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  • to provide better conditions for regional public employees if compared to federal employees (payroll, business trips and other expenses)
  • to provide budget credits to bodies corporate, which might account for more than 3 per cent of total budget expenditure of RF subject;
  • to provide state RF subject guarantees, which might account for more than 5 per cent of total budget expenditures exercised by the Subject of the Russian federation.

Thus, the transfers received from the FFFSR preserve their generalnature, but the Federation still prevents the regions from using them for the purposes discrepant to federal concept of expenditure preferences. Nevertheless, all the conditions mentioned above seem to be insufficient with regard to the mechanisms of the federal economic and financing policy. We assume that one of the obligatory requirements established for all regions-recipients of transfers from the FFFSR consists in strict obedience to the norms of federal budget legislation (inclusive of the requirements for servicing and discharging credit obligations including credit debts to public employees). In order to escape continuos transfer dependence of strongly recipient – regions (receiving 50 per cent of their total budget revenues from the federal budget) it is necessary that specific conditions of financial aid allocation be stipulated, inclusive of the requirements that the plan of regional budget sanitation mapped out with the assistance of the federal authorities should take effect.

The Fund for Compensation.

As it was mentioned above, in the budget project for 2001 outlined by the government the funds provided for the execution of the most expenditure-taking federal laws such as State subsidies to Citizens having children, Veterans, Social Defense for the Disabled were excluded from the FFFSR and comprised a special fund for Compensation. Since now the federal aid provided for the execution of these laws will be allocated in the form of transfers, subventions, and mutual settlements by accounting the funds of the RF Subjects’ budgets in the Federal Treasury, which will secure federal control over their target application. Another significant change in the approach to financial support for the expenditure needs of such a kind consists in the right to receive compensations from the federal budget gained by donor-subjects of the Russian Federation. Before that, the RF subjects, which did not receive any financial aid from the federal center had to cover the expenditures at their own expense.

As it was outlined in the initial budget project, the Fund was to be formed on the basis of those 15 per cent of total VAT, which were formerly delivered to the budgets of the RF subjects. According to the calculations made by the government, such a redistribution of total VAT revenues proves to be of benefit to most RF subjects for the tax base of this tax fails to be equally distributed. As such, 17 % of total regional VAT revenues share is transferred to Moscow budget, the population of which accounts for 6 %, 55 % is allocated to 10 regions with the population of 28%, as long as 50 RF subject, comprising 40% of total population receive only 20% of regional budgets VAT revenues. The regional revenue misbalance caused resulted in non -equalized social expenditure funding, assigned by the federal laws enumerated above, e.g. some regions provided 100% funding, others failed to provide 10% support. Such a situation enhanced the difference between the regions and deprived the citizens of a right to receive equal social guarantees on the whole territory of the country.

Besides, while designing the Compensation fund model, the Government declared their intention to provide complete equality between the fund amount and expenditure liabilities of the regional budget resulted from the norms of the three given federal laws of social nature. In case the fund fails to provide for all expenditure liabilities to the full degree, some norms of the legislation must be suspended. In particular, the budget project for 2001 entails inserting an amendment into FL of Federal subsidies to the citizens having children, which limits the list of the recipients of the subsidies by those families whose revenues are below minimum living standard. The sequential execution of the approach suggested by the Government could become an important step in solving the problem of unfunded mandates.

Unfortunately, during the discussion of the budget project for 2001 at the State Duma the initial model for Offset fund underwent certain changes. The total amount of the Fund was reduced from 71 116 125 thousand rubles to 33 381 638 thousand rubles (2,8 per cent of total federal budget expenditures or 17.9 per cent of federal budget expenditures on the part of Financial Aid provided for the budgets of other levels) due to exclusion from it the funds aggigned to cover mutual settlements with the regions within the execution of FL Veterans. According to the budget project, adopted after the third reading the total amount of target transfers provided for regional budgets in order to execute federal benefit responsibilities within the FL of Veterans accounts for 4000 mln. rubles (instead of 38 571,2 mln. Rubles) Another 8 351,7 mln. Rubles will be provided for recipient subjects of the Russian Federation as general transfers due to the changes introduced in the initial fund amount and the order of offset fund design. Thus, the amount of the federal budget support delivered to the regions for a special purpose has been reduced by more than twice if compared to the one planned due to the growth of the general part of federal financial aid.

The Fund of Regional Development.

The fund of regional development (FRD) has become another source of federal financial aid. The idea of the fund was for the first time formulated in the Concept of interbudgetary relations’ reform in the Russian Federation in 1999-2001. According to the concept, the FRD consolidates formerly separate funds of the federal budget expenditures (inclusive of those addressed to the federal and regional target programs, the projects of branch financing, etc.), which are aimed at setting within the whole territory of the Russian Federation an infrastructure necessary for the provision of guarantees declared in the Constitution of the Russian Federation and the federal legislation. In order to distribute transfers from the FRD, it is required that minimum objects of social infrastructure to provide public services assigned by the federal legislation be defined on the territory of each RF subject. At the next stage, it is required that total amount of the FRD, distributed among the RF subjects with rather poor social infrastructure, be calculated. According to the concept, the main peculiarity of the FRD consists in its funds being allocated only as transfers, i.e. on the terms of shared financing of target expenditures. The RF subject’s share of the project funding must account for more than 50 per cent. We assume, that such kind of shared financing might be carried out while equalization of economic potential (within the Budget of Development), but as for social equalization it proves to be too tough, for depressive regions often suffer from the deficit of budget current expenditures and are hardly able to accumulate recourses for capital investments.

