This principle fixes the traditional policy of federal financial support to the regions aimed at providing subsidies for their current expenses and based on the lack of mechanisms necessary for regional redistribution of the subsidies. It results in fixing traditional differences in fiscal capacity level, ruining incentives for regional infrastructure development, and reducing budget investment efficiency. But it must be admitted that some measures have been carried out lately in order to improve the situation. Thus, The concept of reform in the interbudgetary relations in the Russian Federation in 1999-2001 adopted in the Resolution of the Russian Federation Government on July 30, 1998, № 862 presupposes that, besides FFFS to the regions, a Fund of Regional Development (FRD) aimed at particular financial support to the regional development will be established. For the first time, this fund was entrenched into the budget of 2000 (for more detail about FRD functions, see chapter «Forms of federal financial aid to the regions».) But while the principle of equalization in social infrastructure of the RF subjects lacks legislative support, the positive tendencies in the budget development over last years might be lost.
Revenue and Expenditure distribution among different budget system levels
Revenue distribution among different budget system levels of RF
One of the main problems of interbudgetary relations is the possibility to achieve the optimum balance between the revenues received by sub-national budgets as tax revenues and as financial aid. In effect this problem has no simple decision. On the one hand, it seems to be more reasonable to increase the percentage share of total for tax revenues, because, in contrast to financial aid, which does not depend upon the local administration, the larger the tax base of the given territory is, the bigger amount of tax revenues is collected by the sub-national budget. Consequently, it is apparent that a larger share of total for tax revenues is of benefit to sub-national budgets, if compared to federal subsidies, for it proves to be an incentive for regional and local administrations to increase their own tax efforts. The adherents of such an approach suggest eliminating of regulative taxation as it is and increasing percentage share of total revenue base for own-source tax revenues collected by sub-national budgets.
On the other hand, the level of tax base development in close perspective is determined by historical factors rather than by political ones, and in this sense the regional authority tax efforts are limited in their efficiency. While percentage share of total regional budget revenues for tax revenues increases, the revenues redistributed among the regions are reduced, which preserves actual disproportion in the current level of their development. Speaking of the thesis «one tax versus one budget» or about the necessity to coordinate expenditure responsibilities of different budget system levels in accordance with their revenue authorities, it must be considered that budget expenditure responsibilities should include responsibilities for horizontal equalization support. In other words, revenues (and tax authorities) of upper budgets must include some funds necessary for financial support allocated to the lower budgets and aimed at eliminating horizontal misbalance, as well as it must secure that lower budget revenues include transfers received.
The calculations show5 that in case tax revenue delivery to the federal budget is substituted for by the elimination of federal financial support to the regions, the number of regions with the current expenditure deficit would increase as long as budget profits grow in some «prosperous» regions. Analyzing the assumptions stated above, it is possible to conclude that direct federal financial support as well as federal tax share allocated to the regional and local budgets prove to be important instruments of budget regulations. Optimum balance between them can’t be permanently fixed, since it is determined by current economic-political situation, the correlation between regions with the developed tax base and those left behind, differentiation of budget supply level for all of them, the amount of expenditure responsibilities of sub-national budgets and by other factors. Thus, it is assumed that the fixation of a certain standard for tax revenue distribution among the different budget system levels in Budget Code be undesirable (according to i.48 of BC « while distributing tax revenues among the budget system levels, the tax revenues received by the subjects of the Russian Federation must account for 50 or more % of total revenue collected by the consolidated budget of the Russian Federation). In effect, this correlation proves to be true and is currently observed. As such, in 1999, the tax revenues received by the budgets of the RF subjects accounted for 52, 1 % of total tax revenue value received by the consolidated budget of RF (inclusive of 22,2% for tax revenue received by local budgets) or 13,74 % of GDP.
Besides the correlation of the revenues received by sub-national budgets as tax revenues or financial aid, the structure of tax revenues collected by budgets of different levels, i.e. their>
The level of legislative (representative) authority being competent at establishing the tax rates and the territory which a particular tax rate can be applied to, prove to be a formal criterion for the division of total tax revenues into federal, regional, and local. But in practice, legislative authorities of regional and local governments are rather limited when establishing regional and local taxes, since all the main elements of the tax system are determined by the federal tax legislation. According to i.12 of the Tax Code, sub-national governments are qualified to determine a tax rate within the limits designed by the federal legislation, as well as to provide additional benefits, and define the order, payment terms, and accountability regarding the respective tax. Such an approach of the federal legislator can be accounted for by a previous negative experience, when regional and local authorities were qualified to introduce taxes besides those enlisted by federal legislation, as well as to provide benefits regarding federal taxes. In order to discriminate against producers from other regions, regional governments applied such legislative authorities, that resulted in the breach of the common economic system on the territory of RF. Besides, regional authorities being qualified to provide benefits regarding federal taxes, there appeared inner zones of reduced taxation within the territory of RF as attractive for taxpayers from other regions, who re-registered there pro forma, which caused tax revenue losses for whole budget system and a decrease in the tax discipline level.
Thus, to date the fiscal authority value of the federal subjects in Russia is small enough and presupposes neither raising own-source tax revenues, besides those enlisted by the federal legislation, nor increasing tax rates beyond the limits fixed by the federal law, which, in our opinion, corresponds to the current state of the Russian federalism. Nonetheless, the fact that regional and local governments lack the authorities to mobilize additional fiscal sources can’t be neglected while regulating other aspects of interbudgetary relations, first and foremost while solving the problem of unfunded mandates, which will be further discussed in detail.
