galina kourlandskaya
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Galina Kourlandskaya. Intergovernmental Fiscal Regulation at the Subnational Level under the Intergovernmental Fiscal Relations Reform Moscow, World Bank Institute March 25 , 2005. Key Objectives of Intergovernmental Fiscal Regulation. - PowerPoint PPT PresentationTRANSCRIPT
Galina Kourlandskaya
Intergovernmental Fiscal Regulation at the Subnational Level under
the Intergovernmental Fiscal Relations Reform
Moscow,World Bank Institute
March 25, 2005
www.fpcenter.ru Тел.: (095) 777-65-822
Key Objectives of Intergovernmental Fiscal Regulation
Promote development of the tax base and increase tax collection
Ensure equalization of financial capacity of local governments in addressing local issues
To help reach priority objectives of regional policy
www.fpcenter.ru Тел.: (095) 777-65-823
Financial Assistance As a Tool to Implement Fiscal Policy
Promote development of the tax base and increase tax collection tax sharing ratios
Ensure equalization of financial capacity of local governments in addressing local issues
grants from funds:
Regional Fund of Financial Support to Settlements (Regional FFSS), Regional Fund of Financial Support to Municipal Districts (City Districts)( FFSMD/CD) District Fund of Financial Support to Settlements (District FFSS)
Reaching priority objectives of regional policy subsidies from funds:
Municipal Development Fund Social Expenditures Co-Financing Fund The Fund for Municipal Finance Reform
www.fpcenter.ru Тел.: (095) 777-65-824
Equalization of Fiscal Capacity
www.fpcenter.ru Тел.: (095) 777-65-825
A New Approach to Local Budgets Equalization
Assignment of single tax shares with respect to regulating taxes (except personal income tax) for indefinite period
Rating of municipalities based on per capita income
Provision of transfers to “the poorest”
(departure from the notion of “estimated fiscal gap”)
The principle of maintaining municipal rating before and after transfers
Negative transfer
Legislating the transfer allocation approach
www.fpcenter.ru Тел.: (095) 777-65-826
Financial Assistance Allocation: The Federal Policy
Regional inequality in fiscal capacity before assignment of single tax shares – 108 times
Assignment of federal tax shares (personal income tax, tax on property sales revenue, excise taxes) to regions increases this difference to 133 times
Allocations from the Fund for Financial Support of Regions (equalization) makes it possible to:
Reduce the gap to 12 times
Bring fiscal capacity of the poorest constituent of the Russian Federation to 70% of the national average
The size of Financial Support Fund is 10% of the federal budget expenditures
www.fpcenter.ru Тел.: (095) 777-65-827
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
18,00%
20,00%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Год
Собственные доходы Регулирующие налоги ФФПР ФК Прочая финансовая помощь
Revenue Components in Subnational Budgets
(as a percentage of the GDP)
Other transfers
Subventions
Grants
Regulating taxes
Own tax revenue
www.fpcenter.ru Тел.: (095) 777-65-828
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Собственные доходы Регулирующие налоги Дотации Субвенции Прочая финансовая помощь
Revenue Components in Subnational Budgets
(as a percentage of the GDP)
Other transfers
Subventions
Grants
Regulating taxes
Own tax revenue
www.fpcenter.ru Тел.: (095) 777-65-829
A New Approach in Identification of Those
in Need of Financial Assistance
www.fpcenter.ru Тел.: (095) 777-65-8210
2000 г.
0
10
20
30
40
50
60
70
0 200000 400000 600000 800000 1000000 1200000 1400000 1600000
Население * ИБР, чел.
Бю
джет
ная
обес
пече
ннос
ть, т
ыс.
руб
/чел
.
Ханты-Мансийский АО 2003
итоговая (вкл. целевые средства)
Intergovernmental Fiscal Regulation in Khanty-Mansi Autonomous District (2003)
Before equalization
After equalization
www.fpcenter.ru Тел.: (095) 777-65-8211
0
1
2
3
4
5
6
7
8
0 200000 400000 600000 800000 1000000 1200000 1400000
Население * ИБР, чел.
Бю
джет
ная
обес
пече
ннос
ть, т
ыс.
руб
/чел
.
Ивановская область 2003
итоговая (вкл. целевые средства)
Intergovernmental Fiscal Regulation in Ivanovo Oblast (2003)
Before Equalization
After Equalization
www.fpcenter.ru Тел.: (095) 777-65-8212
Economic Growth – Induced Equalization
The following capitals of constituents of the Russian Federation proved to be the poorest in their respective regions after intergovernmental fiscal regulation in 2002:
Khavarovsk ElistaMagadan MaikopKyzyl PetrozavodskKemerovo KostromaAbakan Yoshkar-OlaChelyabinsk Dudinka
and others
www.fpcenter.ru Тел.: (095) 777-65-8213
Traditional Approach to Allocating Financial Assistance to Local Budgets (covering the “estimated gap”)
Assessment of Each Local Budget’s Capacity and Needs by :
Municipality RegionRevenues
Expenditures
Financial Assistance
Financial Assist.
www.fpcenter.ru Тел.: (095) 777-65-8214
Rating of Municipalities Based on Their Fiscal Capacity
0
1
2
3
4
5
6
7
8
0 200000 400000 600000 800000 1000000
Население, чел.
