Why bother to tackle poverty at all? The August report of the State Statistics Committee shows that in the second quarter of this year four million Russians contrived to leave the below-the-poverty-line group without any help from the government. In early 2003, there were 37.2 million destitute people in that category; in the second quarter, 33.2 million. If this trend keeps up at the same pace over the next two or three years, there will be no more poverty-stricken families left in the country. However, Professor Lyudmila Rzhanitsina, Doctor of Economics and a social policy expert, insists that no prerequisites exist for that welcome trend to continue.

She cites facts and figures to back up her pessimistic view: The proportion of social spending (welfare benefits plus subsidies for the needy to pay housing maintenance and public services) in the 2004 consolidated budget amounts to 33.8% of the total public spending, down from 34.4% projected for 2003. Although charges for housing maintenance and public services are on the rise, federal subsidies to be granted to the needy locally are being reduced from five billion to three billion rubles.

There is no plan to raise child allowance, which has stayed at a monthly 70 rubles for the last three years. Nor will there be any increase in the one-time benefit for the birth of a child and in the monthly pay during the 18-month child-care leave (these two payments were last raised to 4,500 and 500 rubles, respectively, in January 2002). Also, it is not planned to index the 300-ruble child allowance deductible from the income tax payment of a mother. And we have not heard a word about the governments long-standing pledge to introduce a grant for people whose income is below the subsistence wage.

What is most alarming, Professor Rzhanitsina says that the government has no intention of combatting so-called "economic poverty," which means that as before, many of the people living below the poverty line are employed, most of them in the public sector. No provision has been made to increase the minimum wage (which is monthly $20 as of October 2003, less than the amount in Ukraine and Kazakhstan). No money has been earmarked either for the next upward revision of rates of pay and salaries for doctors and teachers, or for aiding the particularly impoverished regions to pay higher wages and salaries to public-sector employees from October.

The wage and salary problems are compounded by the fact that there is an absolutely inefficient system of compulsory insurance, medical and social, which serves in properly-run countries as a life buoy for a person in crisis. The contemplated cut in the single social tax rate, unless accompanied by a reform of the insurance system, will further aggravate the conditions of the working poor. To ease the tax burden on employers, part of the payments into the social funds could be shifted to employees, as is the practice in developed nations. But this could happen only if wages were decent.

Myths

While it is true that the 2004 budget provides for a larger increase in its health and education expenditures than the increase in defense spending (22.5%, 20.6% and 19.4%, respectively), in absolute terms the sums are incomparable. There is also a 16% hike in "social policy" outlays, but it is a trifle compared with consumer price growth rates.

The Octobers 33% rise in state-paid workers wages and salaries has already been offset by inflation levels in previous years (wage rates have remained unchanged since December 2001). Some regions are still recovering from the consequences of wage increases effected nearly two years ago: Wage arrears amount to 498 million rubles for medical personnel and 312 million rubles for school teachers. Addressing the Duma on this issue, Prime Minister Mikhail Kasyanov said there were enough financial reserves to resolve the regional wage problems. His promise, however, is anything but encouraging, as the draft budget earmarks for the regions a mere 10 billion rubles against their need for 100 billion rubles.

At the Duma debates on the draft budget, Kasyanov recalled and promised torevive the concept of reforming the wage system for state-paid workers.That concept had been shelved not because it was unsound, but because any change to the single wage scale to sectoral scales made no sense in view of present wage levels. The vast majority of public-sector workers do not get much more than the subsistence wage.

Shackled

Even the Dumas centrists doubt that the 2004 draft budget is sufficiently "socially oriented." The leader of the Fatherland-All Russia faction, Vyacheslav Volodin, asked the prime minister how the government planned to eliminate poverty. All the prime minister could respond was: "By doubling GDP"

However, economic growth in itself is not necessarily conducive to an improvement in welfare. Professor Rzhanitsyna, for example, suggests comparing the following two indicators: From 1998 to 2003, Russia’s GDP rose 26%, while per capita real incomes (incomes minus mandatory payments and adjusted for inflation) grew only eight percent. Moreover, the living standards of the more affluent families have seen the highest growth rates. Incidentally, the world has long realized that poverty is a major roadblock to economic development. And apart from everything else, it is not until 2010 that Russia’s GDP is to double. Does this mean that a moratorium of that many years has been imposed on the presidential directive to root out poverty?

It would have been understandable if the poor included only the so-called "socially unprotected" people (old-age pensioners, the disabled, etc.). They could have been told: Have patience and wait until the state grows richer; it will then be able to give you more help. But is it right to tell the same thing now to millions of school teachers and healthcare workers - able-bodied and highly qualified people?

This question arises in connection with the draft budget. For some reason, from year to year the problem of funding the social sectors is examined out of the context of their reform. It has long been common knowledge that budgetary funds for those sectors are not utilized efficiently enough, and that such a "black hole" will swallow up anything it is fed. While reform of our educational system has at last begun, that of the public health services has for the umpteenth year got stuck at the stage of programs and projects. The trouble is not just that reform of compulsory medical insurance has stalled; what is needed is a complete reorganization of the entire healthcare system. But when it comes to dividing funds, system reforms are the last thing on peoples’ minds. And once the money has been divvied up, there is not much point in making the effort anymore.

By and large, the government has no incentive to seriously address social welfare, which it regards as a burden on the budget. Mikhail Kasyanov must have had a very narrow circle of people in mind when he called on the Duma deputies to vote for a budget that would swell the middle class – the group of "self-sufficient citizens who could use their hands and brains to support their families." The rest can sit back and relax - their problems had been "settled" at the very start of the budgetary process.

See also:

Budget 2004

Moscow News, October 1-7, 2003