The Russian federal authorities should assist the regions in dividing the powers related to fixing their sources of income, Russian President Vladimir Putin said at a State Council meeting on Tuesday.
"I know that both the federal subjects and the municipalities are having a lot of problems with filling up the budget. First and foremost, we need to finish demarcating powers in the next few years so that there is clarity regarding the issues of fixing stable sources of revenue for each level of authority, including through the cancellation of tax breaks established at the federal level," Putin said.
However, "one needs to act with extreme caution" when cancelling tax breaks, he said.
"We are aware of which discounts and discount cancellations are in question. We can't undermine the financial position of our infrastructure companies," Putin said.
"If they start paying a large amount of funds into regional budgets now, then not only their investment plans, but also the possibility itself of ensuring livelihoods and safety, could come into question," he said, adding that this refers to companies like OJSC Russian Railways (RTS: RZHD) (RZD).
Putin ordered the ministries and agencies to continually analyze how effectively they are using the powers endowed to them.
He added that "right now we need to define clear mechanisms and priorities for budget spending related to the implementation of decrees."
Putin instructed the Russian government to jointly evaluate the real need for such funds with the regions, as well as to provide for the necessary level of financial aid in the 2013 budget.
The regions themselves and the local governments must observe strict financial discipline, craft budgets on a programmatic basis and maximally optimize their spending commitments, Putin said.
Several federal subjects are perpetually expanding their debts, including those owed to commercial banks, which "leads to a loss of control over budget balance, meaning that bankruptcy is not far off," he said.
"Thirty-two regions are in arrears, which is 30% of their own revenue base. Twelve regions' arrears surpass 50% of their own annual revenues," Putin said. He therefore asked the Finance Ministry to analyze the situation and to submit "proposals to sort it out."
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