19 july 2012

Prime Minister Dmitry Medvedev chairs a government meeting

“Every permanent resident of the inundated communities must receive 160,000 roubles, including 100,000 from the federal budget and 60,000 from the territorial budget, regardless of the extent of property losses incurred…”


Dmitry Medvedev: Let’s get down to work. As usual, we have a lot to discuss today. The issue of additional material assistance to those affected by the disaster in the Krasnodar Territory ranks among our top priorities. As per relevant decree, additional changes must be made to previously adopted decisions. Every permanent resident of the inundated communities must receive 160,000 roubles, including 100,000 from the federal budget and 60,000 from the territorial budget, regardless of the extent of property losses incurred. Under the government’s July 9, 2012 executive order, 3.8 billion roubles have been allocated from the Reserve Fund to provide material assistance to the affected people. An additional 300 million roubles will be used from the federal budget, so that the decree’s provisions will have the required material resources.

I would like to tell you that I have signed a government resolution on issuing subsidies to defence industry contractors. It took a long time to draft this resolution. This funding is to be used to subsidise the interest on loans from Vnesheconombank and other banks, to finance the development and production of military equipment. The 2012 federal budget stipulates 1.5 billion roubles for such purposes. I would like to note that this subsidy will only be provided to companies with no outstanding interest or principal debt and also with no tax or duty debt. Thus, as we agreed, we assist cost-effective domestic producers who are ready to develop and manufacture state-of-the-art military equipment, to modernise production and to create jobs. I hope this will help us retain our traditional strong positions on the international arms market. It is common knowledge that Russia is the world’s second largest arms exporter.

Today, we will also discuss amendments to the Budget Code and specific legislative acts of the Russian Federation. These amendments are needed to draft the 2013 budget and the outline for the 2014-2015 planning period. The amendments are related to fulfilling state programmes, the improvement of budgetary classifications, the procedure for drafting and approving the budget within the programme format and of course the development of a system of state and municipal control. I hope that the state’s finances will be managed more effectively as a result of this.

Certainly, it is necessary to oversee the spending of state allocations. But specific liability for violations of budgetary legislation must also be provided for. External and internal measures of financial control must be introduced. In addition, the oversight agencies concerned must demarcate their respective spheres of responsibility. We have plenty of them. However, such control often has a completely secondary nature. Even these agencies duplicate each other. At the same time, we need to rule out the possibility of unjustified checks of legal entities, and bring the system of state financial control in conformity with the principles and standards of the European Organisation of Supreme Audit Institutions (EUROSAI). Russia will have a modern and effective control system only after such seemingly technical issues are resolved.

Amendments to the federal law on navigation activity and the Administrative Offences Code are another item on our agenda. The pertinent amendments have to do with the broader use of the Global Navigation Satellite System (GLONASS). On January 1, 2011, the mandatory installation of GLONASS transceivers was decreed for passenger buses and during shipments of dangerous and special-purpose consignments. Starting January 1, 2013, similar devices will have to be installed on vehicles carrying heavy and bulky consignments. The relevant penalties for failing to abide by such requirements will be stipulated as of July 1, 2013. I would like to draw the attention of all carriers and shipping agents and those associated with transport operations to the fact that such fines will be quite hefty, ranging from 30,000 to 50,000 roubles. But I am confident that they will be justified, because this is necessary in order to improve traffic safety standards. Nationwide statistics in this area remain quite disturbing. In all, 200,000 traffic accidents with almost 28,000 fatalities were recorded last year. This is an unprecedented figure! I don’t know which other countries with heavy motor traffic have similar statistics. We must improve the quality of road construction, modernise the infrastructure, utilise state-of-the-art technologies and upgrade the medical aid system, including medical aid being provided in line with the Golden Hour principle in order to reduce these statistics. Moreover, we must use these technical innovations, which we will discuss today, because I hope that GLONASS will, nevertheless, help improve road traffic safety.

Helping people in emergencies and building up a rescue service are matters of perpetual importance for this country, as was again confirmed by the recent Krymsk tragedy. We have taken some time organising a liaison system with the emergency services through a single number, 112, on the public telephone network. It's high time we finalised this effort. This item is on today’s agenda.

