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And an increased number of contractees in regular troops will undoubtedly result in a much more impressive growth of the national military organizations combat efficiency than the drafting of young married men with higher education and their appointment as privates to minor posts in the amount of 7.5% of the total number of drafted servicemen. Why are such opportunities being rejected But any questions become superfluous if one remembers that there exist the interests of the structurestaking advantages of the flaws in the military draft system by granting illegal deferments. The actual number of young fathers to whom call-up papers are going to be sent is by several times higher than the number of those who indeed are going to be drafted. The situation is fraught with corruption: someone may be drafted, and another left in peace. The bribe-giving base becomes substantial, the target contingent more prosperous than 18-year-old boys, and the fathers are not going to abandon their babies in order to hide from draft So, the unreasonable (at a first glance) actions may also be regarded as well-substantiated. Most probably, the level of incomes of unlawful structures, which, according to the INDEM Foundations estimates, in 2005 in the sphere of military draft amounted to more than 350 million conventional units [USD or euro], will not go down in the future nor will diminish their opportunities for lobbying their interests.

Major developments in inter-budgetary relations within the last six months of V. Nazarov Upon adoption of the Federal Law 198-FZ On the Federal budget for 2008 and planned period of 2009 and 2010 on July 24, 2007,with enclosed annexes, where the distribution of inter-budgetary transfers procedure is defined, there were no other major development in the sphere of fiscal relations between the federal and regional levels. Nevertheless, there are two issues worth mentioning in the present survey: first, the decision of Chelyabinsk regional authorities to amend the procedure of granting the Labor Veteran title, and second, renewal of public discussions on redistribution of tax proceeds between various levels of government authorities.

Tsymbal V. I. Metodologiia i opyt otsenki resultativnosti i nekorrumpirovannosti program, napravlennykh na reshenie problem, po-raznomu znachimykh dlia obshchestva i gosudarstva. [The methodology and experience of estimating the performance level and lack of corruption in respect of the programs aimed at providing solutions to the problems of different significance for society and the State.] // Prioritetnye natsionalnye projecty: pervye itogi i perspektivy realizatsii. [Priority national projects: the first results and the prospects of implementation.]. Sbornik nauchnykh rabot INION RAN. [A collection of scientific works of the INION of the RAS]. Edit. Board: Pivovarov Yu. S. (Ed.-in-Chief) et al. M., 2007. P. 71 Amended procedure of granting the Labor Veteran title in Chelyabinsk region Chelyabinsk regional authorities have decided to amend the procedure of granting the Labor Veteran title. The right for that title will be granted to any retirement pensioner with a 35-year labor record (for women) and 40- year labor record (for men). Until recent time only pensioners, who have government awards or relevant credentials, had the right for the Labor Veteran title. At this point, there are 384 thousand of labor veterans in Chelyabinsk region. Since January 1, 2008 the right for the title will be obtained by another 270 thousand individuals. The title provides the right for benefits, granted to that category of population: 50 per cent-discount for housing utilities payments and solid fuels, free public transportation, benefits for dentists services, communications, etc. The amount of funding, allocated from the regional budget for the benefits to labor veterans, will be increased by RUR 1 bln 550 mln. With regard to the decision of Chelyabinsk region authorities, three types of problems should be reviewed.

First, the above decision is to a large extend contradictory to the government reform "on benefits monetization" strategy, as it proposes an expansion of benefits, provided in "natural form". Moreover, the target of social support to the population is unclear, as benefits are provided to the pensioners regardless their welfare.

Second, there are certain problems, related to co-financing of that measure from federal budget. Currently, according to the methodology of donations distribution to the budgets of the Subjects of the Russian Federation for co-financing of certain types of social assistance, to be provided by the RF Subjects in 2008 and for the period up to 2010, the funds, allocated from the federal budget to the RF Subjects for the labor veterans, are estimated on the basis of certain factors: number of individuals, entitled for social support in the RF Subject, regional budget expenditures index, established rates on the benefits, provided to an individual recipient, as well as the level of co-financing, which, in its turn, depends on the regional budget sufficiency.

In case the number of labor veterans is enlarged in the region, a need arises for proportional extension of co-financing. The co-financing level for that type of social benefits for Chelyabinsk region for the year of 2008 is established in the amount of 20.3per cent of estimated fund for labor veterans social support. Apparently, the co-financing level will not be amended. Thus, the level of co-financing for 2009 is planned at 18,8per cent of estimated demand for labor veterans; social assistance and 19.1 per cent for 2010.

Therefore, the decision of Chelyabinsk region authorities, which is considered here, may lead to the annual growth in federal budget expenditures by USD 138 million (at 2008 rate).

As you see, this is the case of "regional financial mandate", when regional authorities take a decision, that directly affects the federal budget expenditures. This situation is inadmissible, as it creates a case for other Russian regions to expand their expenditure commitments and obtain excessive funding from the federal budget.

It is reasonable gradually to abandon the co-financing practice of social assistance to labor veterans, having established, for instance, a transition period of five years, after which the co-financing for this purpose should be cancelled. The "veteran" title can be continuously provided in the regions of Russia, though the criteria for its granting should be substantially different from region to region. Therefore, this trend of social assistance is not an objective and fair measure, and co-financing of related costs from the federal budget in the long run can not be regarded reasonable. An alternative to this decision can be a federal law, setting up equal conditions for the labor veterans in all regions of attribution. Social support to rehabilitated persons, victims of political repressions, workers of military production plants during the WW II could be provided from the federal budget, as those benefits were ensured by the decisions of the upper national government, rather than regional authorities. Thus, that kind of social assistance should be within the responsibility of the government of the Russian federation. However, pursuant the effective legislation as to delineation of powers, the social assistance to the relevant categories of population is assigned to the Subjects of the Russian Federation, and amendments to a number of federal laws are required in order to transfer the responsibilities to the federal level.

