Russia » Economics
Author`s name Lyuba Lulko

Putin loses everything he has

President Vladimir Putin and Prime Minister Dmitry Medvedev have played the game of bad cop and good cop in their efforts to explain the essence of the pension reform to the people of Russia. Putin's behaviour in relation to the prime minister looks unethical, just as it looks wrong in relation to his electors. It appears that Putin may eventually lose control of the patriotic idea - the only idea that still helps him stay in his office.

After the president's televised address to the nation on August 29, it became clear that it was Putin who initiated the pension reform in Russia. This is evidenced by his harsh affirmation about the lack of alternatives to the reform. Until recently, however, Putin tried to distance himself from his government, which he had allegedly commissioned to develop and implement the unpopular reform. As a result, Medvedev failed to handle the psychological burden and disappeared from the public eye for a while. When he reappeared in front of the cameras, one could see him as a tired and sick person.

Putin is being unethical towards his voters as well. Putin's voter is commonly known in Russia as "vatnik", who values Putin's achievements in building the Russian world, limiting the influence of American globalism and oligarchic structures.

During the above-mentioned speech, Putin referred to experts twice without naming them. Apparently, it goes about Alexei Kudrin, experts of the Higher School of Economics - liberal, pro-Western people, whom Putin's voters despise. Thus, Putin has shown disrespect to his electors in a hope that people are ignorant and they do not need to know any names.

Addressing the nation with his speech, Putin said: "Even if we sell all buildings of the Pension Fund, the money will be enough only for a few months. And then what?" However, we understand that it goes about all the knick-knacks, apartments and plots of land that our fat officials, MPs and oligarchs have. Putin clearly gave it to understand that he would never rip epaulettes off their shoulders.

As a matter of fact, we do not understand now what makes Putin different from late Boris Yeltsin, who also entrusted everything to "Chicago boys" and plunged the country into chaos. We can see Putin threatening us now that the system will not have money for pensions in six or seven years if everything remains the same.

The first reason for the looming crisis, as Putin says, is demography. "In 2005, the ratio of working citizens, who replenish the Pension Fund regularly, and citizens receiving old-age insurance pensions, is nearly 1.7 to one, but in 2019,  it will be 1.2 to one," Putin said noting that life expectancy in Russia had increased by eight years.

The trend is the same in Western countries. Robots continue to replace humans depriving them of jobs, but the pension system in the West is far from collapsing. In Western countries, the pension fund gets replenished through the growth in people's wages and, accordingly, deductions to the budget. The most surprising thing is that such a system works identically in Russia too, although officials tend to conceal it in order to speculate on the topic of who feeds whom.

Thus, the average Russian citizen during his work service of 20 years and an average salary of 40,000 rubles gives away about 2.4 million rubles to the Pension Fund. Russian male pensioners live for an average of eight years, during which they receive back only 1.600 million, and the state keeps the remaining 800,000 rubles in the budget. No one knows what that money goes for, although it is obvious that the state wants to take and spend even more.

It is worthy of note that when speaking about the growth, Putin refers to Russia during the 1990s. Why not compare indicators of the year 2018 to 2014, when the West started imposing sanctions on Russia one after another, and the Russian economy started rolling down the hill?

Putin dismisses all alternative proposals for financing the Pension Fund. He did not mention the amendment on the progressive scale of taxation, although there was such a proposal made at the hearings in the State Duma on August 21. That money could be used to compensate entrepreneurs for their contributions to the Pension Fund to support people of pre-retirement age.

Putin does not want to attract oil revenues to finance the Pension Fund either. According to him, this money will not be enough to pay pensions for as little as two months. Yet, oil revenues constitute a supplementary, rather than the only source of income for the Pension Fund. "What if oil prices go down?" Putin says. Indeed, the government would then need to find a way to increase tax collection from other sources.

For comparison, the deficit of the Pension Fund in 2018 will amount to 257 billion rubles, while the net outflow of capital in 2017 was 31.3 billion dollars, which is about 1 trillion 966 billion rubles. The National Welfare Fund holds 4 trillion 844 billion rubles. Gazprom's profit is evaluated at 997 billion rubles. The profit of Russia's largest state-run bank, Sberbank, is 542 billion rubles. The Russian shadow economy is evaluated at 33.6 trillion rubles, or 39 percent of GDP, said business ombudsman Boris Titov.

Therefore, all of the measures that Putin voiced in his speech look superficial. We have an impression that all of the "gifts" that Putin mentioned in his speech had been included in the reform in advance. Obviously, the inflation will eat up the promised addition of 1,000 rubles per year. Putin speaks about a pension of 20,000 rubles by 2024, whereas in Europe, pensions make up 40 percent of what a people get during their work service.

One can only guess why Putin takes such a position. Probably, this is due to the overwhelming external pressure. If Putin had tried to explain that, people would have probably understood. Instead, they saw their president laying the burden of responsibility for the future of the country on the population. Putin does not feel guilty for the fact that Russia has not been able to amass enough money during the 2000s to finance social programs and build an independent financial system. He does not feel guilty for showing insufficient resistance to the shadow economy and corruption. Instead, he was trying to come to terms with oligarchs. An agreement with them has turned out to be more important for him than an agreement with the people.

Putin's voters want a strong social state that would successfully support the foreign policy of the Kremlin from the inside. The living standard in Russia has been decreasing for the last five years, and Putin wants his electors to pedal back. Putin's rating may eventually collapse, and the president will lose control of the idea of patriotism that he has been talking about for so long. People will feel humiliated and betrayed when they realise that their president lied to them.

Lyuba Lulko (Stepushova)
Pravda.Ru

Read article on the Russian version of Pravda.Ru

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