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Revolution in Administration to Take Place Over Next 10 Years

How should the state’s economic priorities change? What structural reforms are to take place in the near future? What should be improved in the state control system? Participants at the roundtable discussion ‘The State and Economic Development’ discussed these and other issues as part of the XVIII April Conference at Higher School of Economics (HSE) in Moscow.

The participants in the roundtable discussion included Maxim Oreshkin, Minister of Economic Development, Anton Siluanov, Minister of Finance, Tatiana Golikova, Head of the Accounts Chamber of the Russian Federation, Andrey Makarov, Chairman of the Russian State Duma Budget and Tax Committee, and Alexei Kudrin, Chairman at Centre of Strategic Studies (CSS) and Deputy Head of the Presidential Economic Council.

According to HSE Rector Yaroslav Kuzminov, many governmental bodies today are still pursuing their operations just as they did when the country had abundant resources thanks to high oil prices, but, clearly, this situation cannot continue indefinitely. He therefore suggested that the roundtable participants answer the following questions:

  • What should the state change in its economic priorities over the new decade?
  • How can the authority of the state and municipalities be optimized?
  • How should the responsibilities and resources between federal bodies, Russia’s regions, and municipalities be redistributed?
  • What spheres should no longer be under state regulation, and what would be the results of such a departure?

The subsequent discussion followed these issues in one form or another.

Where Do We Go Now?

‘We should think about the future of the economy before we decide what the state should do differently over the next decade,’ suggested Maxim Oreshkin, Russia’s Minister of Economic Development. ‘We all agree that after 10-15 years, the economy will be more human-oriented’, he said, adding: ‘For instance, key changes should take place in education and health care. The education system should provide people with the knowledge and competencies necessary for the economy over the next decade, and this is especially true in regards to communication skills. At the same time, developing certain skills is not enough. We should also create an environment where people will communicate, exchange information and develop as professionals. That’s why the growing role of cities is inevitable, and their competitiveness is one of the milestones for economic policy.’

Anton Siluanov, Minister of Finance, noted that one of the essential goals for the new decade is to attain budget independence from the various factors that may cause instability. In addition, the size and scope of the public sector should be appropriate to Russia’s rate of economic development. He notes: ‘It should be compact and mobile; public institutions should boost the effectiveness of their services, and not by means of expanding, but by increasing their productivity’. Also, reducing the shadow economy is also an important task. If the tax service continues its current course of development, which has been taking place over the last five years, at the same pace, it will be very difficult to evade taxes in the near future.

How Can Supervision Be Exercised?

One of the key topics considered at the roundtable was state control and supervision, as well as related issues of efficiency. ‘Today, Russia has a lot of supervisory bodies, and many regional operations are duplicated at the federal level. Obviously, we should start preparing reforms today, while aiming at reducing the total number of supervisory bodies after 2018,’ Anton Siluanov noted. For instance, the Ministry of Finance has already taken the first steps in this direction: the Federal Service for Financial and Budgetary Supervision has been merged with the Federal Treasury, which thereby has reduced the number of supervisory activities.

An important step towards reforming supervisory bodies would be unifying the databases owned by supervision and control bodies, as is happening today with the tax and customs services’ databases. This kind of cooperation helps to form a risk management system and ensures that such services are monitored much more effectively. As various control bodies’ risk management systems are united, the number of control operations (and control officers) may be decreased, while the administrative burden on business organization is eased off.

Furthermore, Maxim Oreshkin commented about a bill on control and supervision operations, which aims to change the control bodies’ form of work to prevention. ‘What we are suggesting is to make supervision transparent in most fields, so that those who are checked know the criteria that are followed by supervisory bodies, and who they consider as a “risk zone”,’ he added. Moreover, the bill suggests creating a so-called ‘white book’ and ‘black book’ for supervision activities. In particular, the white book will list procedures to be followed in line with the supervisory bodies’ requirements, especially in controversial cases, while the black book will include common violations.

According to Yaroslav Kuzminov, there is one supervisory body in Russia that is completely different from the others, and this is the Accounts Chamber of the Russian Federation, which engages in truly useful supervision operations. It brings in experts for analysis and supervision, while the Accounts Chamber’s auditors are renowned professionals with excellent reputations. It thus makes sense to think about applying this approach ubiquitously, in order to optimize the supervisory bodies’ operations. Yaroslav Kuzminov also suggested dividing all companies/business organizations into three nominal groups with low, medium, and high risks. In this case, it would be then possible to avoid pursuing excess control of low-risk groups, while also carrying out effective checks only in case of accidents.

