F. Khodzhaev, On the Revision of the Statutes on the Budget Rights of the Union and the Union Republics. February 1929
Original Source: Sovetskoe stroitelstvo, No. 2 (1929).
The most vital problem of the mutual relations between the Union and the Union Republics in the field of the budget has been removed from the agenda of the fourth session of the Central Executive Committee of the USSR which has just been concluded. This was done because this question had not been studied enough and requires a preliminary and most thorough discussion in the Union Republics.
Our task is rendered more difficult by the considerable differences in the economic structure of the various Republics, and yet it is essential to find common norms reconciling the diverse interests and satisfying to an equal extent the requirements of the Union Republics and the Union as a whole…
The prospect that the new law will solve completely all these difficult problems is not very bright. No doubt it will be necessary later on to introduce various changes and amendments based on practical experience provided by the rapid economic growth of the Union as a whole, and in its component parts. But it is decidedly necessary for the projected law to anticipate and tackle the aspects revealed by the experiences gained in budget work…
This problem is much facilitated by the fact that, in the USSR, the interests of the Union and the interests of the individual Republics do not contradict each other, as they do in bourgeois federations. Planning, the fixed principle of our work will enhance the success of our task.
Let us note the most important problems which must be solved by the new budget legislation.
The distribution of the various kinds of expenditures between the All-Union and Republican budgets should be regulated from the point of view of their importance for the Union as a whole or the Republics. Even in this respect, there may be certain differences of opinion, but they are more easily resolved. From the practical viewpoint it seems necessary in such cases to apply the principle of decentralization. With the consolidation of the Republican apparatus, the volume of its work should be increased by transferring to it various duties from other fields. This will improve the quality of the work and enliven and galvanize its links with the masses. The adoption of this principle for example, in the Uzbek Republic has had precisely such a result. The direction and the volume of the work in the individual Republics must, of course, be kept in the general frame of the plan adopted for the Union as a whole.
Matters are more complicated on the income side. Every ruble, passing from the all-Union to the Republican budget, reduces the former and appears to narrow the scope for handling all-Union resources. On the other hand, under the present state of affairs, some budgets, especially in the weaker Union Republics, show a considerable deficit.
Apart from the question of the economic capacities of these Republics, the deficits are to a large extent due also to defects in the structure of the income side of the Republican budgets. For example, on the income side of the budgets of the Uzbek or Turkmen Republics it is impossible to find any indication of the place occupied in their national economy by the production of cotton, Persian lamb, silk and many other kinds of raw materials. The contribution made by the most important branches of national economy to the income side of the budget is incomparably lower than the place which they actually occupy in national economy. The natural result of this is the budget deficit which is covered by the peculiar device of distributing the income from the stamp duty among the individual Union Republics.
That is why it is necessary for the new law to provide an income structure in the Republican budgets which will reflect fully the economic structure of each individual Republic. In regard to Uzbekistan in particular, we consider that cotton and several key raw materials must occupy an appropriate place in the budget. We shall not, at present, go into detail on the implementation of this principle to be applied in practice. There could, for example, be a special addition to the price of a certain product which is to go to the Republican budget. Since almost all the industries processing basic agricultural raw materials and most of the state purchases of raw materials are handled by state authorities or co-operatives, the technical side of collecting this addition would not be particularly difficult. Yet a relatively small addition, under the conditions prevailing this year, would yield a considerable amount, likely to increase our budget income according to our computations approximately by 20 per cent.
Identical proceedings could be applied to such articles as Persian lamb, silk, dried fruit and so forth.
In our opinion such an addition would introduce no substantial innovation into our legislation. We have already very similar taxes: various kinds of special purpose dues and, in particular, the per-pood due in railroad and water transport.
But such a price increase of cotton or other raw materials for light industry must not lead to price increases for finished goods. This will naturally affect the extent of profits of the textile industry and, in the final outcome, the income side of the Union budget. But the reduction in the all-Union income will be deceptive, for the Republican incomes will rise correspondingly and the extent to which the Republican deficit is covered by the all-Union budget will be reduced.
On the other hand, this innovation will considerably increase the active interest and initiative of the local authorities (County and District Executive Committees and Village Soviets). The Republic will seek to expand its economy, for example cotton cultivation in Uzbekistan, not only for the purpose of fulfilling the all-Union task of supplying the raw material to the textile industry, but also to increase the revenue of its local budget.
In this connection it would appear expedient to reduce the extent to which the weak Republican budgets are adjusted by the all-Union budget, and correspondingly to increase the Republican sources of revenue.
At the same time, we consider such a general adjustment of Republican budgets by the all-Union budgets as necessary for it will not be possible, without it, to raise the economy and culture of the backward and weaker Republics to the average Union levels; the economic and cultural problems are so great that the Republics lack the capacity to solve them on their own.
It is particularly important that the new law should deal with the position of the local budget.
Many big expenditures have lately been transferred to the local budget, but this process, particularly in some Union Republics, cannot be considered as completed. It is true that, apart from the transfer of expenditures under the last statute on local finances, the local authorities were also offered a new way of raising additional revenue… But in practice the incomes of the local budget do not suffice to meet, more or less tolerably, the necessary expenditures. There are not enough income items to satisfy the growing requirements of the local authorities.
The revenue side of the local budget has the same defect as that of the state budget. Like the latter, it hardly reflects the basic items of national economy. That is why it is imperative to improve the structure of the income side of the local budget by including in it definite allocations from those sources of revenue which are reserved for the state budget.
But hitherto, for example, cotton which practically did not figure in the Republican budget, was not represented in the local budget either, although, in fact, it is of the greatest importance for the economy of any cotton district.
The local executive committees which have the great and responsible task of fulfilling all kinds of assignments connected with the cotton campaign and the accomplishment of the cotton plan, and whose budgets contain almost no income from cotton cultivation, are naturally raising the question of including this most important branch of economy in the local budget.
As regards cotton, in particular, the expansion of this culture has, strangely enough, the effect of reducing the local revenue owing to the agricultural tax preference which cotton enjoys in comparison to other agricultural crops (half of the tax on grain).
This, of course, must be put right, so that the local budget, too, reflects properly the most important economic items of the district in question.
On the whole, it seems that the relation between the local budgets and the Republican budget should be analogous to that between the Republican budgets and the all-Union budget.
If the deficit in a Republican budget is balanced, when necessary, at the expense of the all-Union budget, then the deficit in a local budget must be covered by the Republican budget. The link between the work of the Republican and local authorities is so close, and the efficiency of the local apparatus has so great a bearing on the way the Republican authorities work and accomplish the plan that the latter must see to it that the relevant measures passed in the local budget are actually financed….
Source: Rudolf Schlesinger, ed., Changing Attitudes in Soviet Russia; the nationalities problem and Soviet administration (London: Routledge & K. Paul, 1956), pp. 82-85.