Russian Federation Country Study. A Public Finance Perspective (стр. 4 из 4)

• Reduce the cost of servicing the state debt.
• Stop the emission of money.
• Improve control over monopolies.
• Reorganize the banking system. Set up a federal deposit of insurance bond.
• Reform ministry of finance and economy.
• Diversification of the tax base.

Some services should be financed by taxes levied on local beneficiaries. "Local taxes" are those over which local authorities have some control. Which taxes to assign? The question is not easy for Russia. In many market economies, the central government controls those taxes considered to be most redistributive, such as personal income taxes, and the cyclical corporate income tax, leaving more stable revenue sources levied on a consumption base or property to the local level. For example, some federal systems (the U.S., Switzerland, Canada) allow subnational corporate taxes, it would be better for the federal government to set the corporate income tax. For the transition economies, considerations of both administrative complexity and allocative efficiency suggest that subnationally levied corporate taxes should be avoided at the present time. Permitting the many small subnational governments in the transition economies to set corporate tax rates (or adjust the tax base) will allow substantial tax competition and differentiation in enterprise taxation, influencing enterprise location decisions in perhaps undesirable directions.

.The development of a more efficient and effective social safety net in perhaps the most immediate and difficult task to accomplish in the Russian Federation. Aside from cultural reasons outlined earlier, economic growth cannot occur without social stability which will not happen until Russia can design an effective system of coverage. Some possible ways to improve this critical area are: diversify the tax base for social programs, redesign the system of federal-sub-national relation which has made the latter bear an unjust amount of the burden--unfair because of regional differences and compounded by Soviet planning--, and make stronger attempts to reduce arrears which is a difficult task due to the temptation to return to emission-based methods of covering expenditure requirements.

APPENDIX

Table A1 Selected Economic Indicators, Average Annual Rate of Growth
1961-70	1971-75	1976-80	1981-85	1986-90
1. Net material product (NMP), Soviet official*						6.4	5.1	3.9	3.1	4.1
2. Gross national product (GNP), CIA estimates*						5.1	3.7	2.1	1.9	C
3. Gross fixed capital investment, Soviet official*						6.9	6.8	3.5	3.5	4.9
4. Industrial output, Soviet official						8.5	7.4	4.4	3.7	4.6
5. Industrial output, CIA estimates b.						6.6	5.9	2.4	2.0	C
6. Agricultural output, Soviet official c.						C	2.5	1.8	1.0	2.7
7. Agricultural output, CIA estimates b.,c.						C	1.4	0.4	(-)0.6	C
8. Real income per capita, Soviet official						6.5	4.3	3.4	2.1	2.7
9. Consumption per capita, CIA estimates b.						3.8	2.9	2.0	1.9	C
SOURCES: Soviet official data and plan goals, TSSU (1986) and earlier volumes in the same series; Pravda, March 9, 1986; June 19, 1986; June 20, 1986; John Pitzer (1982), CIA (1985, pp. 64ff; 1989, pp. 45, 59ff); Gertrude E. Schroeder and M. Elizabeth Denton (1982). For consumption, 1981-1985, and agricultural output, 1976-85, unclassified CIA data supplied to author. Authors' Source: Abrham Bergson Soviet Economic Reform Under Gorbachev" in From Socialism to Market Economy .ed William Kern 1992 p. 37 a. Utilized for consumption and accumulation. b. Output valued in 1970 prices for growth rates for 1961-75 and in 1982 prices for growth rates for 1976-85. c. Not available. d. CIA estimates essentially accord with Soviet official data. e. Yearly growth rate of average for five-year period over average for previous five-year period.

Table A2 Comparison of GNP Growth in USSR and Western Countries 1961-85 (Average Annual Growth in Per Cent)
USSR	US	FRG	France	Italy	UK
1961-65							4.8	4.6	4.8	5.8	5.2	3.2
1966-70							5.1	3.2	4.2	5.4	6.2	2.5
1971-75							3	2.2	2.1	4	2.4	2.2
1976-80							2.3	3.4	3.3	3.3	3.8	1.6
1981-85							1.9	2.4	1.3	1.1	0.9	1.9
Note: US GNP calculated in 1982 prices. GNP growths of FRG, France, Italy and UK are calculated from GDP in 1980 prices.
Source: Cohn (1987, p. 12) Authors' Source: Elliot and Dowla in International Journal of Social Economics" v. 21 p. 78

