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Plus, most tax bases appear overlapped, and a change of procedures of cal culation of a given tax may entail changes in other tax bases. The federal center can amend the tax law in the part of taxes and levies collectable to the federal budget, which may result in a contraction of the tax base in the part of taxes and levies sub ject to collection to regional and local budgets. For example, an increase of import duties that are collected exclusively to the federal budget may result in a contrac tion of the corporate profit tax base, a considerable proportion of which is collected to budgets of the Federations Subjects. According to the Concept, such a contraction of the tax base does not require any compensation from the federal budget, albeit its effects on the consolidated budget of a given Subject of the Fed eration to a significant extent appear analogous to the direct centralization of cor porate profit tax in the federal budget. Thus, the suggested by the Concept way of securing stability of the tax law and interbudgetary relations in RF appears formally correct, however, in reality it faces fairly rigid constraints. This calls for calculation in the medium run of the vertical budgetary imbalance with account of revenue sources, their instability, and expenditure obligations of all the levels of govern ment. With account of thus calculated value of the vertical budgetary imbalance, RUSSIAN ECONOMY IN trends and outlooks that should ensure a match between revenue sources and expenditure obligations of all the tiers of government.

To enable regions to efficiently exercise the medium term budget planning, the Concept provides for timelines with regard to enactment of federal acts on in troducing amendments to the RF law on taxes and charges effective since the start of next financial year. Such federal acts should be promulgated no later than in a month prior to the date of submission to the State Duma of the Federal Assembly of RF of the bill on the federal budget for next financial year.

To the same effect, the Concept suggests to specify the composition of the budget classification by completing the transition to the legislative approval of uni form (to all the budgets of the national budgetary system) groups and subgroups of the classification of expenditures, groups and items of operations of the public ad ministration sector, as well as to introduce an ultimate timeline for introduction of amendments to the budget classification.

An important novelty suggested by the Concept became new procedures of the annual indexation of the volume of resources of the Federal Fund for Financial Support in the event the actual level of inflation (CPI) in the reported year has proved to be greater than the projected one, it is necessary to increase the volume of resources of the Federal Fund for Financial Support of the RF Subjects by the difference between a volume of FFSR resources approved for the reported finan cial year and an estimated volume of its resources, proceeding from the actual in flation rate multiplied by inflation rates projected for the current and next financial years. These procedures of indexing the FFSR volume compensate for a greater inflation rate vis a vis the projected one, bit with a one year lag. If, for instance, in 2007 inflation is higher than planned, the 2007 FFSR volume should remain un changed, while that for 2008 should be increased. It has to be noted that such a lag is likely to form a permanent defect, the significance of which would be reduced to minimum under a far lower inflation rate and/or a better quality of projecting of the consumer prices dynamic. Thus, these particular procedures of indexing the FFSR volume can be indisputably perceived as positive ones.

The Concept also specify another critical avenue of addressing the objective of solidification of the RF Subjects financial independence, namely, improvement of the structure of interbudgetary transfers allocated from the federal budget. In addition to main forms of provision of interbudgetary transfers (FFSR, FC, the Fund for Reforming Regional and Municipal Finance, the Federal Fund for Co Financing of Social Expenditures, the Federal Fund for Regional Development, and budgetary loans), whose formation and distribution has been mostly formalized, under the evolving tax system and assignment of expenditure obligations from one level of the budgetary system to another, there occurred a rise in the employment of other interbudgetary transfers in the form of subsidies and subventions. They are allo cated beyond the formalized system framework, without linking them to the current financial aid delivered in the frame of the main forms of interbudgetary transfers and without account of the regions level of budget sufficiency. That substantially diminishes effects from provision of interbudgetary transfers on the whole. The Concept declares the necessity of systematization of the allocated interbudgetary Section Monetary and budgetary spheres transfers, including a strict observance with the principle, according to which the financial aid should be allocated with account of the level of budget sufficiency of a given Subject of the Federation.

The Concept pays a particular attention to improvement of mechanisms of distribution of investment financial aid the federal budget allocates to the Subjects of RF. Given the promulgation of the federal acts on division of powers between the federal bodies of the state power, government bodies of the RF Subjects and local self governance bodies, it is proposed to distinguish the financing of investment measures that result in the growth of the federal property from those which entail the rise in the regional property.

The Concept also suggests to design and introduce mechanisms of monitor ing and evaluation by the federal bodies of executive power of efficiency of exercise of powers the federal center assigns to the government bodies of the RF Subjects and local self governance bodies, and to increase responsibility for exercise of the delegated powers. Basing on the 2005 data on consumption of subventions from the Federal Fund for Compensations, it is proposed to introduce modifications to the procedures of submission by the RF Subjects of reports on execution of the as signed powers, to introduce to the practice of the federal bodies of executive power a preparation of annual reports, which will evaluate the efficiency with which the RF Subjects exercise the delegated powers. The monitoring system in question is likely to induce two different effects, that is, on the one hand, such a system may help promptly identify defects of the delivery of public goods and improve its qual ity. On the other hand, provided a great deal of public goods delivered by regional administrations falls on the federal mandates, it will help the federal center to tighten its control over regional authorities. That would lead to a degradation of competitive features of the Russian federalism in favor of corporative ones. The federal center would be increasingly perceiving its regional counterparts as branches of the same corporation, which will inevitably result in a serious unifica tion of most expenditure programs and, consequently, in an equally inevitable fall in their utility function for many Russian regions.

