Chapter 2. Legal Aspects of Fiscal Federalism In the Russian Federation
Among all the aspects of the budgetary relations between the Russian Federation and its subjects, the issue of interbudgetary relations doesn’t prove to be one of those that are subject to proper legal regulations. The Budget Code, which took effect on January 1, 2000, and became a turning point in the development of budget legislation, was of little concern to interbudgetary relations. Although a chapter of the Code features such relations (Chapter 16), its legal regulations are just of declarative and definitive character and are not designed for direct implementation. To a great extent, this results from the fact that interbudgetary relations generally reflect the level of federative relations, which are currently under formation. By the time of debating the Budget Code at the Government, tactical scheme of the federal policy in this field had only been outlined. (see: The Reformation Concept in the sphere of Interbudgetary Relations in the Russian Federation in 1999 to 2000, approved by the Resolution adopted by the Government of the Russian Federation on July 30, 1998, № 862). Under such terms, imposing rigid legal provisions on interbudgetary relations would be premature and even undesirable. In the chapters of the following paper we have made an attempt to reflect the key tendencies in the development of the interbudgetary relations in the Russian Federation relying upon the comparative analyses data of the federal budget legislation for the recent years and on analytical issues for budget projects submitted by the Government to the Federal Assembly.
The Budget System Structure in Russia.
After the dissolution of the USSR at the end of 1991, a legislative basis was laid for the tax and budget systems in Russia as an independent state.
According to the RSFSR Law of «Budget Structure Basis and Budget Regulations in RSFSR» of 1991 (which had been the basic legal regulation act in the budget structure field before the Budget Code was passed in July 31, 1998) the RSFSR budgetary system comprised the following independent constituents: the federal budget of RSFSR, the budgets of the republics included in RSFSR, territorial budgets, regional budgets, budgets of the cities of Moscow and S.-Petersburg, autonomous regions’ budgets, district budgets, municipal budgets, regional district budgets, municipal district budgets, budgets of villages and rural areas. At the outset of the observation period, as well as to date, the budget system of Russia consisted of 89 budgets of the second level (21 republics, 10 autonomous districts, 6 territories, 1 autonomous region, 51 regions, the cities of Moscow and S.-Petersburg).
According to the law of «Budget Structure Basis and Budget Regulations in RSFS» the unity of the budgetary system in Russia was provided by a common legislative base, through unified budget>
Alongside with the principle of budget system unity, the principle of budget independence at different levels, which was secured by own-source revenues and the authority of governments at each level to define the expenditure policy for corresponding budgets, was declared.
The basis for the Russian tax system was laid by the law of « Tax System Basis» adopted in 1991 and settling general principles for tax system in Russia including kinds of taxation, fees, and other payments. According to the law, three types of taxes are distinguishable: the federal taxes, the taxes raised by republics constituting the Russian Federation, territories, autonomous regions, autonomous districts, and local taxes. The list of the federal, regional and local taxes adopted in items 19 to 21 of the law still remains valid.
While the territorial structure, constituting the Russian Federation, hasn’t changed since 1978, the political system of Russia declared in the Constitution of 1978 was much different from the current system. First of all, no «Subjects of the Russian Federation» were dwelled upon in the Constitution of 1978. The Republics formed on the basis of the national principle had a larger scope of rights if compared to territories and regions based on geographical principle though the latter often excelled the former in population. Besides, there were some specific differences in the legal status of the national autonomous districts, situated within the territories and regions of Russia. As a rule, they didn’t have direct relations with the federal budget (avoiding the respective territorial and regional authorities). The fact that the principle of equal legal status was neglected, determined an absolutely discreditable nature of the interbudgetary relations.
Local authorities did not have their own budgets up to 1991: they were financed according to the expenditure calculations made by the regional authorities. For the period since July 1991 up to passing the Federal law of « General principles of self-government in Russian Federation» on August 28, 1995 self-government authorities in the largest municipal units had a right to build up the budget on their own. But the legal status and, therefore, the budget authority degree of various municipal units was different. Rural and small urban settlements failed to be subjects of interbudgetary relations with the regions, while larger municipal units within the territory of their dislocation provided financing for them.