Table A3 Soviet state budget expenditures for consumer and food subsidies, social insurance, and health care, 1985-1990
Type of expenditure							1985	1986	1987	1988	1989	1990
In billions of rubles (nominal) Total state expenditures							386.5	417.1	430.9	459.5	482.6	488.2
Consumer subsidies							58.0	65.6	69.8	89.8	100.7	110.5
Food subsidies							56.0	58.0	64.9	66.0	87.7	95.7
Social insurance and health care							83.6	89.3	94.5	102.5	105.5	117.2
As percent of GNPConsumer subsidies							7.5	8.2	8.5	10.3	10.9	11.6
Social insurance and health care							10.7	11.2	11.5	11.7	11.4	12.3
Source: Anders Aslund, "Gorbachev, Perestroyka, and Economic Crisis," Problems of Communism, vol. 40, nos. 1-2, Jan.-Apr. 1991, p. 25 a. Estimated figures. Authors' Source: Linda J. Cook. 1995 The Soviet Social Contract and Why It Failed p. 148

Table A5 Significance of Public Transfer in Household Income for households Receiving the Benefit
Very	Poor	Poor	Not	Poor
Transfer							% Receiving the benefit	Avg % of Recipient Household Income	% Receiving the benefit	Avg. % of Recipient Household Income	% Receiving the benefit	Avg. % of Recipient Household Income
Family Allowances							288.8	23.6	32.4	14.5	25.7	5.9
Pensions							0.3	75	41	66.9	48.7	58.4
Unemployment Benefit							0.8	21.7	0.4	17.8	0.3	9.8
Subsidies from Local Authorities							100.4	9.6	10.4	9.6	14.5	8.1
Subsidies from Enterprises							55	9.4	8.7	10.8	17.7	11.7
Scholarships							50.2	17.8	6.2	18.2	6.7	8.7
All Transfers*							666.8	58.5	70.9	48.4	74.4	42.6
*All transfers includes those listed (except subsidies from enterprises, which are included with subsidies from local authorities) plus welfare. Note that the overall average percent of the household income can be calculated form the two values reported for each poverty status. Source: RLMS. Round 4. October 1993- February 1994.

A6 List of Goods in Everyday Demand and Services to the Population which are Exempt from the Sales Tax

Children's food, meat, meat products (except delicatessen products), milk and milk products, margarine, fats, bakery products, flour, pasta products, eggs, tea, sugar, salt, vegetables (cabbage, carrots, beet, onions, potatoes),fish and fish products, vegetable oil, mineral water, children's items, textbooks for general education schools, specialist educational and medical equipment and medical supplies;

Children's items, including clothing, footwear, furniture, bed-linen, school uniform, toys and sports items; Consumer goods on lists approved by the councils of ministers of the republics within the USSR, kray soviet executive committees, oblast soviet executive committees, Moscow and Leningrad city soviet executive committees and executive committees of autonomous oblast and autonomous okrug soviets of people's deputies;

A7 USSR: SALES TAX DECREE Full text of instruction issued by USSR Ministry of Finance and dated February 11, 1991 ). The provisions include some of the following:

1. Liability extends to joint ventures and Soviet organizations engaged in importing;

2. Joint ventures will pay tax on hard currency sales in rubles, converted at the prevailing commercial rate of exchange fixed by USSR Gosbank;

3. Liability extends over a wide range of supply, including professional, informational, communication, etc. services;

4. The tax rate is 5%;

5. Tax exemption applies to sales of precious metals, coal shale, export services, trade between parts of a constituted enterprise.

SOURCE: EKONOMIKA I ZHIZN February 23, 199. P19

A8 Taxable income received in calendar year. Source: Tax 96 TNI 4-1 (Foreign Taxation) (Doc 96-947)
less than 12 million Rubles 12 % from 12 million Rubles 1, 44 million Rubles +to 24 million Rubles 20 % of the sum exceeding 12 million Rubles from 24 million Rubles 3.84 million Rubles to 36 million Rbls, 25 percent of the sum exceeding 24 million Rubles above 48 million Rubles 10.44 million Rubles + 35 percent of the sum exceeding 48 million Rubles

1. Isaak I. Dore , 1995 Distribution of Governmental Power Under the Constitution of Russia" in Parker School Journal of Eastern European Law" v. 2 p. 675

2. ibid p. 681

3. ibid p. 865

4. ibid p. 691

5. ibid p. 678

6. ibid p. 688

7. With the current political situation we can say that the budget as a whole, without doubt, will not pass the Duma by the end of the year.

