Local budgets and inter-budgetary relations as a factor of regional development

The economic basis of local government and self-government is made up of local budgets (regional, district, city, settlement budgets and budgets of village councils). In total, there are more than 1660 local budgets in the Republic of Belarus. The totality of the budgets of the corresponding administrative-territorial unit is the consolidated budget of the region (republic, region, district, etc.). Thus, the consolidated budget of the region includes the budgets of districts, cities of regional subordination and the regional budget. Accordingly, the budget of village councils, settlements, cities of district subordination and the district budget form the consolidated budget of the district. The value of the consolidated budget of a particular administrative-territorial unit is determined taking into account the average republican standard of budget provision per inhabitant, which makes it possible to calculate the minimum consolidated budget.

In accordance with the concept of development of local budgets adopted in the Republic of Belarus, their revenue part is formed by:

own income, taxes and fees (land fees, natural resources tax, real estate tax, local taxes and fees); fixed sources of revenue for the budget of each level; deductions from republican taxes and fees on regulatory sources of income; grants, which are funds allocated on a non-reimbursable basis from the higher budget without specifying their intended use (to balance the lower budget); subventions, which are financial resources allocated from the higher budget for specific purposes (targeted subsidies); subsidies provided from the higher budget to equalize the level of socio-economic development of the regions.

The expenditure part of local budgets includes the following areas:

capital investments in the development of regional infrastructure, housing construction; financing of the current maintenance of branches of the socio-cultural sphere (about 70% of all state expenditures for these purposes); social protection of the population (benefits for low-income families, disabled people, large families, etc.); subsidies (for the maintenance of residential buildings, transport, compensation for the difference in prices, etc.); expenses for the support of the agro-industrial complex; expenses for the support of small businesses.

When assessing the local budget of a particular level, the following important characteristics and parameters are used:

a) an indicator of the budget provision of the region, which is interpreted as the ratio of the budget potential of the territory to expenditures (the budget potential of the region is the amount of funds collected on its territory in the form of tax and non-tax revenues, including those provided from the budgets of higher levels);

b) an indicator of the provision of own revenues, which characterizes the financial independence of the region and its ability to independently form the revenue side of the budget and finance expenditures (today only a quarter of local budget revenues are formed at the expense of their own revenues, which makes 90% of the local budgets of Belarus dependent on higher budgets, i.e. subsidized).

To form additional sources of covering expenses, local authorities create targeted budgetary and extra-budgetary funds, the funds of which are accumulated in local budgets, including the Nature Protection Fund, the Road Fund, the Fund for the Support of Departmental Preschool Institutions, Funds for Financing the Costs of Maintaining the Departmental Housing Fund, the Trust Budget Fund for Stabilizing the Economy of Agricultural Products and Food Producers, and the Innovation Fund.

State regulation of regional development through the system of state and regional finances is carried out on the basis of the principle of fiscal federalism, which is understood as a system of relationships between budgets of different levels regarding the distribution and redistribution of financial resources. At the same time, it is customary to distinguish two types of fiscal federalism – competitive, associated with minimal redistribution of funds between budgets, and cooperative, providing for the active participation of the government in equalizing interregional disproportions. In the second case, the activities of the government are associated with vertical and horizontal budget alignment, which is understood as achieving a balance of local budgets. At the same time, vertical alignment involves eliminating discrepancies between the expenditure and revenue parts of the regional budget by providing the missing resources from the budget of a higher level. Horizontal alignment means the proportional distribution of funds between local budgets of the same level in order to compensate for the variation in the budgetary potentials of different territories and to ensure equal opportunities for all citizens, regardless of their region of residence. Thus, the budget system of the state is considered vertically balanced if the amount of revenues in the budgets at each level of government as a whole is sufficient to perform its functions. Horizontal balance implies a general balance of revenues and expenditures in the budgets of individual regions.

It should be pointed out that vertical and horizontal alignment is characteristic of almost all countries. It is achieved using general (universal) and targeted (special) transfers, and both transfer systems are used for the development of “problem” regions in many countries. Thus, in some countries (for example, in Japan), when determining the value of the equalizing total (universal) transfer, the difference between the estimated value of the budgetary needs of the region and its tax potential is taken into account. In other countries (for example, in Denmark), the amount of equalizing transfer is influenced by indicators characterizing the degree of depression of the region (average per capita income, unemployment rate, poverty, etc.). In some countries (Germany, etc.), when addressing issues of regional development, the formation of separate funds for the general (leveling) transfer of “problem” territories is practiced. For other states (the USA, etc.), a particularly important role in solving the problems of the development of depressed and backward territories is assigned to targeted (special) transfers. In addition, depressed and backward regions may be granted a special budget status.

Various methods of financial equalization are also actively used in the Republic of Belarus, including:

financing from the fund for the support of administrative-territorial units, created at the expense of deductions from value added tax and income and income tax credited to the republican budget; transfers carried out in the form of subventions for the maintenance of social and cultural facilities, subventions for the construction of communal property and subsidies for housing construction.

As part of the overall financial equalization, the average republican standard of budget provision for non-production sectors per inhabitant and correction coefficients for the regions, taking into account the regional features of the functioning of non-production institutions, are established. Based on this standard and the population by region, the amount of budget allocations is determined. For regions with expenditures below the standard, it is planned to allocate funds from the support fund to bring the budget provision to the average republican level.

An important role in the regulation of economic processes in the regions is assigned to forecasting and planning of finances, for which a long-term balance of revenues and expenditures is being developed, taking into account the needs for financing certain areas (the consolidated balance of financial resources of the region).
In the process of planning the items of the consolidated balance sheet, the amount of funds necessary for the implementation of the socio-economic program of the region is determined, their sources are indicated, reserves for revenue growth and savings in expenditures are identified, and optimal proportions in the distribution of funds between the corresponding balance sheet items are established.

Forecasting and planning of financial indicators is carried out using the following methods:

extrapolation based on taking into account the existing dynamics of financial indicators and stable trends in its changes; mathematical modeling related to the construction and analysis of financial models that simulate real economic processes in the regions; normative, prescribing the use of norms and standards in the social and production spheres; balance sheet, involving coordination, coordination of quantitative characteristics of all sections of financial plans among themselves; expert estimates, which is based on assumptions, forecasts, estimates made by competent specialists in certain branches of science, the national economy, and the regional economy.

It should be pointed out that in an economy of a predominantly market type, when the price mechanism and competition objectively lead to socio-economic differentiation of business entities and regions, the role of financial planning and forecasting the development of regions is of great importance. At least the experience of advanced market economies studied above suggests that careful planning of financial assistance to problem regions is a common practice in both the national and supranational regional policies of most European countries.