Decision by the Federal Bureau of Yaboko adopted on 4 September 2023, published on 14 September 2023

Photo by Oleg Kharseyev, Kommersant

The document was adopted following the results of expert hearings held in Veliky Novgorod on 4 September. Yevgeniy Gontmakher, Doctor of Economics and a Yabloko member, participated in the development of the document.

The poverty of Russian citizens is one of the main problems of our rich country. The current state of poverty is a direct result of the policies of Vladimir Putin and his administration. This policy is not aimed at the development of the economy and improvement of the well-being of citizens, but at preservation of the power of the president and increase of the wealth of those close to him. The regime benefits from poverty because with its help it supports paternalism and the demand for a “strong hand” among Russians.

Twenty years ago, Vladimir Putin wanted to catch up with Portugal, but now Russia’s GDP (per capita) is two times lower than that of Portugal. Due to the inefficiency of the actions of the president and the government and transfer of the domestic economy to a war footing, the impoverishment of Russians will increase in the near future.

Overcoming poverty is also hampered by manipulation of official statistics for political purposes and the use of outdated models for estimating the number of poor, which do not allow us to assess the scale of this disaster in our country. According to Russian Statistical Agency (Rosstat), about 20 million Russians today live below the poverty line, that is, in poverty. This figure is constantly shifting towards one direction or another, but Rosstat’s data on a significant reduction in poverty to 9.8% in 2022 caused criticism in the professional community, and according to the results of the first quarter of 2023, official poverty was again at the level of 13.5% (19.6 million people).

Experts have repeatedly noted that the methodology for measuring poverty based on the subsistence minimum is inadequate, since the subsistence minimum established in Russia not only does not reflect the basic needs of a person in the 21st century, but also does not allow maintaining living standards that are generally accepted as normal by the majority of the country’s inhabitants. But even according to these data, it is necessary to add another 13-14% of citizens whose incomes are on the verge of the subsistence level to the 13% of Russians living below the poverty line, and only the convention of the measurement mechanism does not allow to classify them as poor. At the same time, estimates based on median income indicate that there are approximately 30 million poor Russian citizens (one in five).

According to research by the Higher School of Economics, 39% of Russians consider themselves poor. In addition, 64% cannot afford to replace old furniture, 43% do not have the opportunity to buy seasonal shoes for each family member, and 40% cannot go on vacation. More than 50% of Russians have no savings. In 2023, a quarter of Russian citizens spend almost all their money on food.

Feminisation of poverty is one of the serious challenges: Russian women have 37% lower wages than men (which subsequently leads to lower pensions), and the government’s focus on promotion of traditional values increases the difficulty for women to combine the work and the family roles.

Despite numerous wishes from the authorities to overcome poverty, government’s programmes remain ineffective. According to the Auditing Chamber’s report on the implementation of so-called social contracts, only every fourth contract participant manages to escape poverty, since in 70% of cases they are offered jobs with salaries at the minimum wage level, which reduces the poverty level only “on paper”.

According to official data, eight regions did not meet their poverty reduction targets in 2022. In six regions, the share of the population with cash incomes below the poverty line exceeds 20%, while in the Republic of Ingushetia every third resident is poor. The poverty level in 60 regions exceeds the national indicators.

The experiment with the introduction of supervisors from among federal ministers for poor regions also does not bring results. The overwhelming majority of lagging regions are accumulating debt, their incomes are falling and purchasing power is declining. Three regions have been under federal treasury support for several years, while Khakassia will be under external control until 2029. The total public debt of the regions in the first half of 2023 increased by 9% and exceeded 3 trillion roubles.

Having no chance to recover from raising the retirement age and the pandemic crisis, which dealt a serious blow to the incomes and well-being of citizens, the country was faced with new disasters caused by the start of a special military operation and numerous sanctions imposed on Russia by the world’s leading economies in response.

At the end of 2022, GDP fell by 2.1%, and inflation rose to 11.9%. The federal budget deficit, which reached 3.3 trillion roubles last year, became one of the largest in Russian history. The rouble exchange rate is falling, domestic demand is shrinking, the already low (about 10%) share of the middle class is shrinking, there is a shortage of qualified labour force, and entire sectors of the economy are in a deep crisis.

The situational growth in citizens’ incomes, caused by increased payments to the military and employees of defence enterprises, does not change anything and cannot last long. Already at the beginning of 2023, real disposable income of the population was 6.5% below the 2013 level. Despite the relatively low official inflation in the first half of this year (4.3%), the observed inflation, as measured by the Central Bank, amounted to 13.8%.

Military actions and mobilisation not only remove hundreds of thousands of active young people from the real sector of the economy and force an equally large number of qualified specialists to leave the country, but also deal an unprecedented blow to human capital. The federal funds spent on military needs exceed those spent on education and healthcare together by 1.5 times. Inflated military spending, along with a drop in oil and gas revenues (at the end of the first half of 2023, they fell by almost 50%) lead to total underfunding and degradation of the civilian sphere.

