Staunton, April 6 – Andrey Nechayev, an economist who earlier served as Russia’s first minister for economic development, says that Russia’s regional governments are facing financial disaster not because they have been improvident as Vladimir Putin suggests but because Moscow imposes unfunded liabilities and doesn’t allow them to retain most of the taxes they collect.
The number of unfunded liabilities has skyrocketed in the last year because the Kremlin decided that the regions should deal with the pandemic, and while Moscow has transferred more money to them in response, it has not given them anything like the money they need to do what they have been told to do (facebook.com/aanechaev/posts/10216167476254582 reposted at region.expert/nechayev/).
That adds to the underlying problem of Russia’s financial system: the regions collect taxes, send almost all of them to Moscow and then get back only a small portion of what they gather. As a result, they are going ever more deeply into debt and find themselves in the position of unenviable position of beggars at the federal treasury.
“The summary deficit of regional budgets for 2020 was 677 billion rubles (10 billion US dollars), and in absolute figures, the maximum since 2006.” Fifteen regions have deficits exceeding ten percent of their incomes, and seven deficits more than 20 percent. As a result, they have had to borrow ever more money.
What is going on is at the intersection of Moscow’s acquisitive approach and economic decline. In 2020, investments and industrial production fell in 51 federal subjects, and the real incomes of the population fell in 75. But Moscow continued to take tax revenues and gave back only a portion.
If this situation is to be rectified on a permanent basis, Russia must institute real fiscal federalism as Nechayev himself promoted while minister and has advocated since in his writings. The regions must have the power to tax for their own needs and must stop having to hand over almost all their revenue to Moscow.
Unless that happens, the regions will continue to suffer, and Moscow leaders will comfort themselves with the entirely false notion that officials in the center have nothing to do with creating the problem and that any difficulties that emerge are entirely the fault of irresponsible officials in the regions and republics.