments cannot significantly improve the financial status of all servicemen.

2) The payment of bonuses cannot solve a number of other systemic problems of MA; for example, they will not eliminate the existing disbalance between the size of AA for servicemen of the Central Apparatus (CA) of the Ministry of Defense and of those belonging to the basic troop component, or increase the proportionate share of base salaries by reducing the number of additional payments, which automatically entail an increase in the size of military pensions37.

3) As the afore mentioned bonuses are meant for officers alone, they can in no way increase the attractiveness of military service in the eyes of most of the future contractees soldiers and sergeants.

And it should be remembered that a considerable MA for soldiers and sergeants is a very important link in the formation of a voluntary contract based army38.

4) Not everything is clear even with regard to the terminology. As is known, a bonus is something that is given on a one-time basis or from time to time, but not on a permanent basis. According to the Instruction on the Money Awards to Officers of the RF Armed Forces (Annex No 1 to Order of the Ministry of Defense, of 2 August 2008, No 400), payment of money to the officers being awarded should be carried out throughout a calendar year (the italics are mine E. T.), on a monthly basis and in equal proportions. But what will happen to the family of a serviceman after the year is over A bonus or an award, however substantial they might be, cannot serve as a substitute for a permanent monthly money allowance which the serviceman and his family should be entitled to for many years to come.

5) From the point of view of servicemen, the most important elements of MA are the system and method, as well as the conditions of allocating the monetary means. They should be strictly defined, otherwise such payments would be harmful for the army by alienating the servicemen and by ruining the officers solidarity, which would in its turn jeopardize the quality of military service39.

The improvement of the structure of MA for servicemen is an element of the process of reforming the structure of the Russian Army (which, in fact, means a crucial transformation of its essence). Another facet of the reform is a reduction in the size of the Armed Forces). A considerable cut in the number of officers and praporshchiks should release a lot of money. Whether or not this money will be enough to significantly increase the MA (not bonuses) for the remaining officers and praporshchiks 40 will become clear only after thorough estimations are carried out.

Rasshchepkin F. Tsena professionalizma (The price of professionalism) // Krasnaia Zvezda. 15 January 2009.

Petrov V. Usilennyi paek (An increased ration in kind) // Rossiiskaia Gazeta. 23 January 2009.

Mukhin V. Perevooruzheniia ne budet (There will be no rearmament) // Nezavisimaia Gazeta. 8 October 2008;

Mikhailov V. Biudzhet s problemami. Uvelichenie raskhodov na oboronu ne pomozhet reshit zadachi vooruzhennykh sil (A budget with some problems. An increase in defense spending will not help the Armed Forces to achieve their goals) // Nezavisimaia Gazeta. 10 October 2008.

Trofimova E. Denezhnoe dovolstvie voennosluzhashchikh glavnyi factor perekhoda k dobrovolno komplektuemoi armii (The money allowances of servicemen are the main factor of the switch-over to a voluntary professional army) // Ekonomiko politicheskaia situatsiia v Rossii. Aprel 2008 goda (The economic and political situation in Russia. April 2008). Moscow: IEPP (IET). 2008. P. 39 44.

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