Moscow is often separated from the rest of Russia – it is not only the political, but also the economic situation of the capital. Life in Moscow follows its own, special rules. The economy of the Russian capital is 1/5 of the economy of the entire country, earns the most money, but still receives annual transfers from the federal government – sometimes the size of transfers is comparable to the budget of the Penza region. The special status of the capital is associated with a large number of parameters, each of which has existed for a long time to increase its influence.
Magazine Reconomica explores the economic and political characteristics of the capital that make Moscow a city that has too little to do with Russia.
How rich is Moscow?
The economy of Moscow is 1/5 of the economy of the whole of Russia. And this is taking into account the fact that approximately 8.6% of the total population of the country lives in Moscow. Moscow, Tyumen region, St. Petersburg and Moscow region together account for 40% of the Russian economy.
Moscow replenishes its budget annually by an average of 2.3 trillion rubles. The Moscow region, for example, has indicators almost 4 times less (although the number of residents is one and a half times less), and St. Petersburg has independent incomes of 0.5 trillion rubles. Income tax collected in Moscow amounts to 764 billion rubles. For comparison, the entire budget of St. Petersburg is 589 billion.
Moscow is not included in the region
If we consider Moscow in the context of the division of Russia into subjects, then it is a city-region (the separation of Moscow from the region took place back in 1931). This is a very important point in terms of tax distribution. For example, there is the Krasnodar Territory. In the city of Krasnodar taxes are collected – including income tax, personal income tax. Of the collected money, 15% ends up in the treasury of Krasnodar, and 85% – in the treasury of the Krasnodar Territory. Also, 85% of the collected income tax goes to the regional budget. That is, Krasnodar, being the most active and richest city in the region, also feeds other cities, villages and villages that are in the region.
In the case of Moscow, this need disappears – Moscow should not share with the Moscow region, which creates special conditions for it. Receiving money from the budget directly allows Moscow not to share funds, in contrast to the conditional Krasnoyarsk or Khabarovsk, which receive money from the regional budget.
Theoretically, a part of personal income tax may “settle” in the treasury of different districts of Moscow, which would create conditions that are standard for other regions, but in practice, Moscow districts retain less than 1 percent of the collected personal income tax.
Moscow – the main office of Russia
There are companies in Russia that pay huge income taxes. In practice, they operate in different regions of Russia, but most of them are registered in Moscow. Consequently, they pay taxes on profits in the capital. These companies include Rosneft, Gazprom, Lukoil, Sberbank, Russian Railways, and so on. Of the 10 largest companies in Russia, 7 are registered in the capital at once, out of 500 – 296. If you look at the total revenue of the 500 largest companies in Russia, then 67.8% of the total amount of money falls on those registered in Moscow.
For comparison, you can look at the 500 largest US companies. In New York, which bears the informal title of the business capital of the United States, only 54 companies out of the top 500 are registered, in the state of California there are only 53.
Moscow is engaged in export
Mineral export statistics show how Moscow differs from other regions. For example, among other regions of Russia, the Khanty-Mansiysk Autonomous Okrug is the leader – the amount of exports amounted to $ 20 billion. It’s ridiculous to compare with Moscow – the capital exported minerals worth 123 billion. At the same time, it is obvious that the raw materials are by no means mined in the capital. Moscow is the main oil exporter of Russia.
Moscow concentrates all the best that is in Russia
Moscow is the political, financial and innovation center of Russia. The Skolkovo Innovation Center was originally built on the territory of the Moscow Region, but in 2013, part of the region’s territories became part of Moscow, including Skolkovo.
Salaries also play an important role in taxation. Considering that Moscow is both the political and economic center of Russia, salaries are high there. This allows the city’s budget to receive huge funds through the collection of personal income tax, which does not need to be shared with anyone.
Moscow just can’t be poor
Two factors can be identified that have the greatest impact on Moscow: agglomeration and institutional (capital). The first one acts as follows: there is a variety of economic agents, there are many places of employment. Their high concentration within the same territory has a positive effect on economic development. A similar effect can be seen in the example of regions with one main city.
