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The Regions Need More Money
Against the background of a rather disappointing performance by the regional budgets in the first half of 2013, statistics on the revenues of consolidated regional budgets in the first six months of this year do not actually look bad. Revenues in the regions, excluding data for Russia’s new Crimean Federal District, increased by 8.5% overall.
In addition, almost all major revenue components grew at decent rates. As an example, corporate tax ceased to be the main problem the regional budgets faced. There was 17% growth for its contributions to the low base in 2013. For comparison, the record increase in the amount of corporate tax revenues to regional budgets was in 2012, when the amount rose by almost a third to that of 2011.
Along with the rapid growth of corporate tax revenues – from 11.2% in 2013 to 6.7% in 2014 – growth in personal income tax revenues slowed. The reason lies in a slower increase in wages in the current year.
Federal budget transfers increased by 7.5% in the first half of 2014 versus decline of nearly 20% in the same period of the previous year. After this, transfers stopped being a factor in the reduction of regional revenues.
Due to growth in the market share of high quality diesel fuel taxed at lower excise rates, revenues from excise taxes on gasoline and diesel fuel fell.
Table 1. Growth rates for consolidated regional budget revenues in 2013 and 2014 (H1), % of change year-on-year
| 2013/2012 | 2014/2013 | |
| Overall revenues | 94,8 | 108,5 |
| Corporate tax | 74,5 | 117 |
| Income tax | 111,2 | 106,7 |
| Excise tax | 111,4 | 92,2 |
| Transfers | 81,3 | 107,5 |
Source: Federal Treasury
Regional budget expenditures in the first half of 2014, excluding Crimea, advanced 6.7% year-on-year in the first half of 2014.
Inflation was 7% compared to the same period of 2013. In addition, regional budget expenditures went practically unchanged in real terms.
There was a regional budget surplus of 83 billion rubles in the first half of the year, representing 2% of revenues. In general, profit is typical for regional budgets in the first six months of the year, but in contrast to the crisis of 2013 and 2014, this surplus was significantly greater in both absolute and relative terms in 2010-2012. For example, in 2012 the surplus in the first half was 10% of revenues.
Table 2. Revenues, expenditures, and regional budget deficits; bln rubles
| 2010 | 2011 | 2012 | 2013 | 2014 (1) | 2014 (2) | |
| Revenues | 6534 | 7641 | 8060 | 8198 | 8424 | 8891 |
| Expenditures | 6634 | 7676 | 8339 | 8837 | 9561 | 9400 |
| Deficit | -100 | -35 | -279 | -640 | -1137 | -509 |
| Deficit, % to GDP | 0,22 | 0,06 | 0,45 | 0,96 | 1,59 | 0,71 |
Source: Federal Treasury, calculations by HSE Centre of Development Institute
Table 2 contains two versions of the forecast for revenues and expenditures in the regions in 2014. These are based on uniformity coefficients for carrying out the budget (a ratio of semi-annual and annual data on budget performance). If the average coefficients of uniformity for revenues and expenditures are used for 2010-2013 in the forecast, which is an entirely reasonable approach, then the first scenario of the forecast occurs with a large deficit and obscure sources of funding. Let us not forget that based on last year’s results, a number of regions were largely indebted to commercial banks. This year, it is not likely that bank loans can be raised in the amount of 2013 (283 billion rubles), experts believe.
Figure 1. Regional budget revenues and expenditures in 2010-2014, % to GDP
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Source: Federal Treasury
The second variant of the forecast is based on the coefficients of uniformity for how regional budgets were carried out in 2013. In 2013, regional budget revenues in the first half amounted to just 45% of the annual amount, while this figure has exceeded 48% in the last three years. With this approach, the deficit declines by more than half to around 500 billion rubles. It will be difficult to finance this, however, taking into account regions’ aforementioned debt at commercial banks and the small balances on budget accounts.
In the current situation, the federal centre will have to find resources to providethe regions with additional financial support of over 150 billion rubles to be allocated in accordance with amendments made to the federal budget in May. The alternative is for the regions to increase overdue debt. This concerns budgetary institutions’ overdue payments for electricity, water, and the services of contracted construction companies.