Creating incentives to boosting revenues to budgets of the RF Subjects and local budgets The Concept suggests a dual policy in the area of creation of incentives that should help boost revenues to budgets of the RF Subjects. On the one hand, the policy implied a tighter control over the so called subsidized regions, while offer ing incentives to regions that have managed to expand their tax bases on their own, on the other.

Overall, the approach appears rational, however, specific ways of its imple mentation can be questioned.

First, in order to create incentives to the RF Subjects and local authorities to boost revenues to their respective budgets, the Concept proposes to legally intro duce conditions of execution of budgeting for the RF Subjects depending on the extent to which they are subsidized. On the basis of proportions of interbudgetary transfers allocated from the federal budget over the past 2 of 3 reported years (ex cept for funds assigned for the sake of exercising the delegated powers) in the vol RUSSIAN ECONOMY IN trends and outlooks ume of their own budget revenues, the RF Subjects are split into three groups, each being subject to different requirements.

So far as the RF Subjects in whose budgets the share of financial aid from the federal budget does not exceed 20% of the volume of their own revenues, are con cerned, the Concept suggests application of general measures set by RF the budget law in the part of compliance with caps on the ultimate size of an RF Sub jects public debt and budget deficit.

As concerns the RF Subjects in whose budgets the proportion of financial aid from the federal budget accounts for between 20 and 60% of their own revenue volume, the Concept suggests introducing additional caps on expenditures on maintenance of government agencies and labor compensations to public servants of an RF Subject, as well as introducing observance with ultimate sizes of wage rises payable to budget employees.

In addition, the Concept suggests introducing for such RF Subjects a provi sion regarding compulsory compliance with the RF Ministry of Finances regula tions with regard to budgetary matters, which are primarily aimed at elimination of problems in the part of accounts payable that arise in the course of the budget execution.

For the RF Subjects, in whose budgets the proportion of financial aid from the federal budget accounts for over 60% of their own revenues, it is imperative to set the following requirements with regard to control over efficiency of their consump tion of budgetary funds:

- introduction of additional caps on the volume of their public debt and budget deficit;

- compulsory conclusion of agreements with the RF Ministry of Finance on meas ures on increasing efficiency of consumption of budgetary funds and tax and non tax revenues to the budget of a RF Subject;

- imposition of a ban on financing out of budgets of the RF Subjects of measures that, according the RF Constitution and law, do not fall under jurisdiction of gov ernment bodies of the RF Subjects;

- conduct of an annual examination of the execution of the budget of a RF Subject by the Accounting Chamber of RF or the Federal Service for the Financial and Budget Supervision.

It is proposed to introduce similar requirements to relationship between the RF Subjects and municipal entities.

Such an approach appears methodologically incorrect.

First, the Concept and the Budget Code contain rather vague formulations of some requirements to the subsidized regions in. The Budget Code presently sets a number of restrictions with regard to the RF Subjects budgetary policies, how ever, the failure to formally comply with restrictions approved by the Budget Code often appears related to imperfection in the formulations of the requirements in question. Thus, in compliance with the Budget Code, one of the conditions of eligi bility for subsidies from FFSR is observance with the correlation between the size of labor compensations due to civil servants of the RF Subjects and the respective categories of the federal civil servants. The realization of this condition as a direct Section Monetary and budgetary spheres acting provision entails contradictions, as the mission of the territorial bodies of the federal government differs from that exercised by bodies of regional administra tions. Their functions, an organizational structure and competence likewise differ from each other. Government bodies of the RF Subjects can practice their own ap proaches to improvement efficiency of the government and municipal service in a region, which can suggest greater labor compensations vis vis those due to the staff of the territorial subdivisions of the federal bodies of the executive power. A correct comparison between the respective levels of labor compensations is inhib ited by the lack of a formalized methodology of the comparison between sizes of labor compensations between the two groups concerned (which would otherwise take into account the above factors).

At the same time, in compliance with the budget law, in a municipal entity, to which subsidies are granted from the budget of the RF Subject, the sizes of labor compensations to local legislature, members of the elected local self governance administration who exercise their powers on the permanent basis, and municipal staff are set at a level not greater than capped values set by the Subjects local law, which suggests setting amounts of labor compensations by each position and kinds of additional compensations. This suggests not only a detailed regulation of operations of local self governance bodies in the part of the staff policy and list of members of staff, but requires considerable time and efforts on the part of the staff of the RF Subject. As well, it conflicts with provisions of Federal Act of Oct. 6, 2003, No. 131 FZ On general fundamentals of organization of local self governance in the Russian Federation.

The above necessitates respective amendments to the RF law, which should specify both requirements themselves and measures on enforcement of compli ance with them, designing detailed procedures, which should introduce a method ology of evaluation of compliance with the requirements of the budget law and regulations of sanctions against those RF Subjects that breach the law, including economic and administrative mechanisms.

Secondly, so far as solidification of the regional authorities financial inde pendence is concerned, it appears inappropriate to give preference to the meas ures that per se imply introduction of various sanctions against the regions that re ceive great volumes of financial aid from the federal budget. There are, at least, two reasons for such an assertion.

First, a possibility for imposition of restrictions for the regions due to reasons not associated with a violation of the budget law or an inefficient spending of budg etary funds, may give a rise to incentives to distort the respective statistical data and a lower transparency of the budgeting, rather than a boost to the taxbase, which clearly conflicts with other provisions of the draft Concept.

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