The situation is different with the institutional status of Moscow. As a capital, Moscow enjoys great attention from the federal government. Any major capital of the world is of interest to big business – not only in terms of profit. There are more opportunities in the capital for lobbying interests, as well as for various kinds of informal ties with the authorities. You can compare Moscow with London or Paris, where the agglomeration effect is much higher than the institutional one. The point is the centralization of power that exists in Russia. It is one of the reasons why Moscow, under equal conditions, will be richer than any other region of the country.
The manual management of large capitals by the authorities takes place in Moscow, for this reason large companies will “settle” in the capital.
Agglomeration is always richer than the rest
Moscow is not alone when compared to other major cities in the world. Both the level of income and the cost of living in economic centers are always higher than the national average. However, in the case of Moscow, centralization of power plays a huge role, which only accelerates this process. Because of this, the gap between Moscow and the rest of Russia is becoming more and more insurmountable every day.
Federal government helps the capital
Despite the fact that Moscow is quite successful in supporting itself, it also receives funds from the federal budget. In 2018, Moscow received 76.7 billion rubles in this way. This is a small amount of money against the background of the capital’s own earnings (2.3 trillion), but for some regions this amount is an annual budget. The Penza or Kirov regions have an annual budget in the region of 60-70 billion rubles a year – that is, the federal government “pours” the budget of an entire region into the capital, even though Moscow is not experiencing financial problems.
In this case, the personality of the mayor of Moscow plays an important role. In 2008, the share of investments in Moscow from the federal budget was 4% of all investments, in 2011 – 12%.
It is very difficult to estimate the income of Muscovites
According to official statistics, from 2000 to 2010, the share of “white” wages in Moscow increased from 18 to 44 percent of the total income of the population. It is problematic to estimate how many salaries are paid officially in Moscow. The situation is exactly the same with rental housing – there are still no clear mechanisms that would allow tracking all incomes of Muscovites from renting real estate.
Moscow has the ability to help Muscovites
The large budget of the capital allows for various programs to help the population of the city. In particular, Moscow became the first Russian region to pay pensioners additional money, bringing their income to one and a half living wages for pensioners. In 2007, Muscovites paid for only 50% of utility bills (although this indicator grew in the future). During the coronavirus, the Moscow mayor’s office allocated money to help residents of the capital – and this is the only Russian region that has such opportunities.
How can the wealth of Moscow be transferred to all of Russia?
For many years, many proposals for the decentralization of the Russian economy have appeared in the public field. Some of them may actually help, but their implementation is nearly impossible. For example, state-owned companies can be obliged to pay taxes in the regions where they carry out their main activities. That is, if Gazprom paid taxes at the place of mining, the Tyumen region would have great prospects for development, and Tyumen turned into a metropolis. The move of Rosneft to the Siberian regions would make it possible to transfer part of Moscow’s revenues to Siberia, where oil is produced.
The relocation of any large state-owned company to a standard Russian region could significantly change the economic structure of Russia. However, such initiatives will affect the centralization of power – accordingly, they will not be implemented.
Another option is connected not so much with the economy as with politics – the transfer of certain power structures to other cities. Such initiatives often appear, but the matter does not get beyond talk. This step could “unload” Moscow, that is, again we are talking about the decentralization of power. Then large companies could partially move to other regions following the people who make the main decisions in the country. However, this step looks absolutely unrealistic.
What is Moscow spending money on?
In recent years, several trends have accumulated in the expenditures of the Moscow budget. In particular, from 2012 to 2018, healthcare spending decreased from 16% of all city spending to 7.9%. The same story with education – over 6 years from 17.9% to 12.5%.
In 2011, Moscow spent about 4 times more on city improvement than any other region (this is per capita). In 2017, Moscow spent 20 times more on landscaping than the Russian average (again, per capita).
Will Moscow always be the richest?
The fact that the capital is richer than other regions is a normal and harmless practice. However, the case of Moscow shows what can happen if the capital literally sucks life from distant regions. As long as Moscow spends 20 times more money on improving the city than any other region of the country (in per capita terms), it will not be possible to avoid migration towards the capital. Ultimately, the regions will slowly perish both because of the lack of funding and because of the outflow of the population – very often both of these processes are associated with Moscow. Only economic and political decentralization can change the ratio of the financial capabilities of the capital and the province, but changes should not be expected in the coming years.