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President Vladimir Putin: Good afternoon, dear colleagues,

Our meeting today is devoted to issues of increasing the effectiveness of the power system. It is clear that this topic touches on a whole range of problems – problems which we have already analysed here at the State Council, in private conversations, and during meetings in the regions.

As you know, we have examined in detail issues concerning the authorities of various levels of power, the improvement of the work of local self-administration and inter-budgetary relations.

All this shows that any innovations in issues of state organisation must be discussed in detail and understood by all participants of this process.

This is especially important for a federal country with such an enormous territory, a country where regions of the Federation have their special features and traditions, and which also have different rates of economic growth and social development.

In connection with this I would like to direct your attention to issues that we will have to solve together in 2005 and in the years to follow.

The first subject is the new system for assigning powers to the heads of regions. As you know, this system has been determined in a law that has just been published, and I am sure that you have studied in thoroughly. I would only like to stress that this law significantly increases the role of legislative bodies of Federation regions, and what is especially important, it creates conditions for strengthening the entire system of executive power in the country. I would also like to note that this law allows to strengthen both the responsibility of heads of regions and their active role in preparing important state decisions. We have discussed this many times: I have met with almost all those present here, and we spoke on this topic. Your position is well-known, and your opinions will be taken into account in preparing these laws.

In the near future we will also havr to discuss issues connected with the work of the Federation Council. I would very much like to find a legal formula, after the creation of a single system of executive power in the country, according to which the heads of subjects of the Russian Federation could have a direct influence on the formation of the federal budget. We must think about this and hold consultations on how to do this, so as not to violate the system for forming the Federation Council, allowing you not to sit there every day. But on this key issue your opinion should be directly taken into account. It is clear that these topics require, as I said, additional consultations.

However, next year a very intensive period of changes stipulated by laws will begin, and I would ask to assist in this process, to become involved in it and actively work in the same way that we worked in the period of preparing these laws.

The next issue to which I would like to direct your attention is the continuing process of distribution of powers, primarily in the economic and budget spheres.

If we approach this in a strictly formal manner, today the key “levers” here belong to the federal centre. In fact, as you know, this is far from being the case: the policy is one thing, but in practice the regions live very differently. And ensuring a true unity of economic policy in the country is still a problem.

Territories are often cardinally different from each other in their business and investment climate, and in the conditions for developing business, and accordingly in people’s living standards. And even directly increasing financial assistance from the federal budget does not bring backward regions any closer to economic growth.

This unproductive use of budget money undoubtedly needs to be changed. Firstly, a realistic approach that is understandable to everyone must be developed to allocate this money, especially the funds that go towards building objects of regional and local significance. What do I mean by this? We must discuss this with the Prime Minister – the funds that are obtained by departments to solve problems that are essentially regional must be given to governors and be managed by them in the regions.

Secondly, it is necessary to continue improving inter-budgetary relations and introduce mechanisms which would stimulate the development of the economy in regions and municipalities. I also believe that the draft budgets of the subsidised regions must be submitted to an independent public audit.

I would stress that without building a constructive economy, we will not be able to create a strong state that is capable of increasing people’s living standards, and of course to make their lives safe, including the protection of society from the terrorist threat.

There is another issue – expanding the powers of regions. I think that this must take place along with the delegation of a part of federal powers. This, incidentally, will make it possible to reduce the amount of federal officials currently working in the regions. Despite all the previous decisions, there are still quite a large number of officials. I also think that the salaries of officials working in regions that receive financial aid must be calculated in accordance with the scheme of official salaries ratified by the Government of the Russian Federation. It is clear that our colleagues in subsidised regions should not receive a lower salary than in other regions. These salaries must be equal, but not higher – and sometimes this is even quite improper.

I would also like to remind my plenipotentiary representatives to the federal districts that ensuring the effective work of federal bodies in these territories is your primary responsibility.

Now a few words about our joint tasks regarding transfer to elections based on party lists. I can say right away that the government has the right, and is obliged to, take the necessary measures so that major parties responsible before voters could appear in the country – parties that have clear programme goals and which represent the interests of a large section of society. These parties will make it possible to structure public interests and ensure political competition, without which there can be no progress.

This is why it is necessary to create conditions for major national parties to function in the regions and in municipalities. In years to come, they must prove their ability to form responsible power, including the level of regional power and local self-administration.