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RIA Novosti
January 19, 2005
WHY IS BENEFIT REFORM UNPOPULAR?
MOSCOW, (RIA Novosti political commentator Yana Yurova)
Russia's senior citizens did not allow bureaucrats to relax during the festive season. Instead of celebrating at home, the former took to the streets, blocking federal highways and other roads. From the Maritime Territory in the Far East to Russia's European exclave Kaliningrad, pensioners started demanding that the government reinstate benefits in-kind.
On January 1, 2005 a federal law came into force replacing benefits in-kind with cash payments. The federal budget stipulates 200 billion rubles for the program, which exceeds previous appropriations by 350%. So, why are people unhappy?
Today, apart from benefit-seekers, over 12 million people are entitled to benefits, including a million federal officials, 4.5 million servicemen and civilian personnel, and 7 million public-sector workers. These social and financial commitments under the relevant 200 laws exceed state-spending volumes by 100%.
The law is part of the continuing budgetary reform and corresponds to liberal economic policy. Andrei Illarionov, the president's economic adviser, says the state must cut its monopolist-sector expenses. "It was established long ago that the less the state spends, the higher economic growth rates are," he said. "Less state spending releases money that can be channeled into the private sector, which provides an impetus for economic development. This leads to more jobs, which means the population's economic activity grows, as do household incomes. This helps reduce nationwide poverty. This is the reform's logic."
All this is correct. The bloated benefit system was a drain on the federal budget and left it opaque. Some claimants sought several benefits at once and it was unclear which department had to make the required payments. For example, some WWII veterans, apart from their service allowances, could also receive benefits as disabled pensioners and labor veterans. They received money from three departments as a result.
However, the authorities hurried to implement the idea. The reform would have been complicated even in ideal conditions, in a country facing no other problems. In late 2003, the State Duma adopted two other acts that would be difficult to implement: "On Organizing the System of Regional Institutions of State Authority" and "On Local Self-Government". Both documents redistributed federal and regional terms of reference, thereby significantly changing inter-budgetary relations.
Here are some examples. Regional, rather than federal, authorities now have to pay child benefits, as well as for schools and kindergartens. However, the new laws do not stipulate any new sources of funding. Their enactment has coincided with the "benefit-monetization" drive. As a result, benefit-seekers were divided into the following two categories. The federal center moved to subsidize 14 million people, mostly the disabled, war veterans and Chernobyl clean-up workers. The remaining 19 million, mostly labor veterans and former home-front workers, are now the responsibility of regional agencies. Consequently, the regions need huge funds for these programs.
And this is not all. Tax reforms are being implemented concurrently. The Single Social Tax was reduced January 1, thereby enabling business to save about 280 billion rubles. This would have seemed like heartening news not so long ago, but now the Finance Ministry estimates that federal-budget revenues will lose 185 billion rubles in 2005. The regions will face even more serious problems. From January 1, the federal center will collect part of their profit-tax proceeds and the lion's share of severance-tax revenues. This represents 102 billion rubles. The budget only has a 30-billion-ruble financial reserve for aiding the regions. How can the holes be plugged?
The money for all this, including regional problems, will clearly have to come from the Stabilization Fund, which accrues super-profits from oil exports. However, there is still the purely technical matter of implementing all these laws when the country is undergoing comprehensive modernization. It is like simultaneously repairing all the roads, bridges and streetcar tracks in a metropolis. Even if the budget had all the money, traffic would still grind to a halt. This is what has happened to the country.
Boris Gryzlov, the State Duma speaker, says the new benefit law should achieve the main goal: to provide targeted social aid to claimants. The latter should have started receiving cash payments under the law on December 24, 2004. However, some regions had not paid their benefit-seekers even by January 10. The mechanisms for implementing this law in the regions remain to be streamlined. Some regions have abolished benefits in-kind that should have been retained or replaced with adequate cash payments. For instance, many claimants can no longer use city transport free of charge, while others were previously entitled to 50% discounts on their telephone and utility bills. They received 200-300 rubles in return, which do not compensate their real expenses. This left disgruntled citizens taking to the streets.
Judging by a recent government session that President Putin attended, no one wants to abolish the new benefit law. Nonetheless, the authorities are trying to find a solution to this situation. Deputy Prime Minister Alexander Zhukov, Finance Minister Alexei Kudrin, Health and Social Development Minister Mikhail Zurabov, Interior Minister Rashid Nurgaliyev and Regional Development Minister Vladimir Yakovlev attended a Duma session last week. A decision was made to increase basic pensions by 15% from February 1, thereby compensating pensioners. All monthly benefit cash payments will be indexed with inflation from August 1. Law enforcement officers will receive extra bonuses this January to cover their transport expenses.
Moreover, regional leaders have been advised to enable benefit-seekers to buy transport passes whose prices do not exceed the cash payments.
True, Oleg Shein, deputy chairman of the Duma social policy committee, believes that these measures are not enough. He believes the current spontaneous protests will escalate. However, the experience of many towns in the Moscow region shows that passions tend to subside when the authorities negotiate with the protesters, and even if not every demand is met. The most important thing for Russians is to be heard.