We have a number of other items, including those affecting the lives of millions of people. A great number of active travelers often come back home from foreign voyages, bringing along various souvenirs and gifts. Occasionally it is found that the established cash ceilings have been exceeded and a commodity has to be declared and is liable to a customs duty. These infringements carried a punishment which, to put it mildly, was not always fair or commensurate. The reason was that the price of goods transferred across the border was determined by a rule of thumb on the basis of a so-called transaction value, while the administrative fine was calculated to the maximum amount, with customs personnel proceeding based on the assumption that anyone transferring goods of this kind is a repeat offender. This is unfair. We will have to amend the Administrative Code and clearly formulate sanctions for this or that infringement in the customs sphere, specifying that the cost of goods should be calculated on the basis of commercial documents provided by the customer rather than in line with their market value. A part of commodities not subject to declaring should not be liable to a fine.

Finally, the term of limitation for these kinds of administrative offenses will be calculated from the day they are committed. I hope that eventually this will make life easier for people in this country and relieve travelers crossing the border of excessive red tape and outright corruption that one occasionally comes across while crossing the border.

Let's get down to work. As you can see, the list of items is quite varied. The Finance Minister, Mr Anton Siluanov, has the floor for a report on the first item, On Amending the Budget Code to Improve the Budgeting Process.

Anton Siluanov: Mr Medvedev, colleagues. The law we have presented today was drafted in accordance with the programme aimed at enhancing the efficiency of budget spending, and will provide the legal framework for implementing government decisions on drafting the budget on the basis of targeted programmes. This provision was included in the president’s budget address and will now be implemented. This bill provides for making comprehensive amendments to the Budget Code, above all for outlining the general framework requirements for the drafting and implementation of state and municipal programmes.

The authority to approve the detailed procedure for drafting and implementing these programmes, and to assess their effectiveness, are to be granted to the government of the Russian Federation, the supreme executive authorities of federation entities and local governments. The state programme provides for the possibility of granting a block subsidy to other budgets for implementing the programme. We know that there are many such subsidies and that administering them sometimes involves management problems for both federation entities and federal agencies. This is why we believe that the integration of all these subsidies into a single subsidy, while retaining the requirements that are valid for current subsidies, is the right move for improving our inter-budget relations. This will give us a tool for coordinating the enhancement of responsibility of the bodies of power at different levels, for achieving our common goals through the unified subsidy, and consequently, for outlining clear and strict requirements for receiving these subsidies.

As for state and municipal programmes, information regarding their implementation should be provided to legislative agencies at the same time as the draft budget. The annual report on the implementation of the federal budget is to be submitted jointly with the consolidated report on the implementation and efficiency of federal programmes. We believe that the heads of the federal agencies that are responsible for implementing such state programmes should present and defend them not only in the federal government, but also in parliament, including its industry committees, as well as in the Audit Chamber and during public discussions.

To ensure the drafting, approval and implementation of the budgets within the format of federal programmes, we suggest amending budget classification, with a single targeted spending item for each stage programme. Consequently, the budget will have a streamlined structure of spending on state programmes divided into sub-programmes and main events and departmental programmes, so that budgetary allocations will be directly connected to their planned and actual use in accordance with the state policy targets.

At the same time, we suggest introducing types of expenses that will be common for all budgets. Currently, they are determined separately for each budget and there is no common methodology. Common types of spending will allow us to compare spending on state and municipal programmes and their events, for example, in terms of wage funds, social payments, purchase of goods, work and services, capital grants, etc.

It should be noted that state programmes do not stipulate allocations, but rather represent a framework for approving different types of expense obligations, such as social payments, wages and state contracts, tied to the goals and results of state policy. At the same time, amendments provide for the possibility of signing long-term state contracts within state programmes for selected events under the state programmes. Under the law, the administration of the federal budget will be endorsed in the programme format starting in 2014.

