MAXIM TOVKAILO, KSENIA BATANOVA, KSENIA NECHAYEVA
The Government plans to increase the fiscal burden for the sake of future pensioners
The financial crisis, coupled with the need to improve pensioners' living standards, has forced the Government to take unpopular measures. Yesterday, Prime Minister Vladimir Putin announced that the unified social tax (UST) will be replaced in 2010 by insurance contributions. An employer will effectively pay a new social tax at the rate of 34%. The previous highest rate of the UST was 26%. To prevent a dramatic increase in the fiscal burden, the authorities promised to reduce other taxes, but which and by how much is anybody's guess.
Businessmen have met the toughening of tax policy sceptically. The Government's explanation is this: if taxes are not raised, the pension system may collapse by 2010; and no federal budget transfers, which have totalled 1.2 trillion roubles this year, will save it.
THERE WAS NO WAY OUT
The pension system is worrying the Government not only because of the difficult situation on the financial market, the solution of which may require budget money. Aside from this obvious problem, this year is the first year when more people retired on pension than went to work for the first time. And, according to the Health and Development Ministry and the Finance Ministry, in the next 10 years this trend will only continue. The shortage of manpower will increase with a rise in the number of pensioners.
Two options were offered to save the pension system. The first, devised by the Finance Ministry, proposed increasing the UST from 26% to 29% beginning in 2020. But from 2010, it was proposed that the upper limit from which a reduced UST rate was paid be raised from the current 280,000 roubles to 1,100,000 roubles. Starting in 2013, the Ministry also suggested introducing an additional 3% social tax on people younger than 40 years of age.
Eventually, however, the Government approved the Health Ministry's version, which proved more far-reaching.
SPECIAL TAX EFFECT
The current UST is 26% and payable on a down-going scale: the higher the salary, the lower the tax. The employer pays the UST from his own funds, and the effective rate, that is, the one which is actually paid by the company, is constantly lowered and now stands at 22%. Tax on a salary of 280,000 roubles a year is paid at a rate of 26%, while for a salary between 280,000 roubles and 600,000 roubles, the employer must pay 72,800 roubles plus 10% of the sum greater than 280,000 roubles. If the worker in question earns more than 600,000 roubles a year, the enterprise contributes 104,800 roubles to the budget, plus 2% of the sum over 600,000 roubles. Of the 26%, 6% is contributed to non-budgetary funds, another 6% goes to the federal budget, and 14% to the Pension Fund (PF). In the case of people born in 1967 and before, all 14% goes towards financing the non-funded state pension, and in the case of those younger, 6% stays in personal savings accounts while the remaining 8% finances the non-funded state pension.
After the UST is replaced with pension contributions, the system will undergo some change: base pension will be converted to non-funded state pension, and the down-going scale will be altered. From an annual salary of 415,000 roubles per worker (34,600 roubles a month) the company will have to make a mandatory pension contribution at a rate of 26%, plus health and social insurance payments.
As Mr Putin said yesterday, "including health and social insurance payments, the total size of the rate (an insurance rate - Gazeta) will be no greater than 34% of the wage bill." Moreover, as the Health and Social Development Ministry explains, 415,000 roubles is in effect the back indexed 280,000 roubles adopted as a benchmark in 2005 (with due account taken of pay growth). This sum will be indexed further as well.
Once a worker's paycheque reaches 415,000 roubles a year, no deductions will be made from sums exceeding that figure. The Government's proposal will affect not only the future pensions of high-paid staff (their calculation will not depend on the entire salary), but also increase the tax burden on business (see a table on this page compiled by Gazeta together with Nadezhda Zubkova, a leading tax consultant of Grant Thornton).
OFF THE BUDGET NEEDLE
Minister of Health and Social Development Tatyana Golikova says that an increased social tax will reduce the pension burden on the federal budget. Starting in 2010, Pension Fund earnings will, according to the Minister, total 4.2 trillion roubles. To this total, the federal budget will contribute only 569 billion roubles, instead of the current 1.2 trillion roubles, with the Pension Fund itself earning 2 trillion. The Pension Fund deficit will be brought down at the same time.
The Government, meanwhile, will continue the scheduled indexing of pensions. As Mr Putin said, in 2009 base pension will be increased by 37.1%, and non-funded state pension, by 15.6%. These measures, combined with the rise in the social tax, will, according to Ms Golikova, double the average size of the labour pension by the end of 2010.
By 2020, the pension will be three times the pensioner's subsistence wage. Every citizen will be guaranteed a benefit of no less than 40% of the wage or salary from which contributions were paid to the pension system.
"But for this arrangement to be effective, one needs to make contributions for no less than 30 years," Ms Golikova added.
Beginning in 2015, the state pledges to index the pension savings of citizens with a period of service longer than 30 years by an annual rate of 6%. There are 30.5 million such people in the country, according to the Federal State Statistics Service.
BUSINESS AWAITS EXPLANATIONS
To reassure the business community, the Government is promising to compensate the increased social tax by lowering other taxes. The missing budget revenues will be compensated for by the National Welfare Fund. In addition, small high-tech businesses have been promised federal subsidies during the first five years after the UST is gone. However, these benefits will not apply to other companies.
Businessmen do not approve of the Government's moves. "Combined with the VAT, the 34% social tax makes company costs insupportable," said Boris Titov, president of Business Russia. According to him, the social tax and the VAT are charged during the production stage, when money is particularly short. "Even raising a profit tax to 90% would be less painful for us, because not everyone receives a profit," he said.
He is echoed by Alexander Shokhin, the head of the Russian Union of Industrialists and Entrepreneurs. Mr Shokhin says that under the new conditions, companies could start trimming employment or stripping their personnel of social packages.
"However, I welcome the idea of dropping the UST in favour of insurance contributions. In its present form, the tax is a confusing mix of tax and pension payments," he said. Businesses' position in their tax dispute with the Government is reinforced by the fact that in many countries, despite the financial crisis, taxes are being reduced, rather than raised, as, for example, in the United States and Kazakhstan.
FINISHING TOUCHES ON 2020 CONCEPT
The Government generally approved a concept for the social and economic development of Russia through 2020. As Economic Development Minister Elvira Nabiullina said after the meeting, the concept will get final touch-ups and be approved two weeks from now. According to Ms Nabiullina, questions concern pension and some specific targets concerned with sports. Together with the concept, the Government will also put the finishing touches on its plan of action through 2012. The plan contains specific mechanisms and specific deadlines for the implementation of provisions spelled out in the concept. The strategic goal is to achieve a level of economic and social development in line with Russia's status as a leading world power of the 21st century. Between 2015 and 2020, Russia should join the top five leaders in GDP. Its middle class should make up more than half of its population by 2020, and Russia should command an important proportion (5-10%) of markets offering high-tech goods and intellectual services in five to seven, or more, sectors. A systemic solution lies in transferring the Russian economy from its export and raw materials basis to one looking to innovation and social-oriented development.
