"(1) the absence of an objective normative basis for allocating budget revenues, (2) the lack of interest shown by local and regional governments in developing their own revenues and cutting their expenditures, and (3) the federal government's practice of making transfer payments to federation members without taking account of the other state subsidies and grants they receive."
Then came Russia's financial meltdown in August 1998, followed by
Putin's disorientating ascendance. A redistribution of power in
Moscow's favor seemed imminent. But it was not to be.
The recommendations of a committee, composed of representatives of the government, the Federation Council, and the Duma, were incorporated in a series of laws and in the 1999 budget, which re-defined the fiscal give and take between regions and centre.
Federal taxes include the enterprise profit tax, the value-added tax (VAT), excise, the personal income tax (all of it returned to the regions), the minerals extraction tax, customs and duties, and other "contributions" . This legislation was further augmented in April-May 2001 (by the "Federalism Development Program 2001-2005").
The regions are allowed to tax the property of organizations, sales, real estate, roads, transportation, and gambling enterprises, and regional license fees (all tax rates are set by the center, though). Municipal taxes include the land tax, individual property, inheritance, and gift taxes, advertising tax, and license fees.
The IMF notes that "more than 90 percent of sub-national revenues come from federal tax sharing. Revenues actually raised by regional and local governments account for less than 15 percent of their expenditures". The federal government has also signed more than 200 special economic "contracts" with the richer, donor and exporting, regions - this despite the constitutional objections of the Ministry of Justice. This discriminating practice is now being phased out. But it has not been replaced by any prioritized economic policies and preferences on the federal level, as the OECD has noted.
One of Putin's first acts was to submit a package of laws to the State Duma in May 2000. The crux of the proposed legislation was to endow the President with the power to sack regional elected officials at will. The alarmed governors forgot their petty squabbles and in a rare show of self-interested unity fenced the bill with restrictions. The President can fire a governor, said the final version, only if a court rules that the latter failed to incorporate federal legislation in regional laws, or if charged with serious criminal offenses. The wholesale dismissal of regional legislatures requires the approval of the State Duma. Some republics insist that even these truncated powers are excessive and Russia's Constitutional Court is currently weighing their arguments.
Putin then resorted to another stratagem. He established, two years ago, by decree, a bureaucratic layer between centre and regions: seven administrative mega-regions whose role is to make sure that federal laws are both adopted and enforced at the local level. The presidential envoys report back to the Kremlin but, otherwise, are fairly harmless - and useless. They did succeed, however, in forcing local elections upon the likes of Ingushetiya - and to organize all federal workers in regional federal collegiums, subordinated to the Kremlin.
The war in Chechnya was meant to be another unequivocal message that cessation is not an option, that there are limits to regional autonomy, and that the center - as authoritative as ever - is back. It, too, flopped painfully when Chechnya evolved into a second - internal - Afghani quagmire.
Having failed thrice, Putin is lately leaning in favor of restoring and even increasing the Federation Council's erstwhile powers at the expense of the (incensed) Duma. Governors have sensed the changing winds and have acted to trample over democratic institutions in their regions. Thus, the Governor of Orenburg has abolished the direct elections of mayors in his oblast. Russia's big business is moving in as well in an attempt to elect its own mayors (for instance, in Irkutsk).