Tatiana Golikova, Head of the Accounts Chamber of the Russian Federation, said that the main trend in public administration reform is the computerization of process management by means of Big Data. This is a strategic approach already followed by certain federal bodies today, such as the Federal Tax Service. ‘Big Data storage and management is an opportunity to obtain information without visiting a facility and carrying out any operations there,’ she added.

Human Capital

In the second half of 2017, the Russian Government will present its outlook on the development of certain sectors of the economy for 2018-2020. There is an idea that it’s necessary to focus significantly on education and health care, but it’s still unclear what resources can be utilized for such purposes.

For instance, health care is funded from the Compulsory Medical Insurance Fund by means of employers’ insurance contributions, while the regional authorities pay contributions for unemployed persons. Today, the fund comes to around 618 billion roubles. The issue of releasing the regions from the burden of insuring the unemployed citizens is rather pressing today. If a different source is found, regional budgets will be able to find some fiscal space, among other things, for spending on education.

Yaroslav Kuzminov also spoke about a 2016 study, which uncovered that families in Russia are ready to pay for certain services. The share of people ready to pay an additional 2% tax on their income to fund certain areas (e.g., education, health care, roads and infrastructure repairs, and public order enforcement) has grown sharply, but only as long as the public would be able to track the distribution of these funds and the specific results achieved. This study proves that the population is ready for such innovations. There probably is also potential for introducing local taxes at the municipal level. Such funds could make officially co-investments in the necessary areas.

An experiment was carried out in the town of Sosnovy Bor, where local residents were offered to decide on how to distribute 3-5% of the local budget, Alexei Kudrin told the audience. This inspired enthusiasm among local residents and demonstrated their readiness to take active part in solving such issues. According to Kudrin, a certain ‘taxpayer’s mood’ is mostly evident at the local level, and, therefore, this is where such forms of taxation should be maintained and stimulated.

On the Path of Modernization

Commenting on future changes, Alexei Kudrin noted that it would be difficult to perform large-scale reforms over the next decade, but certain steps are still possible. A total of 27 years of market economy in Russia is a serious period, but not everything has been done, and now it is people’s mentality and competencies that are being transformed. The quality of institutions employed by the state, legislation, and regulatory practices is still not in line with an open market economy governed by modern regulation methods. As such, building such institutions is an essential task today. ‘It is clear that we lack effectiveness and productiveness in those institutions, where public administration is crucial. Russia’s system of public administration is going to be considerably modernized over the next decade, and data will be collected and processed by robots, not humans. We expect a revolution in administration over the next decade,’ he said.

An important issue that should be considered is that Russia has visibly fallen behind other countries in terms of its technological development. The institutions and inventions that have been in place since the time of the Soviet Union aren’t appropriate with respect to the scale of the challenges faced by Russia today. In order to avoid considerable arrearage and loss of markets over the next 10 to 15 years, state policy should focus on developing institutions for research and innovation. Moreover, curricula and equipment should also be renovated. The quality of equipment owned and used by Russian education institutions today is decades behind their European counterparts.

Money Shouldn’t Be Put Ahead of Reforms

What really needs to be changed in order to implement all of the proposed plans and make sure that such programmes exist not only on paper, but in reality? Andrey Makarov, Chairman of the Russian State Duma Budget and Tax Committee, addressed this question at the roundtable. He stated that a detailed analysis of the mistakes that have already been made should be carried out in order to implement effective reforms. He also noted the necessity to analyze the quality of local regional administration, as well as give Russian municipalities the right to establish taxes and other types of collections. Furthermore, he also emphasized the need for structural reforms, given that ‘money should follow structural reforms, not outrun them.’

Commenting about the conditions for reforms, HSE President Alexander Shokhin mentioned problems in law enforcement and judiciary systems as essential for consideration. He stated that pressure and ineffectiveness have been obstacles for the development of business and the economy in general.

Summarizing the roundtable discussion, Yaroslav Kuzminov noted that underfunding of regional authorities is a main pressure point, stating: ‘Until we give the regions an opportunity to exercise their right to establish taxes and such charges, nothing will happen. If democracy has no support and approbation from below, it will inevitably fail at the top.’

Furthermore, according to Yaroslav Kuzminov, the main task is to outline the procedure for structural reforms and ensuring resources to support this process. He noted: ‘when we talk about a new plan for structural reforms, the solution should be the following: we should declare their necessity both with respect to education and health care, as well as identify the key sectors for economic development. Over the first two years, we should implement the reforms as part of the approved three-year budget. Also, new funding will be allocated in 2020 to those bodies that are able to survive and still operate.’

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