Rise in tax and retirement age in Russia - why has the Duma passed such unpopular laws?

Less than a month after the inauguration of President Vladimir Putin, the Russian authorities have made a number of decisions that have given rise to public dissatisfaction: the retirement age and consumer tax rates have both risen. What’s the reason behind such a move?

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Taxes

Russian PM Dmitri Medvedev announced that the state proposed raising the value added tax (VAT) rate from 18 to 20 per cent. The 20 per cent tax rate will come into effect in 2019, reports Russian paper Kommersant.

VAT is a tax levied by the state on the manufacturing of various goods.

Tax is taken into account by the manufacturer when calculating the value of their goods, and therefore the change in the amount of tax will directly affect the price for the consumer.

A two per cent VAT increase in the current conditions of the Russian economy may provoke a general price hike of one per cent. Experts claim that since the income of the Russian population as a whole is not rising, the price hike will mean a decrease in the demand for several goods.

Pensions

• The retirement age for men will be raised from 60 to 65 over the course of the next ten years.

• The retirement age for women will increase by eight years to 63 by 2034.

The budget of the pension fund of Russia has not grown in recent years and the state is probably trying to balance it out by raising the age of retirement. The fact that the difference in retirement age for women and men is decreasing is justified by the Russian authorities due to the ‘change in status of women in society’ and the ‘equal distribution of housework among family members’.

Reasons and consequences

The Russian authorities say that in several years, these measures will have a positive effect on the economy.

But the VAT increase will take place almost immediately, while the retirement age for many Russian citizens will be something of a tragedy – they have worked in low-paid positions for many years and rely on the prospect of a pension for their old age.

Many experts say that the main reason behind these unpopular measures is the poor condition of the Russian economy, which has not grown in a number of years. This is largely the result of two fundamental processes: international sanctions against Russia for the annexation of the Crimea and the interference of Russia in the US presidential elections. The fall in gas and oil prices, Russia’s main exports, has not helped either.

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Public protest

The announcement concerning the new retirement age came on the opening day of the World Cup, which is now taking place in Russia. Almost immediately, the All-Russian Association of Trade Unions created an online petition of protest which said that ‘there is no basis on which the retirement age in Russia can be raised’.

Almost 1.5 million have signed the petition already.

The presidential administration is afraid of protests that may follow this unpopular decision and intend to ‘soften’ the reform, says Russian newspaper Vedomosti.