Southern Urals will bite the budget bullet

28.11.2013 — Analysis

Cuts in expenditures will not affect the population.

According to experts’ forecast, next few years will be tough for the Russian economy. Vladimir Putin, the president of the Russian Federation, has already instructed to optimize the State budget. The Chelyabinsk Region will also have to reduce expenditure. However, the developers of the region principal financial document for 2014 – 2016 argue that the optimization will not have impact on the population. The fundamental point of Mikhail Yurevich, the Governor of the region, is to preserve social orientation of the budget and protect all budget items in this sphere. Andrey Pshenitsin, the Minister of Finance of the Chelyabinsk Region, told RusBusinessNews how the budget of the Southern Urals for the next year had been set and how 2013 passed.

- Andrey Vadimovich, the year 2013 is nearly over – how was it in terms of budget implementation? What amount of tax levies does the region transfer to the federal treasury?

- First of all, I would like to point out that the Southern Urals remains one of the regions that ensure increase of own budget revenues. Own revenues from the operation of the regional economy have exceeded 90 billion rubles and increased by 5% according to the results of 10-month-period in this year. Revenues arrive as scheduled.

I’d like to remind that collected taxes in Russia go to federal, regional, and local budgets. About 30% of taxes collected in the Chelyabinsk Region are allocated to the federal budget. Since the tax distribution to the budget by levels is formalized in legislation, this share remains almost unchanged.

In general, the consolidated budget of the region gained 107.7 billion rubles of revenue in January-October 2013, which is 2% higher than the index for the same period of the last year. The expenditure of the regional budget for this period were financed in the amount of 109.7 billion rubles with an 8% increase. The balance of own and federal resources of the last year was applied to cover the expenditure as well.

As for the federal support, its volume decreased by 6% in January-October as compared to 10 month-period of the previous year and amounted to 18.5 billion rubles. In general, transfers for the healthcare reduced due to the completion of main milestones of the branch modernization as well as funds to support employment of population due to the reduction in the number of citizens who applied for unemployment allowance.

- Has the South Urals’ draft budget for the next three years been already adopted? What will it be like? What were the greatest budgeting challenges? What factors will influence budget revenues?

- The draft budget for 2014-2016 is now under consideration at the Legislative Assembly of the region. It will be finally adopted at the third reading in December. We have to understand that budget possibilities directly depend on the economic performance of the region and the country as a whole. Meanwhile experts forecast rather low rates of its growth in the short term.

Everyone knows it is difficult to make any forecasts in principle, given the current volatile situation. Therefore, a conservative scenario of social and economic development of the region is taken as the budgeting basis, which, however, provides for the growth of key budgeting indicators, such as gross regional product, profits of businesses, payroll fund, value of property and consumer price index.

Under these circumstances, the main difficulty in budget balancing was limitedness of resources, given the necessity to implement large-scale social tasks. The major tasks are the execution of decrees and orders of the president of the country, primarily on the wage increase in the public sector. Along with the provision of new powers in the field of pre-school education, which are delegated to the regions from municipalities as from 2014.

Large-scale work on optimization of expenditures was carried out which resulted in addressing all budget priorities and made it possible for the budget to meet present-day requirements as well as to be feasible for implementation.

Taking all of the above into account, the work to increase the own revenue base turns out to be particularly important. Such work is carried out by regional and municipal authorities. In particular, feasibility and efficiency analysis of tax privileges is being conducted on the constant basis. Tax privileges showing low performance are abolished wherever possible.

It is also important to use existing reserves of revenue by reducing arrears in payments to the budget system of the region. According to the results of interagency task forces and special committees, additional budget revenues at all levels from businesses in the region exceeded 880 million rubles for the 9-month-period of the current year.

- What are the priorities in the budget 2014? What will be the basic expenditures of the region?

Total volume of expenditures for 2014 will be 112 billion 192.5 million rubles. They will increase by 17%. Expenditures are conventionally divided into social and economic ones. The first group includes funds for healthcare, education, social assistance of the population, culture, sport.

Financing volumes for these orientations will increase by 34% as compared to the plans for 2013. And their ratio in the regional budget will increase by 73% in 2014, and up to 75% in 2015 and 2016. In other words, the social component of the budgets at all levels will increase in the short term.

Funds for social assistance to the residents of the region are provided in the budget for the next three years in full. This is a top-priority at all times and under any conditions. In particular, additionally introduced allowances and payments were saved in the region by the decision of Governor Mikhail Yurevich.

