South Urals is trying to bridle the budget deficit

05.09.2013 — Analysis

The tax revenues to the Chelyabinsk regional treasury are growing.

On the other hand, the budget deficit is also increasing. The factors causing the increase and the potential treats for the region are outlined in the RusBusinessNews article.

In the first half of 2013, the revenues increased from the electric power industry, construction, agriculture, food industry and a few other sectors of economy. The policy of economic diversification panned out: the well-being of doctors and teachers does not depend any longer solely on the local metallurgical companies and the prices on the London Metal Exchange. As the RusBusinessNews columnist has found it out, but for the sizeable welfare payments and expenses on the emergency response, which the public authorities have to cover through budget funds, the Chelyabinsk Region would have passed through the global economic crisis without material losses.
  
According to the governor’s press-service, over January-July 2013, the consolidated budget revenues amounted to 63.8 billion rubles and the regional budget revenues totaled 44.9 billion rubles, demonstrating a 7% increase against the revenues over the previous seven-month period. The tax revenues from the electric energy industry and the public utilities sector increased by 31%, revenues from agriculture – by 18%, revenues from the mining and construction industries – by 60% and 22%, respectively. 

Although the increase in the revenues is quite impressive, the regional government is trying to find additional financial resources – for example, through revision of the tax benefits, adoption of the patent system for self-employed entrepreneurs, registration of buildings, structures and land lots, legalization of wages, etc. Additional funds are required for fulfillment of the presidential decrees adopted in May 2012. The Ministry of Finance of the Chelyabinsk Region estimated that the public-sector employees’ wage increase, cutting long waiting lists of the applicants to day-care centers and other social projects will cost 21.8 billion rubles in 2013. The regional treasury can earmark only 14.6 billion rubles – the remaining funds must be found somewhere else, otherwise the government debt is steadily growing.

At present, the regional budget deficit is estimated at 17 billion rubles. Initially it was expected that it would not exceed 10 billion rubles, but in winter the meteorite exploded over Chelyabinsk and in summer the southern areas of the region were submerged after the flood. The rectification of the consequences of the emergency situations cost 2.5 billion rubles. The federal government promised its support; however, as Governor Mikhail Yurevich told the RF President at the meeting in Khabarovsk, the money had not come yet and the region had to increase the budget deficit.

The situation in the South Urals cannot be characterized as unparalleled. According to Alexei Shirinkin, a senior lecturer of the Chelyabinsk State University, deficit-free budgets exist only in metropolitan cities and the oil-gas regions of Russia. Many constituent entities of the Russian Federation have much larger debts than the Chelyabinsk Region. For example, the Sverdlovsk Region estimated its budget deficit at 28 billion rubles and it has much fewer possibilities than its southern neighbor to redeem it. Galina Kulachenko, the Finance Minister of the Middle Urals, informed the deputies of the regional duma that in the first half of 2013 that the revenues from the corporate profits tax decreased by 4.3 billion rubles as compared to 2012 due to the reduction of the taxable base.

The state guarantees given to investors account for the lion’s share of the budget deficit in the Chelyabinsk Region (71%). A. Shirinkin says that this money is kept perfectly safe in banks, as no guarantee events have occurred so far. Consequently, in the near future the implemented investment projects start paying back in the form of tax revenues, and the region will be able to pay off its debts, which are not as huge: The actual debt burden of the Chelyabinsk regional budget is 5 billion rubles. Nearly all of the borrowed funds were spent on the fulfillment of the May decrees of the RF President.

Alexei Shirinkin gives another proof that the budget deficit of the Chelyabinsk Region should not be deemed as critical. The debt burden per resident of the region is 4,900 rubles, while, for example, in the Irkutsk Region it is 5,300 rubles, in the Perm Region – 5,900 rubles, in the Novosibirsk and Sverdlovsk Regions – 6,600 rubles.

By law, the amount of borrowed capital can be equal to the amount of equity capital, whereas in the South Urals the borrowed capital accounts for 21.7%. Therefore, the expert assumes that the region can continue borrowing funds. There is no doubt that the regional treasury is absolutely solvent: The international ratings agency Standard & Poor’s confirmed the high credit rating of the Chelyabinsk Region.

Vladimir Myakush, the chairman of the Legislative Assembly of the Chelyabinsk Region, hopes that the increasing tax revenues will cover the budget deficit in 2013; the similar situation was observed in 2012. In the meantime, Governor Mikhail Yurevich said: "Though the budget increased by 7%, its implementation is going to be difficult." The head of the region assured that all the social commitments will be fulfilled, though he believes that the federal government authorities will adopt decrees that will help to reduce the gap between the budget receipts and expenditure.

Vladimir STEPANOV