Protests Greet Government Plan To Reform Social Benefits

On June 10, labor unions organized protests in 300 cities across Russia, the first nationwide protests since President Vladimir Putin took office in 2000. A modest crowd of 1,500 gathered in heavy rain in Moscow to protest wage arrears and the new government plan to buy-out social benefits. The government waited until after the presidential election was over before rolling out its plan to replace benefits with cash compensation. The government will present the bill to the State Duma on July 2. A meeting of the pro-government United Russia faction on June 7 saw criticism from deputies who fear negative public reaction to the measure (Nezavisimaya Gazeta, June 9).

Andrei Isaev, a United Russia leader and head of the Duma Labor and Social Policy Committee, addressed the crowd of demonstrators on Thursday and condemned the reforms. There is speculation that Isaev may try to create a left wing bloc within United Russia (Kommersant, May 22). Moscow Mayor Yurii Luzhkov has also spoken out against the reform. A poll conducted by Russian public opinion and market research group Romir found that 59% of respondents opposed the proposal, while 36% approved, most with reservations (Itar-Tass, June 2).

During the Soviet period, an array of perks was granted to various categories of citizens for free use of transport, medical facilities, and housing. The 21 million recipients, representing 15% of the population, ranged from war veterans to teachers and tax inspectors. More than 200 different benefits are on the books. This system is inefficient, as benefits do not target the needy. The scheme also makes it difficult for the government to put the institutions involved on a profit-and-loss footing. Another complaint is that in-kind benefits are not uniformly available, with rural residents having limited access to transport or health care.

The plan calls for canceling some benefits and replacing others with a monthly lump sum payment of 800 to 3,500 rubles (US$35-120), ranging from Category 3 invalids to Heroes of the Soviet Union. The average pension is currently 1,760 rubles (US$65) a month, which does not leave any spare cash to pay for public services. Critics argue that the new stipend, which is not indexed, will soon lose its value with inflation running at 10% a year. The federal government will pay one-third of the stipends; the lower categories will be the responsibility of regional governments, which regard this as yet another unfunded mandate. Finance Minister Aleksei Kudrin said the buy-out would cost 170 billion rubles (US$5.7 billion) per year (Gazeta, May 26).

In response to complaints, the government agreed to give pensioners the choice between taking cash and keeping the in-kind benefit, but then rejected the idea as impractical. It seems that regions will be given the option of keeping some in-kind benefits, but will be rewarded by the federal government if they switch to cash payments. In a bid to assuage public anxiety, on May 25 Putin told the government to exempt housing privileges from reform for at least a year (Interfax, May 27).

In a related step, on June 11 the Duma passed on second reading a bill to cut the unified social tax from 35.6% to 26%. This is the payroll tax that funds pensions, social security and health care. The high social tax is a burden on businesses, and it is evaded by paying workers off the books. Hence, social tax receipts fell from 3.1% of GDP to 2.7% over the past year, while real wages rose 10% (Vedomosti, 4 June). Reformers hope that lowering the tax rate will increase total receipts, as occurred after the 13% flat rate income tax rate was introduced in 2001.

Wage arrears have been a chronic problem in Russia since the mid-1990s, but came to the forefront last month due to several hunger strikes. On May 28, a hunger strike by 170 workers at the Yenisei coal mine in Khakassiya protesting six months of wage arrears ended after 12 days with full payment of wages by the regional government and a fine for the manager. A female worker later died (AiF, Itar-Tass, June 9). On May 31, 40 miners in Shakhty, Rostov province, started their own hunger strike.

The general situation with wage arrears has improved since 2000. But four million Russians are still owed wages totaling 24 billion rubles (US$850 million) (Novye izvestiya, June 11). Of those affected, 37% work on farms, 28% in industry and only 20% in the state sector, concentrated in a dozen poor regions. In October 2003 state workers were granted an across-the-board 33% wage increase. Having eliminated rival power bases, the Putin administration can push ahead with its social reform agenda, if it chooses to do so. However, the government is still in the midst of completing the reorganization launched in March. The administration may not have the clear, decisive leadership needed to push through benefits reform in the face of criticism from the ostensibly loyal regional governors and United Russia deputies.