The Republic of Khakassia scrambled to cut this year's spending after the prosecutor’s office said that it was bloated with the budget deficit exceeding the legal limit.
Wek.ru’s earlier reports said Khakassia had long been in a difficult financial situation. In 2018 it came under the supervision of the Treasury because of the huge public debt it had run. The republic is by no means poor: it inherited a robust industry from the Soviet Union with aluminum plants, coal mines and the Sayano-Shushenskaya hydroelectric power plant. The authorities blame Moscow’s tax policy and the offshore zones that lose Khakassia (and many other Russian regions) tens of billions of rubles.
The Khakassia Supreme Court recently considered prosecutors’ petition against the law on budget 2021 and the fiscal plan for 2022-2023. As it is known, budget control is a responsibility of the prosecutor’s office.
After studying the proposed spending plan, prosecutors said that it was bloated with the deficit at 4.6 billion rubles ($62.65 mln.), or 19% of the region’s GDP. The Federal Budget Code sets the bar at 15% for the regions.
The court invalidated the key financial document on the strength of budget rule violation. The Khakasia government challenged the ruling in a half-hearted appeal as it started working on budget cuts. The regional parliament is to consider the proposed 4.5 billion rubles ($ 61.29 mln) decrease in its own spending, including salaries. The government said this measure was necessary because salaries and welfare benefits made up 70% of budget expenditure.
"It is proposed to cut costs, including all state payrolls. The amount of salaries and benefits will not be reduced, but budget obligation limits are only set for 9 months. Talks are ongoing with Russia’s Ministry of Finance over the provision of additional subsidies. Khakassia’s budget deficit has been increasing for the past ten years. As the public debt grows the republic has to take loans. The budget deficit exceeds the admissible limit in more than ten Russian regions. Khakasia is the only region where prosecutors filed a claim," a local government official said.
Khakasia's executive branch is not to be envied. Deputies are not likely to support any financial optimization at the expense of state employees. The regional federation of trade unions criticized the government saying it was free to tap any source except the payrolls.
"Don’t rush to cut costs. Work more actively with the Russian Ministry of Finance, show the urgent need for additional funding for the republic, and prove it," said Khakassia Supreme Council chairman Vladimir Shtygashev as he advised the regional negotiators ahead of the loan talks with Moscow. However, some experts believe that everything is going according to some plan. It is just that this plan is only clear to a special interest group.
"In my opinion, the government of Khakassia initially approved this budget in the hope that the regions with a large deficit would be provided with financial assistance from the federal budget. Moscow is aware of this scenario. Last year budget was bloated as well. However, our government miscalculated. The prosecutor's office intervened," Evgeny Mamaev, a former Deputy Economy Minister of the republic and head of Khakassia’s branch of the All-Russia People’s Front, told wek.ru.
He believes that Khakassia's government isn't abandoning this strategy and continues “to aggravate the situation” as the reports on expenditure and state payroll cuts show. The government, deputies, and trade unions play the game that only they understand heating up public concerns in order to wrest subsidies from Moscow. Fortunately, this money is needed for the “noblest cause.”
The regional Ministry of Finance reported that Khakasia revenue grew by 2.5 billion rubles to 11.3 bln rubles in the first quarter, a nearly 30 percent increase from the COVID-hit first three months of 2020. Own-source revenue was estimated at 7 billion rubles ($ 95.34 mln.) Federal budget allocations covered the rest.