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January 21, 2020 Special Dispatch No. 8509

Can Putin Supply Butter As Well As Guns?

January 21, 2020
Russia | Special Dispatch No. 8509

Vladimir Putin's January 15, 2020 address to the Federal Assembly garnered headlines for the proposed constitutional changes and the resignation of the government that followed shortly after. It is important to remember however that the outgoing government's unpopularity was a product of its failure to record economic progress and alleviate the plight of Russia's disadvantaged. Economic conditions have been mentioned as an impediment to turning around Russia's demographic problem.[1] Before the constitutional fireworks Putin indeed devoted the first half of his address to these issues. He promised increased child support and improved healthcare.[2]

Liberal opinion leaders are increasingly highlighting the need for economic reform, perhaps in the belief that this issue as opposed to political rights will help rally broader segments of Russia's population. Before Putin's address they presented proposals to fight poverty and improve living standards. Now it will be up to the new government to consider them.

Economist Gontmacher: Handouts Will Improve Ratings But Not The Economy


Evgeny Gontmacher (Source Philologist.livejournal.com)

Economist Evgeny Gontmacher a professor at Moscow State University in the department of policy and management, and a member of the "European Dialogue" coordinating committee, claimed that improving socioeconomic conditions should be a no-brainer for the government. The government had amassed the monies for social programs and it would be the beneficiary in terms of popular approval if it started spending them. However this would be a short term band aid approach that could not transform the economy. Gontmacher's article in Mk.ru titled "What Putin will say and what will he keep silent about in his 2020 address to parliament?" proved surprisingly prescient.[3]

"...The previous year of 2019 was very successful for the authorities in terms of social policy. [...] the state managed to economize on social programs, while replenishing the National Welfare Fund by several trillion (!) Rubles, without having received any mass protest wave from below. [...]

"If you look from this point of view, then the year 2020 opens up enormous opportunities for the authorities to use social stability in their political interests. [...]

"For this, a long-tried method will be used - the distribution of money. [...]

"If the Federal Protective Service sociology, which the president has recently begun to invoke, reflects the sorest points in our population's the social life of our population, then the presidential address can suggest the following measures:

"- a further increase in a number of social benefits and benefits for families with children;

"- additional tax deductions for personal income tax, including [the ones] in connection with low income;

"- increased indexation of pensions;

"- increased funding for health care in order, in particular, to establish the size of wage rates (without allowances and part-time jobs) for medical personnel at the level stated by the decrees of May 2012;

"- centralization of healthcare management in order to reduce interregional differences in the quality and accessibility of health care.,,

"From the point of view of the authorities, financial injections, even without reforms, will help to get a quick social and, most importantly, political effect, which is so necessary for the upcoming Great Transit [the author is referring to Vladimir Putin's 2024 departure from the presidency and expected migration to a new position of power].

"But will progress be achieved considering the social situation of our population if, say, the authorities nevertheless decide to make the financial injections mentioned above?

"Much, of course, depends on how much money will be spent and on what. If, for example, indexation of pensions to working pensioners will be restored (which I have little faith in), then this will be a pleasant surprise for several million people. A real, and not a formal, increase in the remuneration of medical workers, especially in the primary care, will also be noticed by doctors and nurses. Additional payments and benefits will not be superfluous for families with children.

"However, will these hypothetical measures produce a political effect by ensuring a boost to satisfaction ratings with the work of the state? I think, not...

"The current government is more than ever interested in 'stability' (read: stagnation), which is incompatible with the requirements of the time and, above all, with Russia's transition to the economy of the 21st century. Fear of carrying out long overdue reforms is based on the fear of losing control of the situation. The “higher-ups” remember well Gorbachev’s perestroika, […]. One of the more recent examples are the “monetization” of benefits, “optimization” of the healthcare system, and raising the retirement age. And if we talk about politics, then Medvedev’s “liberalization” of 2008-2011 has not been forgotten, and it took a long time to eliminate its consequences....

"Delaying for later (and in fact - forever) reforms every day puts us away from the opportunity to jump on the “modernity” train, which painstakingly, but inevitably arrives in developed countries...

"Missing this train, we risk falling behind forever and turning into a global backwater, where it is not interesting to live, work or have children. Let us consider such a development scenario a warning to us all.

Economist Tabakh: Rework The Tax System

Economist Anton Tabakh an assistant professor at the Higher School of Economics, and the chief economist of the Russia Rating firm believes that the tax system would be one key element and by coincidence the new prime minister Mikhail Minshustin was formerly head of the Federal Tax Service. In a column for the Rbc.ru outlet he wrote a column titled " The [tax] concession maneuver: how poverty can be reduced in Russia" on this topic the day before Putin's address. [4]

Anton Tabakh (Source: Eedialog.org)

"…Despite the regular increase in social benefits in the past few years, the problem of poverty in Russia remains extremely acute. According to Rosstat, in the third quarter of 2019, 12% of Russians (17.6 million people) received incomes below the subsistence level. Raising the living standards of the population will be one of the main topics of the president’s message to the Federal Assembly, scheduled for January 15...

