Grigory Yavlinsky on the fact that well-being and career in Russia depend on the place of birth

Grigory Yavlinsky’s web-site, 4.10.2020

It is well known that the well-being and career of a person in Russia directly depends on the region in which he/she was born and raised. Inequality and injustice begin in our country from the place of birth.

The Pskov regional budget does not have money to procure firewood for the heating season, but the residents of the region regularly pay for the tests of various missiles. In the Saratov region, every third house has no sewerage system, but the taxes of the region’s residents finance a hybrid war in Donbass. The Chelyabinsk budget does not have funds to save the city from an environmental disaster, but Chelyabinsk residents’ money regularly goes to the war in Syria.

The coronavirus and low oil prices have led to a drop in the main sources of income for the Russian regions – income taxes, personal income tax and property taxes (see “What will happen to the economy and why did the oil price fall?”, March 2020). Consequently, the budget deficit of the Russian regions may become the highest since 2000. The Ministry of Finance reports on the debts of the regions to the state. The regions owe the centre 2.15 trillion roubles. By the end of 2020, the state debt of the regions will grow by 300 billion roubles. The debt burden of a number of regions (the ratio of the state debt to the region’s own income) is becoming very high. For example, in Mordovia, Khakassia, Pskov, Kostroma and Oryol regions the deficit of regional budgets can exceed 10 per cent of total revenues. In addition, regional expenditures will grow due to unforeseen but inevitable spending on the fight against coronavirus.

How to fix it?

To begin with, it is necessary to make sure that the residents of the regions themselves really determine how to spend tax revenues. As long as all decisions are made exclusively in Moscow (besides, not in the transparent way), there will never be enough money in the regions for the most necessary things – for healthcare, roads and schools.

It is known in the world that funds are most effectively spent when decisions are made at the level of municipalities by deputies who themselves live in a given district or city. However, in Russia, the opposite is true – municipal councils and city halls manage negligible amounts: the bulk of the budget is distributed at the federal level, the rest, less than half, – at the level of regional governments.

The opportunities, as well as the incomes of the subjects, are very uneven: Moscow or the oil and gas regions collect much more taxes than the rest of the country. In recent years, about half of Russia’s regions have been living with a deficit, that is, they spend more than what they earn and what comes from the centre. The situation with regional budget deficits is being improved by cuts in spending, including that for social budget items. Since regions are very different, one has to distribute money from the rich to the poor. The question is how to do this?

Until recently, about 20 – 30 per cent of the income of all regions remained in the local communities, while about 40 per cent was directed to the “leveling” between regions through federal transfers. But at the same time, there are completely non-transparent subsidies and grants that are received by the “selected” regions and the justification for which is unclear. This is bashfully called subsidies and grants for various “additional needs”.

Many social programmes have been launched at the regional level – from health care to school education. Due to lack of funds, hospitals are being closed or schools are being merged. According to Rosstat (the Russian statistical agency), from 2000 to 2019, the number of schools in the country decreased from 68,100 to 40,823; and the number of hospitals – from 10,700 to 5,300.

At the same time, two subsidised regions that require impressive costs were added to the country: Crimea and [the city of] Sevastopol. And then there are the wars in Syria and Donbass, the arms race, extremely opaque spending on the military-industrial complex, the costly mission of confronting the West and “building a separate civilization” (see After Lockdown, May 2020).

Meanwhile, the coronavirus in Russia continues to break records, and living standards continue to plummet. In this situation, some regions cut social spending, others collect up to 20 per cent of debts from commercial banks or declare a technical default.

Now, more than ever, it is clear that regional alignment is needed to bridge the huge gap between the resource or institutionally attractive regions and those deprived of both the privileges. Therefore, it is necessary to divide transfers into the equating and the stimulating part. But the most important thing is that financial aid is directed to the regions according to completely understandable and transparent rules. At the same time, municipalities should become the main managers of local funds.

Municipalities must compete among themselves for the most favorable conditions for business, and the federal centre must add its grants to those regions that remain below the average ratio of per capita income to tax potential in the country. At the first stage, it is necessary that the majority (more than 50 per cent) of income, sales and value added taxes remain at the regional level. In the future, the regions must independently decide whether to implement federal programmes or create their own, relying on their own financial capabilities.

However, an indispensable condition for correcting the situation in Russia and implementing any reasonable strategy is the establishment of the most basic institutions of accountability and democracy: a real federal structure, regular change of government, an independent judiciary, the rule of law, direct and competitive elections at the municipal, regional and federal levels.

Without this, it will never be possible to make sure that all citizens of Russia have equal rights and opportunities.

Source

Grigory Yavlinsky

is Chairman of the Federal Political Committee of the Russian United Democratic Party YABLOKO, Vice President of Liberal International, PhD in Economics, Professor of the National Research University Higher School of Economics.