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In December the President has had various meetings on decentralisation of powers and covered the subject in his Address to the Federal Assembly.

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Excerpts from transcript of State Council meeting

President of Russia Dmitry Medvedev: Good afternoon, colleagues,

We have gathered for a State Council meeting today to consider a very important matter: the foundation of our federative system. We will talk about the separation of powers among the authorities and the improvement of intergovernmental relations.

These are questions that we almost always discuss at our meetings, both during our visits to the regions and at various meetings in Moscow. But today's meeting is special because it was preceded by significant preparations.

In December, I had two meetings with Deputy Prime Ministers in charge of respective working groups. The Governors of many of the regions represented here have worked in these groups. Today we have the opportunity to hear reports on what has been achieved, what the results are and what proposals there are for the future.

These reports, as far as I have already been able to see, contain many pertinent and thought-out points. At the same time, certain complex issues remain regarding which we have yet to decide where we stand. I mentioned some of those issues in my Address to the Federal Assembly.

Today I would like to hear the Governors’ views on which of the federal powers in your opinion it would be logical and useful to delegate to the regions, what incentives for strengthening the regions’ and municipalities’ revenue base could be created, and how intergovernmental budget relations could be adjusted in this context.

In the course of decentralisation, we must bear in mind our country’s immense size, the regions’ different geographical locations and, as a result, different levels of economic development. Regions need more freedom and sufficient resources to be able to implement efficient solutions in order to raise the standard of living.

As we address such issues, we must fully realise the possible effects in both the short and the longer term. It may be best to use a differentiated approach depending on the regions' readiness to take on additional powers. We could also start with some pilot projects.

In my opinion, time has long come for us to acknowledge that Russia is extremely complex as a federation, and therefore we should have no misgivings about highlighting these differences, offering differentiated legal, investment and perhaps even tax regimes in certain regions. I have discussed this with everyone present more than once. Let's return to this matter and analyse it in earnest this time.

I will outline the main approaches and the most important challenges of the forthcoming decentralisation process.

First, there will be an increase in the number of powers delegated from the federal to the regional level. In some cases the execution of certain federal powers at the regional level may be more effective.

In addition, the regions should have the right to raise the issue of being delegated certain powers. We should submit proposals on the list of such powers. Naturally, this must be agreed with the regions.

The second issue concerns improving state revenue distribution. There should be no token approaches in this area. Fiscal decentralisation should not give the regions a pittance, later to be shared out together, but substantial additional funding for comprehensive efforts. Only in that case will the decentralisation make sense.

In addition, the regions should receive more autonomy in the disposal of federal subsidies. The same applies to the regions’ relations with municipalities. We must think about the extent of such autonomy and consider the mechanism for the realisation of these powers.

The current practice is to allocate a separate subvention for each delegated power. Today we have 21 such subventions. The Working Group on Fiscal and Tax Issues and Intergovernmental Relations has proposed to consolidate federal funds under the so-called comprehensive subvention. In this context, we should consider the funding mechanisms and legal guarantees.

We must dispel the regions’ apprehensions that not all the powers will receive financial backing. We must make absolutely sure this does not happen. This could be another important topic for our conversation.

Finally, the third issue concerns the expansion of regional and local revenue sources, including their own sources, for the implementation of both potential and existing powers, of which there are quite a few and, as we know, they are not always funded properly. In my Address to the Federal Assembly, I talked about the fact that the amount of additional regional and local revenues, including from their own sources, could eventually reach one trillion rubles [25 billion euros]. However, we still need to find these sources, colleagues. There's a whole list of proposals regarding where we can look for them, including the reallocation of a number of taxes and abolition of certain federal benefits.

I'm ready now to listen to all the arguments for and against all of the proposals. I hope that we will have a meaningful discussion.

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Colleagues, I would like to say straight away that it is too early to draw conclusions of our discussion. We must realise that we are debating a key aspect of public administration, an issue that has been under discussion for the past 10 to 12 years – in fact, the entire period when the foundations of the modern state and economy were laid. It is absolutely right that we return to it every three, five or seven years because our Federation and the economy are developing. Therefore, we must make decisions based on new approaches, bearing in mind the existing difficulties and challenges.

Franklin D. Roosevelt was mentioned here twice. Let me remind you that in my recent Address to the Federal Assembly I had to acknowledge a very distressing fact. According to international experts, the global economy has entered a period of great depression. This is not just a powerful historical reference; unfortunately, it is an economic fact, or in any case a trend in the international economy and in global finance.

Therefore, all the decisions we take must be consistent with the developments in the global economy. Yes, we made a fast recovery from the 2008–2009 crisis, and we should be proud of that, as we have said repeatedly. But the period ahead will be equally trying and we must inform the public about it absolutely frankly and honestly. People must be aware of the difficulties lying ahead.

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As for the future of federal executive power, this is a task for the new leadership: the President and the new federal Government. Nevertheless, we should think about ways to build the relations within the Federation in terms of common federal approaches; in other words, the idea of Ministers for Regional Affairs, or Presidential Plenipotentiary Envoys with some additional responsibilities.

I would like all our colleagues to realise that we are discussing this in earnest. We do not have the final decision yet but in the light of the current economic problems and the fact that public life has been set in motion, time has clearly come to change a range of policy approaches, and we must discuss this. The decision must be made.

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I would like to revisit the idea I voiced earlier: we must take a closer look at our Federation and try to link regional governance to the current needs of each particular territory. There is no need to shy away from this. We have a unique Federation and it is not possible to adopt a single mode of governance for all regions. We must acknowledge this and try to establish special legal, institutional, investment and tax regimes for certain regions. This does not mean violating general tax legislation, but we must take into account specific development factors.

I would like to express my support for what the colleagues from the Government said regarding the need for the most scrupulous approach to the country’s macroeconomic stability. Yes, we face many challenges. Nevertheless, we cannot create additional factors that would adversely affect macroeconomic stability in the midst of a global depression, or recession, call it as you like. It would destroy everything we have achieved in the past 12 years.

It is extremely important to focus on increasing budget revenues, including the regional budgets. The more efficiently we tackle this, the more revenue sources we will have and the easier it will be to raise the trillion I referred to in my Address.

Last but not least, we must not discuss these changes only among ourselves, among different government levels (which is absolutely fair) but also with the consumers of state services and above all the public and the business community. They have to tell us themselves what they think will work and what won’t. Therefore, I propose to broaden this discussion by including these social strata in order to determine which policies will be successful, and only after that adopt the most balanced decision.

Colleagues, I would like to thank you for your work on the State Council. Thank you very much.