Бю
дж
етн
ая
об
есп
ечен
но
сть
, ты
с. р
уб
/чел
.
www.fpcenter.ru Тел.: (095) 777-65-8215
Fiscal Capacity Equalization: Proportionate Pull
0
1
2
3
4
5
6
7
8
0 200000 400000 600000 800000 1000000
Население, чел.
Бю
джет
ная
обе
спеч
енн
ость
, ты
с. р
уб/ч
ел.
www.fpcenter.ru Тел.: (095) 777-65-8216
Fiscal Capacity Equalization: Full Equalization of the Poorest
0
1
2
3
4
5
6
7
8
0 200000 400000 600000 800000 1000000
Население, чел.
Бю
джет
ная
обе
спеч
енн
ость
, ты
с. р
уб/ч
ел.
www.fpcenter.ru Тел.: (095) 777-65-8217
Negative Transfers
www.fpcenter.ru Тел.: (095) 777-65-8218
0
10
20
30
40
50
60
70
80
90
Ка
ба
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яти
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кий
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Difference in Tax Base of Local Governments in Some Regions of the Russian Federation (times, 2002)
Before equalization
After equalization
www.fpcenter.ru Тел.: (095) 777-65-8219
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
0 200000 400000 600000 800000 1000000 1200000Население, чел.
Бю
джет
ная
обе
спеч
енн
ость
, ты
с. р
уб/ч
ел.
Negative Transfer
www.fpcenter.ru Тел.: (095) 777-65-8220
Negative Transfer
A trade-off between interests of local and regional governments
A trade-off between “rich” and “poor” local governments Under the requirement of single shares in regulating taxes – a
possibility to assign them at a higher level of government An alternative to differentiated tax shares Institutionalization of differentiated tax shares
www.fpcenter.ru Тел.: (095) 777-65-8221
The “Wealth” Criterion With the Negative Transfer = 2
The negative transfer option is available only to few constituents of the Russian Federation
The majority of constituents of the Russian Federation loose major sources of equalization for the poorest municipalities
The subjects of the Russian Federation have no interest in assigning significant shares of regulating taxes to municipalities
The share of tax revenues in local budgets shrinks dramatically to give way for cash transfers
www.fpcenter.ru Тел.: (095) 777-65-8222
The mentioned constrains are mitigated significantly
The majority of constituents of the Russian Federation retain the possibility to ensure a higher (as compared to the pre-reform level) fiscal capacity of “rich” municipalities with a guarantee to pull the “poorest” to the level of 70% of regional average fiscal capacity
The “Wealth” Criterion With the Negative Transfer = 1.3
www.fpcenter.ru Тел.: (095) 777-65-8223
Fiscal Capacity Instead of
Revenues and Expenditures
www.fpcenter.ru Тел.: (095) 777-65-8224
Fiscal Capacity:
an assessment of tax capacity of a municipality taking into account «differences in the composition of population,
socio-economic, climatic, geographical and other objective factors and conditions affecting the cost of providing budget
services (amount of payments) per resident» (a new language of the Budget Code).
The legislation provides rather strict requirements with respect to the calculation of the tax capacity and TBE
indicator
www.fpcenter.ru Тел.: (095) 777-65-8225
Issues in Assessing Tax Capacity
Lack of necessary statistics and tax data for municipalities
The tax authorities do not provide for reporting forms that could help to trace territorial links of tax liabilities (previously – form 1НН)
The tax service does not provide reporting forms by base and accruals of the personal income tax
Statistics segregated by settlement are not available
Splitting units for the purposes of budget planning (at the settlement level) increases the chance for errors in calculations
www.fpcenter.ru Тел.: (095) 777-65-8226
Issues in Assessing Objective Expenditure Needs
Cost estimates of a “budget services basket” are not available
Data segregated by settlement are not available
There is no correlation between the size of expenditures and parameters set forth by the Budget Code (a need for a transition period)
www.fpcenter.ru Тел.: (095) 777-65-8227
To implement the reform along the lines of the new legislation, appropriate format of tax reporting as well as
data collection at the settlement level must be ensured
Questions: How soon would this happen? How much would it cost? Who will be paying? How justified would be the costs?
www.fpcenter.ru Тел.: (095) 777-65-8228
A General Mechanism of Intergovernmental Fiscal Regulation in Russian Regions
Settlements CD MD
Regional FFSMD/CD
Regional FFSS
DistrictFFSSs
(Negative transfer )
(Negative transfer)
GrantsGrantsGrants
Municipal Development
Fund
Fund for Municipal Finance Reform
Social Expenditures Co-Financing
Fund
Other funds (not exceeding 10% of the total amount)
www.fpcenter.ru Тел.: (095) 777-65-8229
«Degrees of Freedom» Available to the Subjects of the Russian Federation in Developing An Intergovernmental
Fiscal Regulation Policy Developing a concept for intergovernmental fiscal relations
regulation as well as allocation of resources among different formats of financial assistance
Establishing additional tax shares Setting parameters of the “negative transfer” Allocation pattern for the 10% of personal income tax revenues Determining the size of per capita grant for specific municipalities Delegation of the regional FFSS’s authority to districts Designing an equalization methodology for MD and CD Designing an equalization methodology using district FFSSs Designing a methodology of allocating other funds