As for the regions and municipal entities, they are given the right to choose whether to stick to the traditional budget format or switch to programme budgets. Importantly, the transition to the programme budget involves the analytical distribution of expenditures and formation of reports on traditional functional sections and sub-sections of the budget classification, as is the case now during budget approval.

Amendments providing for a switch to the programme budget are supposed to be introduced as of January 1, 2013 with a view toward drafting the federal budget for 2014, 2015 and 2016 in the new format. We must endorse 18 state programmes before the end of this year and approve the remaining ones in early 2013. We are drafting a budget strategy that will determine, in part, ceilings on expenditures on state programmes, preserving the continuity with the current programme targeted instruments. Federal targeted programmes will be included in state programmes and therefore their scale and funding must be taken into account in the new structure of state programmes.

The draft law suggests a number of amendments on other issues involved in regulating the budget process. It suggests better justification for introducing amendments into a combined budget breakdown during the budget administration, for instance, as regards normative expenditure commitments. The draft gives chief administrators of budget funds the right to redistribute allocations within the total sum. In other words, it will no longer be necessary to make changes in the budget breakdown on normative and public commitments. This right will belong to the chief administrator of budget funds.

The draft suggests an opportunity to pay for state contracts that were due to be paid last year. In other words, this is an issue of transferring leftover money when a state contract was signed in one fiscal year but could not be paid and carried out this year. In this case, the allocations envisaged for this contract this year may be transferred as leftover funds and be funded next year. We have coordinated these proposals with the Ministry of Economic Development.

A number of amendments are aimed at resolving issues that are topical for regional and local budgets. The draft allows territorial bodies of the Federal Treasury to grant short-term (up to one month) loans to regional and local budgets for closing cash gaps. The draft provides for the transition of the Federal Treasury bodies to cash service of the budgets of territorial state extra-budget funds. The introduction of a common portal of the budget system of the Russian Federation is a major innovation. It will publish information on endorsed budgets and their execution in a single format. It will be endorsed as a norm of the budget address. The draft also suggests some editorial and technical amendments and contains changes made in several other laws.

We have coordinated the draft with the Ministry of Economic Development and received a positive report from the Ministry of Justice. The president’s expert department recommends that it be submitted to the Duma. I’d like to ask you to approve the draft. Thank you for your attention.

Dmitry Medvedev: Thank you. Do you have any questions for Mr Siluanov? Please, Mr Dvorkovich.

Arkady Dvorkovich: Mr Siluanov, how does the norm on switching leftover funds to be used for paying contracts next year instead of this year tally with the budgetary rule? Will these leftover funds be outside the budgetary rule or should they be part of the relevant funds? I’m asking because now that the law on the budget is being adopted and introduced into the Duma, it is unclear what part of the contracts will not be carried out this year.

Anton Siluanov: We’ve discussed this issue, Mr Dvorkovich. We believe that when submitting amendments to the budgetary rule for the second reading we must simply make a supplement by linking these additional allocations with the amounts that will exceed the limits on budget expenditures under the budgetary rule. In this way we won’t upset the budgetary rule and will make better use of budget funds.

Dmitry Medvedev: Thank you. Does anyone have more questions on the draft? No questions? In that case I suggest that we adopt the amendments into the federal law on changes in the Budget Code with all relevant documents, and give the floor to Mr Siluanov once again. He will make a report on the introduction of changes into the Budget Code…

Anton Siluanov: Thank you, Mr Medvedev.

Dmitry Medvedev: …and the Code of Administrative Offences regarding control, about which I spoke. Go ahead, please.

Anton Siluanov: Like the previous draft, the federal law we are presenting was drafted in accordance with the programme designed to enhance the efficiency of budget spending. It provides for making comprehensive amendments to the Budget Code and the Code of Administrative Offences. Go ahead, please.

Anton Siluanov: We propose limiting the scope of state municipal financial oversight to checking compliance with budgetary legislation only by budget process participants -- that is, government bodies and official institutions, as well as legal entities established through state or municipal property (including budgetary and autonomous institutions, unitary enterprises and state-owned corporations). Other legal entities can be subjected to state financial audit only during auditing of the budget process participants who provided budgetary funds. Such auditing shall be limited to checking compliance with appropriate agreements on obtaining and using such funds. Essentially, what we are doing is imposing limits on auditing the participants who are not involved in the budgetary process. They will be subject to auditing only if they are involved in a budgetary process under a provision in an agreement signed with a contractor providing works or services.

