But for now the government is not ready to do away with industry-based subsidies

The regions need to be given greater budgetary freedom, Chairman of the Center for Strategic Research Alexey Kudrin said at the Russian Investment Forum in Sochi.

Adjustments need to be made to the existing subsidy system which includes industry-based subsidies and fiscal equalization transfers, he said. Approximately RUB 200 billion in subsidies could be transferred to the Fund for the Financial Support of the Regions via which fiscal equalization transfers are distributed, while the rest could be distributed based on the principle of less subsidies with more concise indicators, Kudrin said.

The law on the budget envisages RUB 1.599 trillion in inter-budgetary transfers to the regions. Of this amount, RUB 728.3 billion are grants (for equalization and balancing), RUB 414.5 billion are subsidies, RUB 311.5 billion are subventions and RUB 145.4 billion are other inter-budgetary transfers. The number of subsidies stipulated in the three-year plan decreases from 65 in 2017 to 55 in 2019.

Minister of Finance Anton Siluanov did not agree, saying that subsidies are a tool for industry-based regulation and that if they are done away with and transferred to the Fund, it will be necessary to regulate the industry using other methods.

It would be impossible to get rid of subsidies entirely, although they could be streamlined and consolidated, Deputy Prime Minister Dmitry Kozak said. However, the principle of regional independence has been abandoned, he noted. Total expenditures by the regions amount to approximately RUB 11 trillion and despite the fact that it had been previously agreed that the regions would spend funds independently, roughly 97% of these expenditures are regulated by various federal acts, he complained. “This means that the regions have their own powers (to fund healthcare, education as well as the housing and utility systems), but we have spelled out how much to spend”, Kozak said. “And this means that the regions do not have enough money”. “We need to do away with such regulation and grant more freedom”, he said. “Or these powers should be raised to the federal level and income should be withdrawn and distributed as needed”.

The Ministry of Finance had previously proposed allocating subsidies to the regions and tentatively approving their amount with the regions prior to the submission of the draft federal budget for the next three-year period to the State Duma in order to avoid the subsidies being rejected later. “There are regions that had expressed less of a desire to sign the agreements, for instance Moscow”, Siluanov said at a government meeting last week. “Only 56% of the agreements were signed by this region”. Moscow has declined a number of subsidies.  

The federal authorities are supposed to conclude roughly 2,800 agreements on subsidies with the regions prior to 1 March. As of 22 February, most of them had been signed. Work to sign the agreements is taking place under conditions where the law on the budget only allocates 44 of the 65 subsidies, while the other 21 subsidies are supposed to be allocated by a government order with review by a tripartite commission.

Source: Vedomosti