Budgets of survivals for the Russian regions in 2015

Russia adopts budget-2015. It is not too optimistic both for the center and the regions.


Russia adopts budget-2015. It is not too optimistic both for the center and the regions.

Federal scissors
This week the Council of Federation of Russia should adopt a law on the federal budget for 2015 and the period of 2016-2017. It is not a secret that the country is preparing for a hard time. The new budget takes into account the subsequences of western sanctions, accession of Crimea and continuing drop of incomes caused by the falling oil price. The budget envisages serious cut of many social expenses. On the contrary the state expenses for defense will sufficiently increase because the government cannot stop an ambitious program of rearmament designed till 2020. For the period of 2014-2017 the amount of defense spending will increase by 16% and make almost 20% of all budget expenses. Alternatively the budget spending to education will go down by 17,4%, health care – by almost 44%, culture – by 31%, environment – by 13%.

The Russian regions who adopted their new budgets just few weeks ago are waiting for serious downgrade of their economic situation. In 2013 the budget revenues of almost all subjects of Russian Federation have dramatically dropped down. The regional budgets are normally based at two main pillars: the taxes on profits of the companies and the tax on the incomes of the physical persons. In the conditions of fast shrink of the corporate profits the regional budgets did not get a substantial share of the budget incomes. At the same time their expenses stayed on the same level or even increased. As a result the budget deficit of the Russian regions last year jumped by 30% and their commercial debts increased by 50%. Finally the central authorities had to enhance the amount of federal transfers to the regions sufficiently. However the general tendency of destabilization of the regional budgets did not change since the whole economic situation in the regions even worsened. 

Russian North slowing development
The Russian Barents regions – Arkhangelsk and Murmansk oblasts, Karelia and Komi Republics could serve as an example of the budget drama. In 2013 the revenues from the profit tax in Arkhangelsk oblast dropped down by 11%, in Komi Republic – by nearly 30%, in Karelia – twice. In Murmansk oblast the amount of the profit tax slightly increased. It was resulted by a fast growth of budget deficit: in Arkhangelsk oblast it made 5,7 billion rubles, in Murmansk – 6,8 billion, in Karelia – 5,8 billion, in Komi – over 12 billion. In 2014 this tendency continued. For the first half of the year the budget of Arkhangelsk and Murmansk oblast encountered a deficit of over 4 billion rubles each, in Karelia – over1,7 billion, in Komi – over 5,5 billion.

The 2015 budgets of all northern Russian regions are quite pessimistic. The budget deficit of Arkhangelsk oblast will make 7 billion rubles, in Murmansk oblast – 7,5 billion, in Karelia – 3 billion, in Komi – 8 billion. The regional authorities have to cut the expenses. And the first budget lines to be reduced are related to economic development. The statistics show that the regions are reducing the investments to local infrastructure and economic development. 

How to make ends meet
The deficits are to be filled by the federal transfers and commercial loans. But the federal authorities made it clear that the financial support to the regions will be very limited. So the regions will have to rely mainly on the bank loans and this will further increase the burden on the budget. By the end of 2015 the state loan of Arkhangelsk oblast for example will make 40 billion rubles (98% of the budget revenues), in Murmansk oblast – 25,7 billion (54%), Komi – 35,7 billion (62%). In such situation it will hardly be possible to rely on local investments in the development of regional industry and infrastructure.