SCRAPPING THE BOTTOM OF THE BARREL

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FACING A BUDGET DEFICIT, THE FEDERAL CENTER ENCROACHES ON FEDERATION SUBJECTS’ FINANCIAL INDEPENDENCE

Moscow’s decision to repossess the severance tax will cost 32 Federation subjects 46 billion rubles.


Addressing the Cabinet yesterday, Prime Minister Vladimir Putin announced that the Budget Code and the law on the Central Bank were to be amended within the campaign for additional revenues of the federal budget.

“We are pondering some amendments to the Budget Code and the law on the Central Bank, all of them aiming to ensure additional revenues of the federal budget,” Putin said. “All in all, they will earn the federal budget additional 144.4 billion rubles in 2010 alone.”

The amendments are initially adopted for a three year period, their prolongation afterwards depending on the shape of the national economy. As matters stand, the government implements its own fairly stiff anti-crisis decisions. Everything made in management of the sums accumulated in the Contingency Fund and National Prosperity Fund is to be directly transacted to the federal budget as of January 1, 2010. Federal budget’s profit share is to be increased from 50% to 75%.

Anti-crisis efforts of the federal center will directly involve Federation subjects and their financial independence.

“Realization of anti-crisis measures is mostly financed by the federal treasury,” Putin announced and immediately said that it was going to change.

The central government is looking for ways and means to replenish the treasury. “It is of paramount importance that we tap absolutely all reserves,” the premier said. As matters stand, however, most regional budgets depend on transfers from the federal center which controls financial channels and flows, so that finding additional resources is a chore indeed. The federal center therefore intends to encroach on regional revenues. As of January 1, all 100% of the severance tax in hydrocarbons production will be transacted to the federal center. These days, the severance tax is split between Moscow and Federation subjects – the former gets 95% and the latter the remaining pittance amounting to only 46 billion rubles (crumbles from the federal table, one might say). Anyway, the power to channel this money right into the regional budgets of 32 Federation subjects used to create the illusion of financial-economic participation in distribution of national wealth and ability to make use of the money without consulting bureaucrats in Moscow. No more.

Putin promised Federation subjects a recompense for the revenues that will cease being Federation subjects’ to manage soon but that was surely a halfhearted effort to sweeten a bitter pill. Its size will depend on what the severance tax used to amount to in the regional budget. There is no sense in this transaction of budget funds from the federal pocket to regional ones from the standpoint of ordinary logic but common sense is not what this bureaucratic device is about. As of January 1, governors will have to formally apply for subsidies – and make a report on their use afterwards. It is politics, of course.

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