Instead of promised bliss of a secured and carefree old age, older generations of Russians are now facing another official experiment with their social security. It seems that the suffering of Russian veterans that started with Mikhail Gorbachev's Perestroika will only cease to exist when the whole generation of World War II veterans is gone itself.
For most, despite the hand-to-mouth existence they lived during Soviet years, the only consolation was a barrage of social subsidies on all facets of life from free public transport and up to 50 percent discount on almost everything, including rents, utility, telephone bills and free medical care. Now, with the mensions still in the poverty bracket, all social subsidies are being taken away.
The social package, left totally intact during the wild decade of mismanaged economic reforms, has now come under direct attack as the Kremlin is working out a new policy, which envisages substituting these subsidies with physical cash. Pensioners themselves are skeptical and believe that the aim of monetisation of current system of social subsidies is to wipe out their last vestiges of Soviet-era social guarantees for the needy.
The issues at stake
The Kremlins plans to end subsidies for the poor have generated heated debates across the country. The authors of the new policy want to replace subsidies with monetary compensation. According to preliminary blueprints, the federal government plans to compensate some 13 million subsidies recipients and leave 8 million others out in the cold. The federal government wants regions to bear the burden and, as incentives, plans to revoke its 3.5 percent profit tax in favor of regional administrations. According to government sources, the bill will be enacted into law by December and then goes into effect by Jan. 1, 2005.
Arguments for the new policy
Arguing in favor of the proposed reform, Finance Minister Alexei Kudrin noted that the current system is unjust, as it still bears the distinctive hallmarks of defunct Soviet social policies. "Substitution of these subsidies with cash is a priority assignment for the Finance Ministry. Besides, compensation will be made for inflation, while the rates of indexation will be higher than the inflationary rates," Kudrin noted. The expected cost of the reform is about 175 billion rubles, a sum which, according to the bills authors, will be more useful than the sum currently spent on providing these free-of-charge services.
Another argument most frequently cited as reasons in favor of the reform by government officials pushing the reform is that current subsidization policy is extremely excessive with over 200 different categories of subsidies and several millions of recipients majority of whom do not really need subsidies at all. Examples of the latter are government officials and State Duma legislators who also enjoy a series of concessions, including free rides in the Moscow subway and other public transport in the country a right they rarely use, though money is regularly disbursed by the government for such purposes.
The conspicuously palpable fear among the majority of older Russians is that the proposed sum of money will fall short of the current costs of these services. Unlike most residents of rural areas, Moscow and large cities pensioners believe that these services are their lifelines in large cities as a 50 percent discount on utility services and telephone bills and free access to public transport help to alleviate the huge cost of living in large cities.
Consequently, the reform, which is largely unpopular, has already attracted protest meetings across major Russian cities. Those against the reform such as governors of large regions and their residents also offer potent arguments in favor of their positions.
Specifically, there have been frequent demonstrations in Moscow against the new policy. For instance, demonstrators at a May 27 meeting in Moscow collected signatures for a tough worded resolution to be sent to the Kremlin, State Duma and Moscow City Hall, asking them to steer clear off the proposed social-subsidy reform. "These actions of the government are an open demonstration of a total disregard for the fate of the older generation. The proposed monetary equivalents of subsidized services cannot fully compensate for the amount being taken away from those who have spent their life working for these subsidies and other concessions," excerpts of the resolution said. "Such policy will lead to a further acceleration of our impoverishment and death rate among those currently receiving these subsidized services."
Leading the attack against the policy among regional elite, Moscow Mayor Yuri Luzhkov has decried it as totally uncalled for. "As far as monetization is concerned, my position is that the proposed sums of compensation should be at least equal to the real cost of these subsidies, or even larger." Another heavyweight regional leader, St. Petersburg Gov. Valentina Matviyenko, is also against the policy, though purely from economic point of view. "We have done a preliminary study on the cost of execution of this policy in St. Petersburg. It will cost between 5-7 billion every year, an excessively huge extra expenditure for the citys budget," she noted. Ulyanovsk Oblast Gov. Vladimir Shamanov also shares the same view, saying the policy ought to provide citizens that want money in place of their currently free services and those who do not with a choice. "The policy does not need to assume imperative order, but by personal applications from citizens. The principle should be based on individual request by personal application, and not through bureaucratic decision." Shamanov was voicing the view of most villagers who have said they would prefer cash instead of subsidies for such services as telephones and other attributes of urban life that do not exist in their places of residence.
However, Sergei Sopchuk, chairman of the Primorye Legislative Assembly, has proposed a compromise. "The government should not hurriedly launch this policy immediately across Russia at once, but in one or two regions on an experimental basis as a pilot program," he said. "Then, the results and analyses of such experimental programs will enable the government to determine the necessity of monetisation of subsidies and then work out the modality of its implementation throughout the country." Sopchuk also criticized the current basic sums of compensations proposed for different categories of subsidy recipients. "The government needs to introduce differential co-efficients to account for huge differences in living standards and other specificities in Russian regions."
Saying he is worried by the Kremlins fast-track approach and complete lack of public debates on the issue, Mikhail Zadornov, a State Duma legislator, has called on the government to refrain from taking a hurried decision. "Legislators need to study the bill very attentively with the aim of matching proposed compensations to the real costs of these subsidies to recipients, providing them with a choice either to accept money or continue with their subsidies in the current form."
Over 30 million people are on social subsidies in Russia.
About 200 categories of subsidies.
About 40-100 billion rubles, mostly from regional governments coffers, are currently required to run the current social-subsidy system.
Categories of subsidy recipients to be affected by the new system include Russian Heroes, WWII and other wars veterans, labor veterans, three categories of invalids and Leningrad Blockade victims.
From January 1, 2005, the new law is effective.
Proposed amounts to be received by these people after the adoption of the new law.
up to 3,500 rubles per month, or over 75 percent increase to their current base pensions Russian Heroes.
from 1,500-2,000 rubles, or 45-55 percent increase to pensions WWII veterans.
1,400 rubles, or 66 percent Invalids of 1st category.
1,000 rubles, or 64 percent increase to pension Invalids of 2nd category.
800 rubles, or 79 percent to pension Invalids of 3rd category.
1,090 rubles proposed average compensation to each individual recipient for revoked subsidies.
About 170 billion rubles per year Expected gross costs of running the new system vary.