Window on Eurasia: Moscow Plans to Strip Regions of a Major Source of Tax Revenue

Paul Goble

Vienna, August 27 – Under a new Moscow plan, 32 regions and republics of the Russian Federation will lose their right to retain five percent of the tax imposed on oil and gas extraction for their own use, and 100 percent of all such revenues from now on will go directly to the central government.
The finance ministry said it was proposing this change because of declining government revenues as a result of “the fall of price and amount of export of natural resources,” and it promised that Moscow would compensate the regional governments hardest hit by their loss of this revenue as a result (www.rian.ru/economy/20090827/182524176.html).
But the regions are not going to be happy with such an arrangement not only because they are less certain that Moscow will live up to its latest promises but also because they can see that, as the finance ministry proposed, they will end with significantly less money in the future, even as the central government profits from resources taken from them.
Indeed, as one radical regionalist website put it today, “in place of such an open theft [of the resources of the regions], Moscow is proposing insignificant gifts in the form of microscopic assistance. [In sum,] the Moscow empire yet again has shown its colonial nature with regard to lands occupied by it” (www.ingria.info/?lenta&news_action=show_news&news_id=4569).
Consequently, a proposal designed to provide Moscow with more money almost certainly will exacerbate tensions between the center and the periphery – or at least that part of the periphery which has come to expect that it will retain some of the taxes that Moscow collects on resources that many in these regions view as theirs.
Under the finance ministry plan, Moscow expects to collect “not less than” 152.4 billion rubles (5 billion US dollars) more over the next three years than it would have without this change, a relatively small amount of the national budget but an enormous amount for the regions that will lose this cash flow.
Last year, the ministry said, the regions had received 79 billion rubles (2.6 billion US dollars) from this tax, an amount the Moscow ministry was equal to two percent of all the tax and non-tax revenues of the regional governments. But some regions, of course, will be hit far harder than others.
Among those which will lose the most revenue as a result of this change, the ministry continued, will be the governments in Tyumen, Tatarstan, Orenburg, Komi, Perm, Arkhangelsk, and Samara, all of whom currently count on such regional withholding for three percent or more of their budgets.
The finance ministry said that the Russian government “intends to partially compensate the regions for the loss” of this revenue. Tyumen, the hardest hit of all, will have 100 percent of its losses covered in 2010 with that figure declining to 25 percent in 2013. Other hard hit areas will have 60 percent of their losses covered next year and 20 percent of them in 2012.
Given that President Dmitry Medvedev and Prime Minister Vladimir Putin have said that the regions bear primary responsibility for fighting unemployment, this plan to shift resources away from them to the center creates a massive unfunded liability and thus creates additional incentive for anti-Moscow politics in some regions.
Moscow will certainly seek to portray this plan both as a necessary step in the current financial crisis and as an arrangement that will make more funds available for non-oil and gas producing regions. But if the former argument may convince many Russians, the latter probably won’t, especially given the central government’s deference to the oil and gas industry.
And consequently, this plan, if as seems likely Moscow goes through with it, will leave many regions beyond the ring road worse off, possibly triggering a new round of Pikalevo-type demonstrations and a new growth in anti-Moscow regionalist sentiment, something that would prove a far greater problem.