Economic bloc includes, for example, expenditures on public road system, housing and utilities infrastructure, agricultural sector, construction industry, business support. The specific feature of the Chelyabinsk Region’s budget is that, given all the complexities and substantial increase in social expenditure, it was possible to maintain the investment component of the regional budget almost at the same level.

- What expenditures will be cut any way?

- When calculating the expenditures provided by the budget, the major objective was actually to prevent the quality deterioration of the state and municipal services rendered to the population. In other words, it was necessary to make people feel the consequences caused by the financial policy optimization as little as possible.

We believe we have managed to do it. Every line of the budget underwent a serious analysis. As a result, all the vital items of commitments to the people are financed to the extent required. If you consider the draft budget by the economy sectors, you will see that in 2014 there will be an increase in their funding as compared to the forecasts approved for the current year.

Budget items not directly related to satisfaction of citizens’ demands were reduced. First of all, this includes administrative expenditure, such as purchase of goods, works and services by authorities and institutions; implementation of various industry measures; salaries of government employees. A part of the expenditures has been rescheduled for a later time. Another part was reallocated between the expenditure items according to the importance and priority. In general, we succeeded to reduce the initially stated level of expenditure for 2014 by 16 billion rubles.

- Will subsidies to municipal budgets decrease?

- The total volume of transfers to municipalities of the region from the regional budget in 2014 not only will not decrease, but will increase by almost 32%. Over half of the regional budget is traditionally allocated to the territory budget. In 2014, it makes 61.8 billion rubles or 55% of budget expenditure.

Reduction will be applied to certain items of financial assistance and is solely conditioned by the delegation of powers from the local level to the regional one. In particular, subsidies to local budgets will be reduced by 1.6 billion rubles. A number of subsidies was reduced and abolished. Nevertheless, towns and regions will have additional revenue sources in accordance with federal legislation. Therefore, their financial capacity will be generally sufficient to perform their commitments towards the residents.

- The budget of the Chelyabinsk Region has remained in deficit for several years in a row. What is the reason?

- The main reason of the deficit is failure of budget’s revenue possibilities to comply with the volume of expenditure commitments laid upon the regions today. This situation is typical for all Russian territories. Additional load of increase in the wage of public sector employees has its impact and it will only continue to increase as well as the need to fulfill orders of the president in the sphere of pre-school education, housing and utilities infrastructure, delegation of additional federal powers. The Federal budget is scarce as well.

- Is it possible to reverse this trend?

- It is quite difficult to say how long this situation will last. So far the budget deficit has been forecasted for the next three years. The budget strategy forecast by the Federal Ministry of Finance shows that the greatest stress on the budget balance will take place in 2016. Anton Siluanov, the Russian Minister of Finance, has already replied that the main task in this relation is to give a second thought to the commitments of the state in terms of their efficiency.

Further work is to be done at all levels, first of all in terms of reduction in expenses of low priority and cost reduction both in the public sector and in the economy, resources are to be concentrated on key orientations, and most importantly, the efficiency of their use is to be improved. Secondly, it is necessary to intensify efforts for the increase in budget revenues, strengthen the revenue base. In the Chelyabinsk Region, such work is continuously carried out and on a scale that has emerged as early as since the 2008 crisis.

As I have already mentioned, the key orientations are the extension of revenue sources, identification and use of existing reserves of budget revenues, collection of the arrears of payment to the budget, regular work with businesses in the region. Large-scale activities aimed at attracting investments into our region are also focused on these issues, which will result in new revenues to the budget in the end.

I would like to note that the budget deficit itself is not negative, it must be obligatorily covered by repayment sources pursuant to the law, which, of course, are considered in the draft budget for 2014-2016.

- And what about the public debt of the region?

- It is often being confused with the deficit, but they are completely different things. As of today, the public debt of the Chelyabinsk Region amounts to 16.5 billion rubles. Out of this sum, the actual borrowings are 4.6 billion rubles, including 3.3 billion rubles of bank credits, 1.3 billion rubles of credits from the federal budget. The rest of the public debt is constituted by guarantees for implementation of up-to-date investment projects in the region granted by the regional government.

Our public debt makes only 22% of the level allowed by legislation, whereas such figure of some regions, unfortunately, has already reached 60%, 70% and even over 80%.

Interviewed by Maria Komina