Window on Eurasia: Russia’s Regions Seen Challenging Moscow with ‘Tax Separatism’

Paul Goble

Vienna, December 21 – Much as they did in the 1990s, some of Moscow’s regions are likely over the next year to withhold more of the taxes they collect rather than simply transferring all such revenues to the center, a form of “tax separatism” that one Moscow economist argues could shake the foundations of the state.
Last week, the Russian government said that it would compensate Russia’s regions and republics for part of the revenues they have lost because of the current economic crisis. But the amount Moscow has proposed 100 billion rubles (3.4 billion US dollars) is only a small fraction of the 800 billion rubles (27 billion US dollars) the federation subjects have lost.
As a result and with few other options available to them, Moscow social analyst Yevgeny Gontmakher says, the leaders of at least regions may begin to hold back taxes they have collected rather than handing over almost all the money to the central government and hoping to get some of it back (www.ng.ru/economics/2008-12-17/1_risks.html?mthree=3).
That could lead to a return to a situation much like Russia experienced under Boris Yeltsin when the regions had far greater control over their own economies than they do now after Vladimir Putin spent much of his presidency recentralizing the country in the name of creating a power vertical and a common legal space.
The current economic crisis, Gontmakher says, is imposing particular stress on those regions “where major enterprises are the major sources of tax revenues.” And these losses mean that there is “a great probability of the rise of tax separatism, when some of the governors will decide to stop sending money” to Moscow.
Such moves will represent a serious challenge to the existing system not only economically but politically, but “however strange it might seem,” Gontmakher insists, such “tax separatism” could become the occasion for “the modernization of the country” if the authorities will begin a dialogue with the population about what should be done next.
But that may be difficult to get started. On the one hand, the current government in Moscow views any actions of this kind as a threat to central prerogatives and even to the territorial integrity, especially given some of the slogans that have appeared in the demonstrations in Vladivostok and Kaliningrad in the last week.
And on the other, “in the current situation,” the population of this or that region almost certainly will react not calmly and dispassionately but instead choose to protest, precisely the kind of activity that will make it less likely that anyone at the highest levels in the Russian
government will be willing to talk.
Consequently, any “tax separatism” is likely to be viewed by the central authorities as the first step toward secession and thus be met with force, but whether the force will be effective in stopping this trend or whether it will, like fighting a grease fire with water, only succeed in spreading it remains an open question.
If the Russian economy continues to decline over the next year or more – and some economists like Igor Nikolayev of the FBK Company are suggesting that the country’s GDP could fall by as much as 15 percent in 2009 -- then, the risks of the latter outcome almost certainly increase (www.ng.ru/economics/2008-12-17/1_risks.html?mthree=3).
That danger is compounded because of three other factors Nikolayev points to: the failure of Russia to complete planned institutional and structural reforms, dramatically lower prices for the nature resources the country exports, and the collapse of the Russian stock markets, a development that makes attracting new investment funds more difficult.
Obviously, none of this may happen. The Russian government could change its tax policies, and the economic crisis could prove to be less severe than many now expect. But there is one very important aspect of Gontmakher’s projection that no one can afford to ignore now or in the future.
As was the case at the end of the Soviet period and as was true in the 1990s and early years of this decade, the fate of Russia both as a territorial entity and an economic-political structure is being decided in the wealthier and predominantly ethnic Russian regions rather than in non-Russian areas whose problems have attracted far more attention.