Federalism and Local Politics in Russia

Unification as a political project 87public services across the country. However, the costs of such delivery willalso differ depending on the demographic and social composition of theregion, the regional geography and climate.Federal subjects in contemporary Russia have a relatively short list oflocal taxes – only three tax revenues are fully allocated within regional budgets,namely: the property tax on organizations, the transport tax and the taxon the gambling industry. Some other taxes (e.g. the profit tax, income tax,etc.) are distributed between federal and regional budgets in differing proportions.Recent developments of fiscal federalism in Russia have been aimedat budget centralization to bring them into line with the current levels of‘political centralization’. As Rostislav Turovskii stresses, this policy of thecentralization of budget revenues is clearly illustrated by changes in the distributionof one of the key taxes – the value-added tax (VAT). In 1997–8 25per cent of VAT revenues were received by regional budgets. From thesecond quarter of 1999 the regional share decreased to approximately 15 percent. Since 2001 the regions have received zero revenues from VAT; 100 percent of VAT revenues are now centralized in the federal budget. 14 Moreover,the government is centralizing some other taxes and excise duties, such asthe tax on mineral production and tobacco. By centralizing taxation revenuesthe federal government claims it will be able to redistribute financialresources more fairly between regions.To decrease the sharp abnormalities between regional finances the federalgovernment adopted the federal programme, ‘Reduction of differences in thesocial and economic development of the regions in the Russian Federation(2002-10 and up to 2015)’, 15 which aims to reduce the ‘development gap’between the leaders and the economically less developed regions. One of thegoals of the federal programme is to decrease by 2010 the number of regionsthat have fallen below the average level of economic development by 25 percent, and to reduce by 15 per cent the number of people living below thepoverty line. Overall regional economic differences are set to decline 1.5times; 18.7 per cent of the funds used to implement this programme willcome from the federal budget, 22.9 per cent from regional budgets (subjectof federations) and 58.4 per cent from off-budget sources.However, by calling for mergers of the less developed, if not to say, undevelopedsubjects of the federation, with those which are considered to be richdonor regions, the Russian state has created a new method of levelling outregional differences. To sum up, mergers are aimed at improving the socialand economic situation in ‘problematic’ regions through the use of the fundsof donor regions, rather than the federal budget.Prerequisites for mergersThere are several prerequisites that regions should satisfy in order to startthe unification process. First, only neighbouring regions are entitled tomerge. Second, mergers must be ‘approved’ by the popular will of citizens