This approach has already been set forth in the federal law On General Principles of Organisation and Operation of Oversight and Auditing Bodies of the Russian Federation in Municipalities. The law proposes expanding its function by clearly defining the scope of state financial oversight and shielding businesses from excessive interference of behalf of oversight authorities. In addition, the proposal includes streamlining basic forms of state financial oversight, both external, conducted by the Audit Chamber and audit authorities of the regions, and internal, carried out by financial oversight bodies within the executive authorities. Preliminary and follow-up state financial oversight is also included in this streamlining effort.

With the above in mind, we propose a more systematic description of the powers of state and municipal oversight bodies. In addition to oversight over budget legislation, completeness and reliability of fiscal accountability, the audit bodies established by legislative authorities will oversee the way internal control is implemented, which is also an innovative provision of the law.

At the same time, we propose extending powers of the Federal Service for Fiscal and Budgetary Supervision (Rosfinnadzor) and financial oversight bodies established by executive authorities of the Russian constituent entities and local governments (municipalities) to include oversight of the completeness and accuracy of reporting about the implementation of government programmes and assignments. This is also critical, because we are refocusing oversight from the targeted use of budgetary funds (which the current law does not change) to assessing the effectiveness of the use of budget funds, because the effective use of funds is becoming a priority for each budget recipient as they transition to the government assignment-based funding principle.

Our proposal includes simplifying the organisation and improving financial oversight at the level of municipalities, primarily in small towns and rural areas. The law provides for establishing just one financial oversight body in a municipality, which will engage in both external and internal oversight. We also propose assigning additional budget oversight powers to the Audit Chamber and regional audit bodies. In addition to existing powers that these bodies enjoy with regard to reviewing budget laws and budgeting processes, we propose codifying in law the Audit Chamber’s and audit bodies’ authority to analyse the effectiveness in using budgetary funds. In fact, the Audit Chamber is already performing such functions and is gradually taking up the assessment of the effectiveness of the way funds are used. This provision will be codified in the new law.

For the first time ever, the following financial oversight techniques are being codified in law: the inspection, i.e., oversight actions related to studying the legitimacy of financial and business transactions; the audit, i.e. a comprehensive check of the entity coming under the purview of oversight; survey, i.e. analysis and evaluation of specific areas of activity; authorising transactions, i.e. financial audit of compliance with the federal budget law by the Treasury.

Should a violation be detected during an oversight inspection, the entity coming under the purview of oversight shall be issued a letter with a binding requirement to take measures to correct the detected violations, or a letter containing, in addition, a claim for damages.

The existing Budget Code stipulates 18 grounds for using enforcement measures with regard to violating budget legislation. Meanwhile, the Code of Administrative Offences establishes administrative responsibility in the form of fines for only three of them. Most of the coercive measures listed in the Budget Code cannot be used because of complex procedures or risk associated with disrupting the budget process. For example, blocking budget expenditures does not serve to punish the offending officer, nor even the organisation he works for. What it does is punish consumers of services and functions which, in our opinion, is absolutely ineffective. Therefore, the most important innovation included in this law has to do with setting forth an exhaustive list of budget legislation violations, for each of which the Code of Administrative Offences provides penalties imposed on specific officials or organisations depending on the amount of budget funds that were used improperly. Certain offences involve disqualification of officials, that is, depriving individuals of the right to hold civil service positions for a certain period of time.

Colleagues, we have included the comments provided by the Ministry of Justice in the new law. We have positive findings from the presidential state law and expert analysis departments. We worked on the law together with the Audit Chamber and included their comments as well. We are now asking you to support it. Thank you.

Dmitry Medvedev: Thank you. Are there any questions for the Finance Minister? No? Thank you, Mr Siluanov. Please take a seat. Then let’s decide on changes to the law, the Budget Code and the Code of Offences and continue our work.