8. The Moscow Times May 21, 1996. p. 54.

9. World Paper. September, 1996 p. 33

10. TNI 73-22, 1996

11. TNI 22/16, 1992, John Turro

12. Joint Letter No VG-4-12/25N of June 16, 1995

13. Doc 96-947

14. Much of the literature on tax assignment argues that the personal income tax(PIT), generally one of the more important taxes in revenue terms, should be retained by the central government, largely for redistributional and stabilization reasons. Nevertheless, the central government may give local governments a share in the PIT.

15. Tax Analysts, Tax Notes International. January 25, 1993

16. NOVECONCOMMERSANT. July 28, 1994. p. 2

17. In Russia, this tax is mostly levied at a national level because of the administrative convenience, these taxes have been levied at the producer level, not the retail level; and in the transition economy context this often translates into a tax on a few manufacturers as in Russia, for example, there are cigarette factories in only 21 of its 2000 "raions" (Comparative Economic Studies Winter 1994, Vol. 36, No. 4), or sometimes on the single monopoly producer. Thus, only a few producing districts would benefit from levying these taxes and revenues from them would accrue to only a few localities

18. Tax Analysts, Tax Notes International. January 25, 1993

19. Tax Analysts, Tax Notes International. January 25, 1993

20. Tax Analysts, Tax Notes International.January 25, 1993

21. The British Broadcasting Corporation March 15, 1991

22. Scot Antel. The Moscow Times. May 21, 1996

23. Though temporary steps were made like creating special colleges that are attached to courts of arbitration, we suppose that creating a special tax courts is essential here

24. Of course, taxes existed but people could not evade them as they were centralized and in theory all means of production were owned by the state.

25. Washington Post. October 12, 1996. p. A25

26. But we are afraid that this provision will not benefit the economy

27. Betsy McKay. The Wall Street Journal.October 29, 1996. p. A12

28. Comment & Analysis; Statistics; Forecast; November 1996 p. 2

29. Information Services Quest Economics Database Credit Suisse Financial Forecast, 1996

30. Reuter Textline Reinsurance, October 31, 1996

31. In our opinion, inflation will come down further in 1997, to approximately 15 percent. Also, Russia continues to fail in its economic performance of it fiscal and monetary policy within the framework established by the International Monetary Fund.

32. The Moscow Times. March 27, 1996

33. Dmitry Falcovich, head of the macroeconomic department with Alliance-Menatep

34. Russian Federation: Toward Medium-Term Viability. 1996. IBRD/World Bank p.39

35. Fiscal Management in Russia. 1996. IBRD p. 39

36. Fiscal Management in Russia. p. 22

37. John E. Elliot and A.F. Dowla. Gorbachev, Perestroika and Democratizing Socialism" in International Journal of Social Economics" v. 21 p. 78

38. Linda J. Cook. 1995 The Soviet Social Contract and Why It Failed." Harvard University Press: Cambridge p.2 Cook suggests the following as empirical evidence: 1. That the Soviet regime consistently deliver to workers economic security and social welfare; 2. That the regime deliver these policy goods because it is constrained by it perception of workers' expectations or its fear of labor discontent if it fails to deliver them; [and] 3. that workers give in exchange political compliance and quiescence. p. 5

39. Vladmir Mau. 1996 The Political History of Economic Reform in Russia, 1985-1994. Center for Research into Communist Economies p. 59

40. John Dunlop. 1993. The Rise of Russia and the Collapse of the Soviet Empire. Princeton University Press: Princeton. p. 267

41. Cook p.141

42. ibid p.187

43. Thomas A. Mroz and Barry M. Popkin. 1995. Poverty and Economic Transition in the Russian Federation" in Economic Development and Cultural Change . V 44 p.3

44. ibid p.4

45. ibid p. 4

46. Russia: Social Protection During Transition and Beyond International Bank For Reconstruction and Development Report No. 11748-RU. p. 23

47. Vladimir Mikhalev Social Security in Russia under Economic Transformation" in Europe-Asia Studies v. 48 n.1 (note: As this source came from an electronic medium, I have omitted page numbers--DL)

48. ibid

49. IBRD Report No. 11748-Ru. p. 35

50. ibid p. 11

51. EBRD p. 40

52. ibid

53. BISNIS Country Report

54. OMRI November 31, 1996

55. OMRI October 4, 1996

56. Financial Times. September 23, 1996

57. Of course, it is possible to lower administrative costs and improve overall efficiency in the tax system by going to a more computerized system but resistance to change due to unquestionable job loss is quite evident in the Russian government.

58. Komsomol'skaya Pravda. Sept. 24, 1996

The file was preapred by Dmitri Maslitchenko dmitri@mailroom.com