‘It is likely we will go back to ration cards during Putin’s 21st year of rule’

How to solve the problem of poverty in Russia and why a third of the budget planned for this will be spent on security workers

‘It is likely we will go back to ration cards during Putin’s 21st year of rule’
Photo: finversia.ru

Poverty remains one of Russia’s major problems. According to RANEPA’s latest data, 30% of households in Russia can be considered poor. 26% of Russian families can’t provide basic needs — they have money only either for food or clothes and utility bills. Realnoe Vremya talked with Andrey Nechayev, Russia’s ex-economy minister, doctor of economic sciences, why the problem won’t be solved anyway, what mistakes the authorities made during the pandemic, if the poor can be freed from taxes, if ration cards will be introduced in Russia.

“Poverty is fraught with a risk of social explosion

Mr Nechayev, the fight against poverty has always been on the Russian authorities’ agenda in the last years. This topic is discussed, while serious measures aren’t seen. Why do the authorities delay the ways of its solution even though they admit the problem?

Yes, we see the country already has over 20 million poor people, while citizens’ disposable incomes fell by 3,5% last year. Though experts evaluate the fall was much deeper. The answer to your question is very simple: the fight against poverty is a declaration but not a real priority of our authorities’ politics.

Why doesn’t the case go beyond the declaration?

Mr Putin should be asked this question.

Don’t economists really have an opinion about this issue?

If you analyse budget expenses in the last years, you will see that not funding for the poor but another category — law enforcement agencies — has been the authorities’ priority. Yes, the country’s government has recently adopted a plan to achieve national goals. And the fight against poverty is one of the national goals there. At the same time, the number of the poor is envisaged to reduce from today’s 13% to 6,5% not by 2024 anymore, as Putin previously planned, but only by 2030.

Although 21 trillion rubles are planned to be spent to combat poverty, a third of this sum is planned to be spent to raise salaries of militaries and related categories, that’s to say, security workers. But our security workers aren’t the poorest category of the Russian population now, it is rather the other way round. Here is an answer to the question about the authorities’ priorities.

Yes, poverty is fraught with a risk of social explosion, but the authorities are preparing for it not by decreasing poverty but reinforcing repressive agencies.

Does it mean the rest of the money will do little?

If they want to spend the remaining 14 trillion to reduce poverty from 13% to 6,5% by 2030, I am not sure this money will be enough by that time.

Photo: Ilya Repin
Yes, poverty is fraught with a risk of social explosion, but the authorities are preparing for it not by decreasing poverty but reinforcing repressive agencies

“Our authorities have made a big mistake in last year’s anti-crisis measures

How do you think people’s poverty is reflected in the Russian economy now?

First of all, ordinary people suffer from poverty. Due to this factor, consumer demand doesn’t grow in the country or it falls because real incomes don’t grow, and consumer demand stops being a driver of economic growth. This has been happening since 2013, and I think our authorities have made a big mistake in last year’s anti-crisis measures.

The most affected people by the coronacrisis, the neediest should have been handed out more money in 2020 than they were given because it would simultaneously be a factor of raising consumer demand, and this payout would indirectly support Russian businesses. It is better to give people extra money than not enough.

Subsidies for utility services could be expanded for the needy. Moreover, I consider the money for children could be handed out differentially. For instance, some oligarchs’ families could do without this money. Besides, support for lonely pensioners living without a family was important. Yes, some of them could have savings, but the risk of not giving enough money to such strata carries big social consequences than the risk of giving them extra money.

Do you agree that it is time to raise the minimum wage to at least 17,000 rubles to gradually get out of poverty and finally make the minimum pension in the country not as shameful as it is now (Editor’s Note: 9,000 rubles)?

A rise in the minimum wage does little. The minimum wage here in Russia is rather an estimated value that’s used for fines. A higher minimum wage will guarantee nothing in the fight against poverty — if some company can’t and doesn’t want to pay the minimum wage in a new way, it will found umpteenth ways of how not to do it. Whereas raising pensions could be the correct measure, I am all for here.

Photo: Rinat Nazmetdinov
Support for lonely pensioners living without a family was important. Yes, some of them could have savings, but the risk of not giving enough money to such strata carries big social consequences than the risk of giving them extra money

“It is necessary to introduce a minimum wage that’s not taxed

Many experts have been calling for such a measure to tackle poverty as the introduction of progressive taxation? Do you think such an idea is correct?

I don’t see such a measure as effective on the other hand. It is necessary not to raise the income tax rate (because, first of all, this will hit the middle class, not same Abramovich) but lift income tax on poor and low-income categories of workers. In other words, it is necessary to introduce a minimum wage that’s not taxed. It is the simplest decision from a perspective of administration.

I think that a minimum wage that’s not taxed can be introduced if a person’s salary is his only income. And for the poor, this decision of the authorities could certainly improve their quality of life. Those several thousands of rubles people pay as income tax will be a serious increase of their current incomes and, consequently, their quality of life.

Can Russian budgets at different levels withstand such tax measures? Moreover, people know that we also have the National Wealth Fund (NWF). Cannot it help to combat poverty?

The NWF anyway lives according to its laws. And if its money is spent, this will be done not for the poor but large entrepreneurs who are close to power and the implementation of big projects of the state. The budget, undoubtedly, will withstand the fall in income tax. But another thing is that income tax goes to the regions’ budget, and such a decision will be tough for them. And the Kremlin then has to envisage compensations for regions when redistributing other incomes. For instance, regions could be given income tax without taking anything to the federal part.

The state has gold reserves too. And in fact, it has the right to use them in its social policy if it is concerning.

But the authorities won’t touch this money because it is the foundation of the Central Bank’s gold reserve policy.

We shouldn’t forget that money in a foreign currency, first of all, oil incomes, decreased poverty in the 2000. Can we say if oil price tops $100-110 per barrel, poverty will go down faster?

Oil won’t exceed $100, that’s why we’d better not debate on this topic. There aren’t factors for this: OPEC puts effort to keep production to hold at least the current prices of $65-70. This is why we can’t talk about $100. Moreover, we should keep in mind that demand for hydrocarbons in the world will reduce in the medium term.

Photo: Maxim Platonov
It is necessary not to raise the income tax rate (because, first of all, this will hit the middle class, not same Abramovich) but remove income tax on poor and low-income categories of workers. In other words, it is necessary to introduce a minimum wage that’s not taxed

“It is important to resort to the American experience with ration cards

Do you think there is an effective foreign experience of the fight against poverty that could come in handy for the Russian authorities?

Apart from the measure of freeing low-income people from income tax I have already mentioned, it is important to resort to the American experience with ration cards. Yes, it is a form of natural support, not money. Nevertheless, it is quite effective and effective around the world.

There is an interesting experience of other countries in a specific minimum wage. If incomes of a family or person are below this minimum, the state will pay you and your family enough to reach this minimum. Of course, if the family doesn’t have savings or property (the state will also pay for flat rent in this case). And such things, for example, help people have a dwelling and reduce crime.

Due to a rise in prices, the introduction of ration cards is discussed, but will this move further the talks?

It is hard for me to forecast here, but the president recently said this issue should be carefully examined. And it is likely we will go back to ration cards during Putin’s 21st year of rule.

Have you heard the rumours that Putin would say something about the fight against poverty in his next message to the Federation Council?

I don’t yet know what the message will be about. As far as I am concerned, 21 trillion rubles are going to be spent to combat poverty until 2030. But it certainly doesn’t talk about the cancellation of income tax on the poor. To be more precise, I think everything will again be limited only to child benefit.

Interviewed by Sergey Kochnev