An option of assigning a share of corporate profit tax to municipal budgets Speaking at a meeting of the National Boards of municipal entities of the Subjects of the Russian Federation, Mr. V. Putin, the President of Russia, has highlighted, among other subjects, the issue of tax revenue distribution between regional and municipal levels of government authorities.35.

Though the RF President has pointed out to the need to "ensure sufficient financial and material base to municipalities"36 without specifying the relevant sources of the goal achievement, a some of mass media Business&FM newspaper Profits tax is distributed through regions and towns for October 24, 2007.

http://www.rosbalt.ru/print/424809.html have informed, that the statement reflected a proposal to return a share of the corporate profit tax back to municipalities.

Currently, according to Art. 284 of the Russian Federation Tax Code, the tax rate for corporate profit tax is established at 24 per cent. In doing so, a part of tax in the amount of 6.5 per cent is addressed to the federal budget and 17.5 per cent is assigned to the budgets of the subjects of the Russian Federation. In the period of 2002-2004, the amount of corporate profit tax, calculated at the rate of 2 per cent was credited to the local budgets. Later corporate profit tax was redestributed in favor of the federal center and regions due to significant discrepancies in the tax base.

The desire to relocate tax revenues in favor of municipal entities can be explained by two reasons.

Firstly, there might occur a vertical fiscal imbalance between the budget of the Subject of the Russian Federation and municipal entities consolidated budget. Vertical fiscal imbalance occurs when expenditure commitments of local budgets are disproportional to the revenue sources thereof. In other words, if the major share of the consolidated budget revenues of the Subjects of the Russian Federation is addressed to the regional level, but a greater portion of expenditures is assigned to municipal level, the vertical fiscal imbalance takes place. Such vertical fiscal imbalance exists between the federal center and regions.37 However, an analysis of the consolidated budget execution by the Subjects of the Russian Federation for 2006 has revealed practically no vertical fiscal imbalance between regional and local levels: the share of revenue from the regional budgets in the consolidated budget of the Subjects of the Russian Federation is practically equal to the share of expenditures of regional budgets in the the expenditures of consolidated budget of the Subjects of the Russian Federation (83.67per cent and 83.22per cent respectively))38. Hence, there is no need to withdraw significant financial resources from the regions in favor of municipalities to ensure the balance of the budgetary system at the national level. This fact is confirmed implicitly39 by similar indicators of regional and local budgets deficit: in 2006, 36 regions of the Russian Federation have executed the budgets with a deficit, the cumulative budget deficit of city districts was observed in 37 regions, municipalities deficit - in 28 regions, urban and rural settlements deficit - in 13 regions.Secondly, there might arise political and economic challenge of greater fiscal autonomy among local authorities. Local authorities are better informed on local conditions and priorities, than the national government, and even regional authorities, and therefore, are able to take better decisions. The greater differences are there between preferences of local population, and the less capabilities are there in the center or even in the regions (versus capabilities of local self-government) to identify priorities of population in terms of fiscal policy, the greater gains can be obtained from decentralization.41. As opposed to the need to eliminate vertical budgetary imbalance, strengthening of fiscal autonomy of local self-government can serve as a strong incentive for effective transfer of the tax sources from the regional level to local government authorities.

Thus, in 2006, the share of municipal authorities own revenues has made only 42per cent of the cumulative municipal revenues. The balance was covered by transfers from regional budgets, whereas nearly half of them was made in the form of grants and subsidies42. It is evident, that such indicators are insufficient for fiscal autonomy of the electoral level of authorities, which is closest to population.

In view of the above, an extension of share in the tax revenues of local government authorities looks as a reasonable measure. However, corporate income tax, especially in the current conditions, is not the proper source to improve the fiscal sustainability of local governments in Russia. In the background of continuous debates as to criteria of the tax sources, which should be assigned to local budgets, the importance of the following criteria is not argued, as a rule:43.

- tax base should be relatively immobile;

- tax base should be equally distributed between municipal authorities;

V.S. Nazarov. Is there a need for Regional Stabilization Funds/Banking business ., 2007 - 2.

Source: Federal Treasury, IET estimates.

It is worth mentioning, that relatively low deficits of municipal budgets is based not only by financial welfare, but by rigid framework of budget legislation as well. Pursuant Article 92 of the Budget Code of the Russian Federation, the local budget deficit, officially approved as budget estimate by local government for a year, shall not exceed 10 per cent of the total amount of local budget revenues, regardless subsidies from the federal budget and the budget of the Subject of the Russian Federation.

http://www.roskazna.ru/reports/mb.html Oates W.A., 1972, Fiscal Federalism, NY: Harcourt Brace Jovanovich. 810 p.

http://www.roskazna.ru/reports/mb.html Charles E. Mc Clure J.. (2001), (The Tax Assignment Problem: Ruminations on How Theory and Practice Depend on History), National Tax Journal, . LIV, No. 2, 339-363.

- tax revenue should be stable and predictable;

- tax should not provoke unfair competition between municipalities.

In case corporate income tax is selected to be assigned to local budgets, it will not meet any of the above criteria:

- due to transfer pricing the corporate income tax is highly mobile event within the same regional territory;

- tax proceeds distribution is unequal. Thus, in the Krasnoyarsk region the coefficient of average tax per capita in municipalities was 234per cent for corporate profit tax, compared with 72per cent for individual income tax;

- corporate income tax is explicitly unstable, in Russia it is highly dependant on external economic factors;

- assignment of corporate income tax to municipalities will provoke unfair competition between them and negative measures, including attraction of enterprises to the municipal territory with the help of subsidies.

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