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Percentage share of FFSR transfers of budget expenditures for RF Subjects.








Source: RF Ministry of Finance; estimates by the authors.

With regard to the FFSR transfers as a kind of the federal financial aid rendered to the Subjects of the Federation, an analysis of financing the regions highly dependent on the federal aid (referred to as depressive or highly subsidized RF subjects) should be adduced hitherto. The issue of highly subsidized regions having been touched on above in this paper, the criterion to define these regions was that of total for the federal financial aid. The resultant data came to evidence, that those Subjects of the Federation receiving the larger part of the federal funding are not regions highly dependent on the federal aid in most cases. The analysis of the FFSR transfer distribution structure reveals a different picture. The FFSR distribution scheme implies, that the transfers amounting 20% of the aggregate FFSR funds are delivered to the Subjects having the least fiscal capacity (adjusted for the cost reference of the normative expenditure needs) with regard to the funds, received while allocating 80 % of the FFSR funds. This criterion might also be applicable for defining a status of a highly-subsidized region. In this case, the scope of highly-subsidized RF subjects would embrace 33 regions8, i.e. somewhat less than a half of such aid recipients. Thereby, the share of the transfers to the regions outlined has been steadily rising for the whole FFSR lifetime from 45% in 1995 to 63% in 2000 (the FFSR funds distribution for 2001 is projected at around 65% of the aggregate transfer amount to be directed to highly-dotable regions).

It is notable, that outlining highly-subsidized regions on the basis of involving an RF Subject in the distribution of 20% of the FFSR funds at the second stage would not be a perfect criterion to define the actual dependence of such RF subjects on the financial aid. On the one hand, a criterion like that means the real budget revenues value, provided by the federal center (with regard to the interregional differentitation of the federal services' costs and amount) which is naturally the case for the regions having the least fiscal capacity. On the other hand, in case there is some certain scatter to be found within the regional tax resources rates after the first FFSR part has been assigned, the number of recipiens subject to the transfer’s second part would increase to comprise the majority of the regions (implying to disperse this transfer part among a large number of the RF subjects), since the applying FFSR distribution scheme doesn't presuppose applying any restrictive mechanism hitherto. It should further be regarded, to what extent the highly-subsidized RF subjects' bulk correlates with the actual transfer value for the regional budgets.

Of the 30 RF Subjects having top transfer shares of the consolidated regional budgets' expenditures in 1999/2000, there was but a single region devoid of the right to an equalization transfer of the FFSR 20% for the respective period (the Republic of Kalmykiya). All the other regions are enlisted in the interbudgetary equalization process, provided with a minimum fiscal capacity by the funding distribution scheme, so the objective set forward by the second stage of the funds' distribution as supporting the highly-subsidized (depressive) regions could be asserted as attained. Considering that on the whole it is more than the half of the FFSR funding that is allocated among such regions, the above result appears to be quite logical.

On the other hand, attention should be drawn to the RF Subjects characterized by a low dependency extent for the FFSR funding. As an example, the transfer share of the budget expenditures funding happened to account for 5 % and less with 11 regions in 1999. In 2000, the number of such RF subjects dropped to 9. Thereby, the size of the regions itemized should however be considered (the Belgorodskaya, the Vologodskaya, the Lenigradskaya region etc.). While the FFSR transfer percentage share of their budget revenues was insignificant, they happened to have received 24% and 16% of all the FFSR transfers, respectively. Should a modification be introduced to the FFSR funds distribution scheme to further expell such-like regions from the transfer recipients, the efficience would evidently rise for this federal aid type9.

Thus, the following conclusions could be drawn with regard to the transfers from the Fund for Financial Support to the Regions. First of all, despite growing its significance within the aggregate federal-to-the-regions funding amount, this financial aid type has noticeably diminished its funding role for the expenditures of the RF Subjects' budgets, all in all for the whole FFSR age. Secondly, a combined smaller share of the regional budget expenditures, FFSR being the funding source for them, is simultaneous to the transfers' re-distribution between the recipients as well as to the number contraction of the RF Subjects empowered to receive the FFSR transfers. Thirdly, the interregional transfer redistribution, determined by the change to the FFSR distribution scheme, has resulted in gradual shifting the transfer distribution interregional structure towards the Subjects of the Federation having the least fiscal capacity and currently receiving around 65% of total for FFSR transfers.

Other varieties of the federal financial aid.

Apart from the major type of finanial aid to the regional budgets, i.e. the the Fund for Financial Support to the Regions transfers, as stated above, there are some other channels to perform the federal financing of the RF Subjects' budgets. Namely, these are subventions, grants, funds assigned as mutual settlements and budget loans. Of these federal aid types, part of regular nature and is meant for special purpose financing of particular regional budget expenditures or for financing specific - , and part is distributed on a non-regular basis and serves the purposes of funding the regions in case of emergency or under the occurance of other demands for extra funding. The key tendencies in the distribution of the above federal support types will be addressed below.

