Page 17 - RusRPTJan21

Most of the loss was due to a drastic reduction of corporate income tax revenue (by almost one-fifth). At the same time, regions had to spend significantly more​ on health care (a 67% spike or 85% with Moscow included) and supporting their local economies. The deficit was plugged by the federal government, but in an untransparent manner where some regions were overcompensated for their losses and some received only a fraction of the losses incurred, with no apparent logic behind the spending, that​ ​puzzled even Natalya Zubarevich, an eminent expert on regional economies.
Most of the additional funds were targeted, which means that regional governments face constraints on what they can spend the money on. Regions that became unable to execute their spending obligations – or, as media imprecisely reported,​ w​ ent bankrupt​ – such as Ingushetia, are taken under the direct financial stewardship of the Ministry of Finance, de facto eliminating the last vestiges of their fiscal autonomy.
Political taboos ​Regions face further losses in the coming months as the economic burden of the second wave weighs down on them. At the end of October the Centre for Strategic Development​ ​warned​ that 19% of Russian companies would face problems paying taxes in the near future, especially small and medium-sized enterprises (SMEs).
SMEs play an important role in maintaining the health of regional economies but even before the pandemic, their activity had been​ ​stagnating​ or falling. There is a considerable risk that the pandemic, which weighs down especially hard on services, will accelerate this process. Yet the federal government, as Putin’s spokesman Dmitry Peskov​ ​indicated​ recently, does not plan to adopt a further stimulus package for business. And while in the third quarter payments to the population meant that in 61 regions people’s income​ ​actually rose​, on average, the effect of this will peter out with no additional help in sight.
This will then translate into a smaller tax receipt, which means that the federal government will ultimately have to foot the bill anyway – only the autonomy of several regions will be weakened in the process.
As a bare minimum, a steep growth in regional debt seems unavoidable even if the Finance Ministry continues issuing cheap budgetary loans – a policy that it started in 2016 to replace market loans that threatened to throw regions into a debt crisis – and this is far from certain.
While the government will dole out​ ​RUB80bn​ from its own reserve fund to the 39 hardest-hit regions so that they are able to meet their fiscal responsibilities, this is little more than a fiscal sticking plaster and will be targeted aid. Due to complaints from regional authorities, the Ministry of Finance seems to have recognized that it needs to loosen the strings attached to federal transfers if regions are to exit the pandemic-related economic crisis. One suggestion was that regions could redirect additional funds from the national projects, but some governors – such as Chelyabinsk’s Alexey Teksler –​ ​indicated​ that this is not going to be enough. Due to the uncertainty of federal transfers, Teksler’s region​ s​ truggles​ with budgetary planning, which in turn has prevented municipalities that rely on transfers from the region, from adopting their budgets. This may complicate or halt works like snow removal or renovations –
17 ​RUSSIA Country Report​ January 2021 ​ ​www.intellinews.com