A new budget system structure was determined by the legal regulations of 1993 Constitution and the Law of « General principals of Self-government in the Russian Federation» adopted according to it, the latter dealing with the matters of the Russian Federation Political System. All large national and territorial administrative units received an equal status of the Russian Federation subjects. The introduction of the term «subject of the Federation» into the legislative practice wasn’t just pro forma but meant the transition of all the territories comprising the Russian federation into legal state units, which determined regulations imposed on the relationships on the basis of the agreement and the recognition of their independence in the matters beyond the federative responsibility. The distribution of the authorities between the Russian Federation and its subjects resulted in the three spheres of authorities fixed and defined by the Constitution. The list of the responsibilities given to the Federation is short enough and includes such traditional authorities of the federal government as currency, credit, and customs regulations, monetary emission, the federal budget, the nuclear industry, the federal transport, foreign policy and international relations, national defense and security. The Federal laws applied direct within the territory of the whole country support the issues of the federal authority. The list of authorities shared by the Federation and its subjects is considerably longer. It comprises most matters of legislative regulation inclusive of the health care, public services, culture, labor, family, housing, land, water, and forest resources legislation. «Federal laws as well as laws and other legal regulations adopted by the subjects of the Russian Federation on the basis of the Federal laws» are enacted according to item 76 of the Constitution, which deals in authorities shared. The Subjects of the Russian Federation have all-encompassing power of the issues besides those of the federal competence and those shared by the Russian Federation and its subjects (i.e. the issues of the so called «residual competence»). Within the constitutional principal of authority distribution between the Russian Federation and its Subjects, the Budget Code (items 84 to 87) distinguishes expenditure competence for each of the budget system’s three levels (the federal, the regional and local budgets) as well as expenditures shared.1 According to part 4, item 5 of the Constitution « all subjects of the Russian Federation acquire equal rights within their relations with the federal authorities». The legal status of autonomous districts, which, in accordance with part 4 i. 66 of the Constitution, are ranked with territories or regions, proves to be specified. The uncertainty of this issue in the Constitution ignited a debate on the legislative consequences of such a status for the territories and the regions, on the one hand, and the respective autonomous districts, on the other. The discussion was carried on until the Constitutional Court of the Russian Federation provided official comments upon p.4 i.66 of the Constitution in its Resolution № 12-P adopted on July 14, 1997. According to these comments, «the fact that an autonomous district comes to be a constituent of a territory or a region means sharing the land and the population with the territory or the region to which the autonomous district belongs, as well as having common bodies of the state authority, which exercise control over the district within the limits settled by the federal law, the charter of the corresponding subjects of the Russian Federation as well as by the agreements between their authorities.» At the same time, joining a territory or a region as part does not affect the district in terms of rights equality as a subject of the Russian federation, especially as long as its relations with the Federal center are concerned. In the interbudgetary practice, this was reflected through the possibility to establish direct relations with the federal budget inclusive of the federal financial support, which might be allocated direct, avoiding the budgets of the corresponding territory or region. Shared (with the Federation) tax revenues raised on the territory of autonomous districts are transferred to their budgets according to general standards and are not redistributed between the district budget and the respective territory’s or region’s budget. Natural resource taxes don’t prove to be an exception to the rule notwithstanding that the amount of coal and other mineral resources that several autonomous regions obtain (e.g. the Yamalo-Nenetsky, Khanty – Mansiysky, and Taimyr autonomous okrugs) turns to be of national value. The revenues generated by coal-mining and other mineral resource industries are collected by the autonomous districts’ budgets according to the standards equivalent to the revenue distribution standards for other regions (30 and 25 per cents, respectively). In order to avoid possible conflicts between autonomous districts and territories or regions to which they belong, that might be ignited by this largest revenue source, the federal center shares half of its revenue value part with the territories and regions (20 and 12,5 per cent respectively)2. Thus, it must be assumed that equal budget rights exercised by all subjects of the Russian federation are currently secured by the federal budget.
Another considerable change in the budgetary system structure, which is determined by the Constitution and the law of «General Principles of local self-government in the Russian Federation» adopted on August 28, 1995 was the status equalization of all local budgets, which lead to the formation of the last (third) budget system level. The Constitution relies upon a settlement principle of local self-government structure, which declares the recognition of the local self-government right for residents of any settlement regardless of it’s size. Alongside with that, the law of «General Principles of local self-government in the Russian Federation» does not presuppose any subordination between municipal units. Item 6 of this law reads:» in case there are any other municipal units within the territory of a given municipal unit (except for a city), subjects of municipal competence (municipal jurisdictions), items of municipal property, and sources of municipal budget revenues are distributed under the law adopted by the subject of the Russian Federation, and regarding inner municipal units of a city, by the Charter of the city.» This issue assumes that one municipal unit can’t determine the budget revenue sources for other municipal units, in particular, they can’t redistribute financial aid, received from the regional budget (except for the relations between a city and its interior unit). This concept formulated in the Constitution and the laws of municipal self-government had also been framed in the Budget Code, which declares in i. 129 that all municipal budgets should be equal with regard to the regional budget.
However, as was mentioned above, the local self-governmental system, which was shaped historically, has a two-level structure: in most regions small urban and rural settlements with neighbouring territories comprise a municipal district. And actually, the legal regulations quoted above are not obeyed almost anywhere: most regions prefer to maintain their relations with large cities and districts delegating them an authority to redistribute financial aid received from the regional budget between minor municipal authorities. Most subjects of the Federation evade the responsibility of distributing revenue sources between local budgets of different levels. Thus, the de facto basic subjects of local self-government defined by the Constitution as rural and urban settlements, fail to obtain own-source revenue and receive financial support according to their expenditure needs, which apparently contradicts the budget rights of local self-government.
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