The Results of Execution of Consolidated Budgets of Constituent Entities of the Russian Federation in 2013

According to Anton Siluanov, the aggregate deficit of regional budgets amounted to Rb 700bn or about 1.1% of GDP. That is much higher than in the midst of the 2009 crisis (Rb 329bn or 0.85% of GDP). What is behind that figure?

At present, certain tensions related to execution of consolidated regional budgets are observed. There is an explicit dramatic reduction of revenues with infeasibility to reduce promptly and substantially the volume of expenditures. In such a situation, there is a build-up of subnational borrowings.

According to the data of the Federal Treasury, during 10 months of 2013 reduction of the total amount of revenues of the consolidated budgets of constituent entities amounted to 5.2% in real terms as compared to the respective period of 2012; it is to be noted that tax revenues and transfers fr om the federal budget decreased by 3.8% and 11.5%, respectively. The general decrease in tax revenues is justified by the dynamics of the profit tax which revenues in the period under review fell by 19.8%. It is to be noted that reduction of the total volume of taxes credited to regional budgets could be much higher if not a 4.2% growth in revenues from other taxes, primarily, the individual income tax (see. Table 1).

Table 1

Dynamics of tax revenues of consolidated budgets of constituent entities of the RF in the 2012-2013 period

Source: The Federal Treasury and authors' calculations.

At the same time, during 10 months of 2013 expenditures of consolidated regional budgets decreased by the mere 0.8% in real terms. As a result of substantial decrease in revenues (both tax revenues and transfers from the federal budget), with a need to maintain at a certain level expenses related to subnational borrowings the authorities had to build up volumes of borrowings. Generally, during 11 months of 20131 (without taking into account municipal budgets) the regional debt by all the constituent entities rose by 10.1% in nominal terms, while without taking into account Moscow and the Moscow Region, by 17.2% (see Fig. 1).

Fig. 1. Regional debt of constituent entities of the Russian Federation in the 2007–2013 period

If one proceeds from the data of the budget layout, in 2013 the expenditures of regional consolidated budgets had to grow by 7.9% in real terms or from 13.3% of GDP in 2013 to 14.4% of GDP in 2014, while the deficit could amount up to Rb 1.7 trillion or 2.5% of GDP. As was already stated, according to the preliminary data of the Ministry of Finance the deficit of the consolidated regional budgets amounted to the "mere" Rb 700bn. As a result the budget layout as regards expenditures was fulfilled by 90%. Due to unavailability of the complete data on execution of regional budgets in 2013 and existence of problems related to interpretation of the data on expenditures in KOSGU (classification of operations of the sector of public administration) section in conditions of reforming of the budget network2, it is difficult to make unambiguous conclusions which lines of expenditures generated reduction of their planned volume. However, certain trends can be seen from the data shown in Table 2.

Table 2

The shares of expenditures on the social sphere, transport and housing and public utilities in the total amount of expenditures of consolidated regional budgets in the 2005–2013 period (%)

Source: The Federal Treasury and authors' calculations.

Analyzing the data of the above table, it is important to point out the following. With a substantial reduction of the share of expenditures on healthcare and sport in the total amount of expenditures on the basis of the results of 10 months of 2013 justified by a switchover of the emergency call service to the mandatory medical insurance system and some reduction of the share of the social policy, the share of expenditures on the social sphere in general did not increase as a minimum due to continued substantial growth in the share of the expenditures on education. If such lines of expenditures as transport and housing and public utilities in which a large share of regional expenditures of an investment nature is concentrated are taken into account, the data for 10 months does not permit so far to make conclusions about the reduction of their share in expenditures of regional budgets. At the same time, it is to be remembered that the last two months of 2012 accounted for up to 30% of such expenditures. Taking into account quite a tense situation with execution of budgets of constituent entities of the Russian Federation, such a growth in investment expenditures may not take place by the end of the year which situation inevitably results in reduction of their share in regional expenditures. Also, it is to be remembered that the share of expenditures on transport and housing and public utilities in 2012 amounted to the mere 21.8%, which is below the pre-crisis value of 25%-26% in the 2007-2008 period.

So, a major factor which determines the dynamics of regional expenditures is a build-up of expenditures on education. It is to be noted that there is the indirect data pointing to some decline of investment activities by regional authorities (or, at least, to termination of renewal of investment activities in the post-crisis period). The above situation can be explained to a great extent by the need to fulfill presidential decrees under which the pay of educators is to be raised to the set level as early as 2012-2013.

As a result, regional authorities encounter an additional pressure on the expenditure side of their budgets due to the need to fulfill the requirements of Decrees of May 7, 2012 of the President of the Russian Federation in a situation wh ere both tax revenues and transfers from the federal budget decrease. As regards transfers from the federal budget, it is important to point out that on the basis of the results of 10 months a decrease in the total amount of transfers in nominal terms was registered as compared to the same period of the previous year in 47 regions, including not only "rich" regions, but also "poor" regions, such as the Republic of Mordovia (-39.5%), the Republic of Karachaevo-Cherkessia (-16.7%), the Penza Region (-9%), the Tambov region (-7.4%) and a number of other constituent entities of the Russian Federation whose fiscal capacity is much below the average national level. It is to be remembered that federal transfers include budget balance subsidies a portion of which is initially directed at compensation of additional expenditures of regional budgets due to fulfillment of presidential decrees, that is, a decrease in the volume of transfers is observed even with additional subsidies taken into account.

As a result, it is urgently important to answer the question which measures can be undertaken to ease the situation related to execution of subnational budgets due to the need to fulfill general provisions of decrees of May 7, 2012 of the President of the Russian Federation.

А.А. Mamedov, Senior Researcher of the Budget Federalism Department

1 The data on the debt is available for 11 months, while the data on execution of regional budgets, for 10 months of 2012.
2 A switchover to financing of budget-funded and autonomous entities by means of allocation of funds for fulfillment of state and municipal assignments without strict determination of target items (unlike the cost estimate under which government agencies are financed). As a result, the dynamics by all the items of KOSGU (classification of operations of the sector of public administration), including "an increase in the value of capital assets" and "labor remuneration" is distorted.