In these conditions, the National Development Goals of Russia, which provide for the reduction of the share of those living below the poverty line to 6.5% by 2030, are empty promises, like Vladimir Putin’s “May Decrees”  [that had to considerably improve living standards in Russia] that have not been implemented in ten years.

The war economy is always a delay-action mine. It can keep itself afloat for some time, but then hostilities stop and the entire sphere collapses, simultaneously leaving a huge number of people unemployed. What today seems to be a successful life strategy – poor people going to the special military operation to earn money – may turn into the cause of a social crisis in the near future.

A large-scale conflict becomes, as a rule, a serious challenge for the state, which always ends up leaving the combatants to the mercy of fate. This process will lead to dozens hundreds of thousands people turning into handicapped, people losing their professional qualifications, single-parent and dysfunctional families who will find themselves in a state of extreme poverty or may engage in different criminal activities. Every third single-parent family is already below the poverty line, having very little chance of a decent existence and development. Poverty prevents many children from accessing quality education and achieving their potential. If at the same time the state does not invest enough in education, the results are disastrous for the entire country.

Thus, the current policies of the authorities are depriving Russia of a future, and the longer the special military operation goes on, the more difficult it will be to cope with poverty in the future.

We are convinced that the initial and necessary step to overcome poverty is to conclude a ceasefire agreement, normalise relations with Western countries, modernise the economy and ensure real freedom of enterprise.

Only a transition to such a policy can give the Russian economy an impetus for a qualitative leap and, on this basis, solving social problems.

An integral part of this radically new policy should be a priority attention to the development of human capital: investments in education, health care, culture and science, and on this basis, improving the quality of life of the vast majority, increasing life expectancy and increasing the share of the real middle class.

It is also necessary to revive local self-government and federalism, transferring significant powers to regional and local authorities, and leaving a significant part of taxes at the regional and local level [instead of the present transfer of most of them to the federal level], which will ensure an increase in the incomes of regions and municipalities, will promote the development of local entrepreneurship and increase the salaries of those employed in the social sector.

It is time to stop lying and change the methodology for assessing the number of poor in the country. At the first stage, everyone who receives an income below 50% of the median income in their region of residence must be recognised as poor. And then the poverty line should be established taking into account social standards for ensuring daily living activities (provision of housing, housing and utilities services, communications, medicines and medical services, fees for education and advanced training), which will lead to an increase in the poverty line calculated by current methods by 60-80% .

If all of the above fundamental changes in government policies begin to be implemented, then, on this basis, the following measures can be proposed to overcome poverty in Russia:

• Move to a personalised social protection system that takes into account the characteristics of the social situation of each family and, if necessary, creates on this basis a strictly targeted package of social assistance, both in the form of payments and a set of benefits and social services (patronage, long-term care, etc.).

• Transfer to the constituent entities of the Russian Federation the right to set a higher minimum wage, taking into account the cost of living and the situation on the labour market in the region. At the same time, the minimum wage must be calculated from the median salary in the region and be at least 50% of it, and also take into account the climate pattern of the region.

• Introduce a minimum income at a minimum level of 50% of the median salary, which will be exempt from a personal income tax.

• Ensure transparency and justifiability of natural monopolies’ tariffs.

• Index pensions for working pensioners at a level no lower than for non-working pensioners.

• Start transforming the healthcare system from the current pseudo-insurance model, which does not ensure mass availability of quality medical services, to a model in which the state is the only insurer. On this basis, it is necessary to increase the share of government spending on healthcare from the current 3.5% to at least 5-6% of GDP.

• Provide vocational training and state assistance in the employment of persons with disabilities, pensioners, youth, and young mothers.

• Lift the food embargo. Russian anti-sanctions have led, first of all, to an increase in food prices, a decrease in their quality, and are affecting the living standards of Russians.

• Start implementing the “Land – Housing – Roads” programme developed by Yabloko, which will provide every family with their own home and create domestic demand for the products of Russian enterprises, support employment by creating new jobs.

• Create personal savings accounts for citizens (primarily for pensioners, people with disabilities, large families, and students), which will accumulate funds that make up the legally regulated share of the exports of natural resources and the mineral extraction tax (MET).

• Exempt microbusinesses and small family businesses from paying all taxes except income taxes, creating a special pension system for them.

• Prevent gender discrimination, including through the creation of state institutions that ensure gender equality and equalisation of wages between men and women. Organise retraining and advanced training for women who have breaks from work due to childbirth and child care. Develop social services that allow parents to combine parental responsibilities with work and social activities.

• Pay child benefits, regardless of family income, in the amount of 25% of the median income in the region of residence until the child reaches school age, benefits for a minor child in poor families should be at the rate of 50% of the median income in the region of residence, and in case of parental disability – 50% from the median income in the region of residence.

Nikolai Rybakov,

Yabloko Chairman