Another basis for the>
Unlike own-source tax revenues, regulative revenues by their definition are qualified as temporary revenue sources, nevertheless, the time-period of their fixation is of vital importance. In order to avoid negative consequences of annual changes introduced into the revenue base of sub-national budgets, the Budget Code gained a new rule, which proclaimed that standards for tax revenue distribution are fixed by respective budget laws, taking effect over a 3-year period (both in case of allocating regional and local share of total federal tax revenue and in case of allotting the RF subject share of total for federal and regional revenue to local budgets)
Unfortunately, there are a number of norms within the Code contradicting this sensible principle. For instance, i. 48 of BC gives the following definition of regulative revenues:» Regulative budget revenues are federal and regional taxes and other payments, which determine standards (in per cent) for the assignments received by the budgets of the RF Subjects or local budgets for the next fiscal year, as well as on a long-term basis (over a 3-year period).» However, as was mentioned above, ii. 50, 52, and 58 of BC do not allow fixing regulative revenues for a period under 3 years (unless some changes in the tax legislation occur). Another contradiction is manifested by i. 58, which says: «Budget own-source revenues delivered to the Subjects of the Russian Federation from regional taxes and other payments, as well as from the federal tax revenues and payments allocated to the Subjects of the Russian Federation could be allotted to local budgets on a permanent basis either totally or partially as a percentage share determined by legislative (representative) bodies of the RF Subjects for a period of 3 or more years.» However, by ii 47 and 48 of the Code, it can be concluded, that revenues allocated on a permanent basis, are significantly different from those allocated on 3-year period basis. While the former refer to budget own- source revenues, the latter are considered to be regulative revenues. Therefore, we can’t treat these notions as equal as it is done in i. 58. It is more reasonable to state, that assignments' shares of total for federal tax revenues for allocated to the Subjects of the Russian Federation could be transferred to local budgets as a regulative revenue source on a 3-year standard basis, as well as shares of total regional tax revenues for local budgets could be allocated either on permanent or temporary basis for over a 3-year or a longer period.
Taking into consideration, that all the mentioned discrepancies between the norms of BC might cause serious problems in legislative practice, it is necessary that ii. 48 and 58 of BC be formulated according to the general principle established by i.52, which states that increment standards received from regulative tax revenues can’t be changed within a 3-year period, unless any valid changes are introduced into tax legislation. An equivalent principle should be fixed in the Law of «Fiscal Basis of local self-government in RF», while the possibility of fixing the assignments received from regulative taxes by local budgets for a period less than 3 years should be eliminated.
Besides, it is necessary that ii. 50 and 52 of Bc, which allow to reconsider the assignments' standards received from the federal and regional tax revenues «provided that tax legislation is changed» be detailed. These legal regulations were formulated while standards of tax revenue distribution among budget system levels were regulated by tax legislation. As it was noted above, as soon as the Tax Code takes effect in full, the norms will be given up. No doubt, some changes in tax legislation, e.g. concerning methods of administration, might entail re-distribution of tax revenues among the budgets, but the present rules allow an arbitrary manipulation of the revenue base of lower-level budgets. In order to re-establish fixation/ allocation standards of regulative revenues it is enough to introduce any (inclusive of editorial) changes into tax legislation.
The distribution of expenditure among the levels of the RF budget system
The capacity to provide correlation between budget revenues at each level and their expenditure responsibilities proves to be one of the main characteristic features of the interbudgetary system. Naturally, it is impossible to achieve absolute coincidence, and any federative state faces the problem of so-called «unfunded mandates «, i.e. the discrepancy between the expenditure accountability value, as delivered by federal legislation to sub-national budgets and the revenue sources value of these budgets.6 But currently in Russia the gap between the budget system capacity and federal expenditure responsibilities acquired a daunting character. Mostly, if resulting from the legislation of the first years of the Russian federalism, which consisted in securing budget expenditures regardless of any analysis of the budget consequences or any reference to actual sources of financing. The Negative consequences of such a situation, first of all, manifest themselves by the fact, that fictitious unfunded legal regulations cause public mistrust of the State and laws adopted. Secondly, it ruins the integrity of one legal space: under the condition of revenue deficit, if compared to total expenditure needs, established by the federal legislation, the context of federal laws of financing is adopted by each region on its own. Thirdly, it provokes sub-national budgets into increasing their credit debts: the judicial authorities, dealing with creditor claims to sub-national budget based upon legal norms of the federal legislation, recognize the priority of the latter over the regional budget legislation and, therefore, might enforce regional budgets to withhold the funds from the account. The solution of the unfunded mandates’ problem can’t be found without taking stock of federal system of Standard acts based upon consolidated budget expenditure. The goal of making such an inventory should consist in enlisting federal standard acts actually financed (either totally or partially) by the budgets of each level within the budget system, and defining correspondence of actual budget expenditures at each level to the distribution of expenditure responsibilities among the budget system levels determined by the Budget Code, as well as to the revenue sources value. Regarding each kind of expenditure entitled by the federal legislation to sub-national budgets one of the following decisions should be made: either its suspension and elimination or its preservation under the condition of total or partial offset of the respective expenditures from federal budget, or without any offset.
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