According to the federal budget project for 2001, the amount of the FRD accounts for 3 335 000 thousand of roubles (0,28 per cent of total federal budget expenditures or 1,78 per cent of federal budget expenditures within Financial aid to the budgets of other levels). The FRD performs an integrity of the assignments providing all kinds of federal target programs of regional development. Within the budget for 2001 the FRD accumulates funds for 41 of such programs.

Despite considerable amount of funds within the FRD, the order and conditions of their distribution are not regulated by the legislation and are controlled by the RF Government. Moreover, the Government do not pursue any clear-cut policy to distribute FRD funds, for the programs launched for the purpose of regional development, which comprise the Fund, were introduced by the Resolutions of the Government in different time-periods and were aimed at different goals, which resulted from regional lobbying rather than from the global federal strategy.

The following facts are explicit to show the glaring discrepancy between current model for the FRD and the concept formulated above. According to the concept, the FRD is qualified to provide financing only for the purpose of social structure equalization on the whole territory of the Russian Federation. As for financial support to the regional industry development, the matter rests within the competence of the RF development budget on a repay basis. But among 41 programs of regional development adopted by the fund 10 do not make use of the term social development at all. In 2001, it is assumed that the FRD will provide financial support for several ecological programs, the program of the Restoration and Development of the Historical Center of St.-Petersburg, the program of seismic stability of national economy utilities in the Kamchatka region, the program of socio-economic development of Sochi, etc. The federal share within financing of different target programs is different. Among the recipients receiving financial aid from the FRD there are regions with a considerably higher level of social infrastructure than average RF level, e.g. St.-Petersburg, Kaliningrad region, Chelyabinsk region, the Republic of Saha (Jakutsk).

Besides, the efficiency of expenditures within federal target programs (of both regional and federal level) in general proves to be low. First of all, it results from the fact that expenditures within these programs are presented out of budget>

With respect to the things mentioned above, it is necessary that the model of the FRD be considerably changed. In particular it is provided that:

  • principles and conditions of the FRD distribution be adopted by the law;
  • take stock of the current programs for regional development in order to introduce repay principles of financing (through budget of development aimed at support on competitive basis provided for commercial investment projects) the projects, which do not correspond the FRD objectives; provide equal rights for the RF subjects in their appeal to the fund; unify the conditions of federal aid allocation
  • to design a legislative mechanism providing for target expenditure of the funds, received within the FTP, inclusive of the FTP financed through the Fund of Regional Development.

The Fund of regional finance development (FRFD)

Like the Fund of Regional Development, the fund of regional finance development appeared within federal budget since 2000. For 2001, it has been planned that its amount will account for 600 000 thousand rubles. (0,32 per sent of total expenditure within Financial aid to the budgets of other levels).

Budget law outlines general goals of the FRFD (activation of financial sanitation of RF subjects’ budgets, support for budget sphere and budget process reform, economic reform incentives), delegating the right to specify the expenditure order to the Government of the Russian Federation, which must rely in this respect upon the agreement achieved with the International Bank of Development and Reconstruction on the loan for definite purposes. To date, the concept of interbudgetary system reform in the Russian Federation in 1999-2001 proves to be the only standard document of the Government, which touches upon the problem of the FRFD expenditures.

According to the concept, the two main objectives of FRFD expenditures are:

1. Granting credits to the regions successful at financial sanitation Non-cash forms of budget execution, the transmission to treasury system, the introduction of control systems for the state and municipal debts, the reconstruction of enterprise debts as well as budget liabilities, the distribution of state and municipal order on the competitive basis, the elimination of out-budget funds, which are not allowed by the federal legislation, etc.) and active at economic reform (the reduction in the funding provided for housing and other branches of economy, the reduction in cross-subsidies for tariffs, establishing a stable and transparent system of interbudgetary relations between the federal and municipal budgets, etc.).

The fact that such credits are target-oriented is not mentioned within the concept explicitly, but considering the goal of the credits, which consists in financial independence and creditability of unsubsidized and lowly-subsidized regions, we can assume that the credits should be technical and should be aimed at market reforms. In this respect, the FRFD proves to be a kind of counterbalance to the fund of regional development, the latter being oriented to the financial support of recipient-regions.

2. Providing technical aid to the authorities of the RF subjects in carrying out budget reform.

Within this sphere, it is assumed that systematic aid be provided for regional and local authorities in finance control, tax and budget development, as well as teaching regional and local financial staff.

* * *

Besides the funds discussed in this part, a considerable percentage of federal budget expenditure within Financial aid to the budgets of other levels

  1. State support for the Road management, which accounts for 20 300 000 thousand rubles (10,9 % of total expenditure within the program)

In 2001, it first appeared within Financial aid to the budgets of other levels along with the elimination of the Road fund, which was responsible, for instance, for subsidies and subventions provided for Road reconstruction, the support for international and interregional communications, as well as transfers for the support and repair of public Roads, which belonged to the RF subjects, unless the highway funds were enough to provide support for them.

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