Grants. Grants as a specific kind of the federal support represent a special item in the Financial Aid to the Other Levels of Government section of the Budget and are aimed at financing the budget expenditures of CTE, the jurisdiction of which comprises the facilities of the RF Ministry of Defense and the RF Ministry for nuclear energy. In accordance with 3297-F3 On CTE Federal Legislation dated July 14, 1992, it is asserted that a CTE be understood as a territorial entity, having local autonomous bodies, within which area plant facilities for the development, production, storage and utilization of mass destruction weapons are located, inclusive of those for nuclear and other waste processing, and other military facilities, for which a special regulation of safety performance State secret protection is established, inclusive of specific conditions of habitation.

The noteworthy special position occupied by CTE in Russia’s tax and budgetary system is described by the below items:

  • the budget revenues of a CTE are replenished with all the tax proceeds and other inpayments coming from its territory;
  • additional tax and due priveleges are provided for bodies corporate registered as taxpayers in the CTE tax body by the respective autonomous bodies in the order established by the Government of the Russian Federation (it is essential, that a number of constraints for the CTE authorities to grant the federal tax remissions has been imposed by the Federal Budget and Tax Legislation for the recent years);
  • A CTE budgeted deficit is covered by the subsidies, subventions and grants from the Federal budget funds in the order established by the Government of the Russian Federation. The items in the budget granting the above funds are protected items.

Thus, all the tax proceeds within the CTE area enter in the revenues of CTE budgets, and the budgeted deficit of CTE is entirelly covered by the federal budget funding. Besides, by 1998 the local CTE authorities had had no restrictions for introducing tax remissions of any kinds, inclusive of the federal taxes, for the purpose of plant facility industrial intake to the CTE area. The consequent CTE transformation into a kind of inside-Russia tax harbours, as attracting the enterprises aspiring to reduce their tax payments, resulted from the above. SInce 1998, such practice tended to contract. It was set by the 1998 Federal Budget Act, that all the tax and tallage amounts collected within a ÇÀÒÎ area enter in account of the Federal Treasury authorities, whereas providing tax remisions other than those fixed by the Legislation, be only allowed in the order of granting such privileges' adopted by the government which came into effect in May 1998. The 2000 Federal Budget Act passed end-1999, the right to tax privileges was prescribed to the enterprises having 90% of funds and 70% of transactions concentrated within the CTE area. Above all, it is set by the federal budget law, that the amount of grants to the CTE budgets may be contracted by the tax privelege value as provided by the CTE administration.

In 2001, the tax treatment of the>10.

The examples adduced come to actually signify CTE's being equated to a Subject of a Federation for its budgetary and tax status. In contrast to 1999, as should be noted thereby, this equation was made with no acceptions admitted (the 2000 Federal Budget Act implied the same conditions for all CTE but those locating the federal nuclear centers - in 2000, all the tax and tallage revenues collected within the CTE area entered in those two CTE budgets. Also, a key item of 2001 Federal Budget Law is imposing a constraint upon the tax remissions provided by the CTE administration: it is particularly stressed that, of all the federal taxes, extra remissions could only be assigned to income tax and only for their rates and amounts that are directed to CTE budgets.

As was stated above, the federal budget provides funding to the budgets of>, and directly to the budgets of the latter. However, the grants to the CTE budgets lack a unified calculation scheme. It is also noteworthy, that the funding awarded to CTE as grants could not be ranked with general funding in full, for since 1999, the amounts for capital investments and a transfer for abandoning the CTE area have also been included in the grant as a special item.

In reference with the quantitative analysis of the federal grants distribution to the Budgets of CTE, it should be noted, that the above changes of the CTE tax status have stimulated the grants growth both in their absolute values and within the structure of the federal support to the regions. Since the grants focused on are directly allocated to the budgets recipient of financial aid which are no part of the regional budgets, an interregional structure analysis of the grants’ distribution appears both hardly feasible and inexpedient.

Subventions. In accordance with the RF Legislation, subventions are understood as financial support delivered to the minor budgets on a special- purpose basis for financing particular types of expenditures. Eventually, the Subventions article happened to dwell upon various kinds of financial support. For 1992 to 1993, a ponderous amount (up to the half) of the federal financial support to the regions was allocated according to this article (calculated on an unformalized basis and actually spent in the general manner). Throughout the period of 1994 to 1998, the Subventions federal budget expenditure article was constituted by transfers to one region only - namely, the city of Moscow - as delivered to offset the expenditures of fulfilling the RF capital functions. Later on, in 1999, the form of subventions was taken by granting the funds to support preschedule goods supply to the regions, including hard-to-reach areas, while in 2000, this was the case for part of a FFSR transfer, initially meant for the compensation of the losses inflicted by the transition to the new transfer distribution scheme and actually transferred as subventions, funding the the state benefits to individuals raising children.

Due to the significant denotation variance for subventions issue throughout many years, little interest could be taken in an analysis of tendencies found in the delivery of this kind of financial support, since no denotation compatibility for different years will be accomplished, while for the largest part of the observation period, the financial aid was confined to a single RF subject. In our opinion, it is therefore necessary to dwell upon such a major federal support kind, as the federal funding of pre-schedule goods supply to hard-to-reach (season-subject) areas (the so called north supply). A more in-depth consideration of the relationships between the federal budget and those of the Nothern regions, as well as the north supply problem, is found in the paper Radygin's North project'.

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