"Income Redistribution

"Almost all the steps discussed in the Kremlin and the government, even those that seem simple, will require a major restructuring of social policy. For example, a project that began before the New Year to increase standard personal income tax deductions... will not solve the problem of the working poor, but at least stimulate consumer demand and ease the credit burden. However, ... since personal income tax is directed to regional and local budgets, the poorest and subsidized Federal entities will suffer from an increase in deduction.

"True, along with the expansion of benefits for the poor, the government is also discussing raising the base personal income tax rate to 16%. But with this option, the main new revenues will go to the already swollen budgets of Moscow, oil districts and other funders, without solving the problem of the lost revenues from subsidized regions. But the middle class will be under pressure, including relatively young families that do not use all possible investment and mortgage deductions.

"A more effective way is the reorganization of personal income tax ... Modern technologies make it possible to organize the payment of taxes not at the employer's place of registration (the current situation), but at the employee's place of registration. ... It’s time to switch to the payment of personal income tax at the household level, which will allow households to summarize deductions and reduce the poverty of large families with only one working family member. It will be possible to compensate the regions for the losses ... by increasing transfers...

"Incentives For Workers

"Another way to improve living standards is to create quality jobs. Significant amounts have already been allocated as part of national projects, but their implementation is still slow. Reducing the rates of social contributions (which burden salary fund) would be the easiest measure, but it will almost immediately lead to holes in the Pension Fund and the compulsory medical insurance system. It is more realistic to expand existing programs of subsidies for loans to small and medium-sized businesses and various benefits to create jobs within and beyond national projects. [...]

"At the same time, it is necessary to deal with the quality of the workforce. [...] The demand for retraining is quite high, but so far the state is actively engaged in retraining of retirees and former military personnel [...]. It is necessary to develop a wide range of programs aimed specifically at the adult poor, with various subsidies to pay for training of new skills and knowledge from various suppliers, not only state ones, along with development of performance monitoring mechanisms. It is also necessary to expand programs on accessibility of social infrastructure and reduce inequality in its quality between regions.

"Finally, in order to reduce poverty among those who cannot work, it is necessary to complete the already ongoing process of creating an adequate system for assessment of poverty and for simplified provision of social benefits and services that are needed in a particular situation..."

Political Scientist George Bovt: Russia Needs A War On Poverty

Political scientist and journalist George Bovt in an article titled "Poverty as a vice" predicted correctly that Putin would devote a good deal of time in his address to the issue in the feeling that "something has to be done". assailed the shibboleth that poverty is not a vice and something that could even be idealized called it a blight on society and a condition that is passed on to the next generation to the point that it is starting to have a "genetic character". It is all well and good to provide state of the art infrastructure but part of the population lacks basic plumbing. He wrote:[5]


George Bovt (Source: Kommersant.ru)

"The President of Russia poses the task of reducing poverty by half in the country by H-hour (2024)....

"Perhaps in this regard, the poorest, with incomes below the subsistence level (it is slightly above 11 thousand rubles), will be exempted from personal income tax. In this case, approximately 13% of the population (more than 18 million people, with up to 5 million salaries below the minimum wage) can be affected by tax breaks. Such a “gift”, according to the maximum estimates, can cost the treasury (mainly regional, where the personal income tax goes, therefore the regional authorities are not enthusiastic about this idea) around 1-1.5 trillion rubles, but these figures look a bit high. [...] However, this measure alone will not solve the problem of poverty in the country. Although they are long overdue and their implementation would be correct.

"Russia needs a massive war on poverty program...

"When people talk about overcoming poverty, they usually also point to GDP growth. Indeed, at a current rate of growth is close to stagnation, relative and very temporary success can only be achieved by drastically reducing social inequality.

"However, the current ruling bureaucracy is unlikely to go for such a restructuring of the whole system without any strong pressure on them, which is not yet in sight.

"In addition, universal methods for overcoming poverty throughout the world include, for example, the raising of the education level...

"The second indispensable component is the quality of medicine. ...

"These sources [of funding for fighting poverty] start with various state “flash projects” involving injudicious monetary spending and corruption and ending with not always effective military expenditures.

"One can talk about other areas and programs: on improving the infrastructure as a whole (transport accessibility, high-quality utility systems); on increasing the availability of the latest technologies (including information). The poor must be provided, roughly speaking, with high-speed Internet, but also with plumbing and sewage systems too. One can talk about targeted programs to help families with children (something is being done here too). The situation is intolerable when in our country millions of people with permanent jobs belong to the poor strata. This means that the minimum wage system is ugly and you need to think about something else. Perhaps the introduction of a minimum hourly wage rate, which will reduce the ability of employers to manipulate rates.

"One can talk about food stamps, which federal officials have been talking about almost since 2015 ...

"In this sense, the fight against poverty in our country requires a lot of changes on the scale of the entire socio-economic system. The question is whether the ruling bureaucracy is ready for this. It is a rhetorical question."

 

[1] See MEMRI Special Dispatch No. 8472, Russia's Collapsing Birthrate – It Is The Economy, Stupid. January 7, 2020.

[2] Kremlin.ru, January 15, 2020.

[3] Mk.ru, January 13, 2020.

[4] Rbc.ru, January 14, 2020.

[5] Gazeta.ru, January 13, 2020.

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