Translated material
Where it’s flat, that’s where it breaks.
Russians are threatened with an increase in income tax
The flat income tax scale no longer looks as unshakable as it seemed recently. In conditions of a surplus budget, in the absence of problems with the collection of this tax and with the successes declared by the authorities in legalizing wages, the idea of redistributing the income of the rich in favor of the poor is captivating more and more high-ranking officials. Yesterday, following the Speaker of the Federation Council Sergei Mironov, the head of the Accounts Chamber Sergei Stepashin tried to lobby for the idea of introducing a progressive income tax rate.According to the head of the joint venture, it is possible that by 2008-2009 Russia will return to the world practice: “the more you get, the more you pay.” This is not the first such statement for Mr. Stepashin’s department. Chamber auditor Vladimir Panskov came up with a similar proposal a little over a year ago, arguing that only this measure could help overcome “the terrible social stratification and bring the poor closer to the rich.” Then this idea was supported by the head of the Chamber of Commerce and Industry, Yevgeny Primakov, citing a strange argument: they say, a flat scale was introduced for five years. The argument was striking because just a month earlier, President Vladimir Putin said that the flat scale would not change for at least ten years. The government then resolutely disowned such statements. Deputy Finance Minister Sergei Shatalov, who oversees tax policy, said that “this issue is not being discussed.”
Let us recall that a flat income tax rate of 13% was introduced on January 1, 2001. At the same time, President Vladimir Putin promised that it would not change for at least ten years, and Deputy Finance Minister Sergei Shatalov assured that “this idea is not even being discussed” in the Ministry of Finance.
Nevertheless, after some time, the question of a progressive scale arose at the parliamentary level. The Rodina faction proposed a complex four-level scale, in which the income tax for the poorest should be practically close to zero and, as incomes increase, reach 25%. The bill was never able to pass the first reading, but, as the budget committee admitted, it was more likely because it was initiated by the Rodins, and not because the idea did not deserve discussion. But the progressive scale was very popular with the Speaker of the Federation Council Sergei Mironov, who several times proposed raising taxes “for the rich.” The last time was last Tuesday.
Until this summer, all statements by adherents of the progressive scale were mainly of the nature of “personal opinion,” until two “heavyweights” of the Russian government, ministers Alexei Kudrin and German Gref, raised this topic at the St. Petersburg Economic Forum. They noted that currently a flat scale is optimal, but in the future it can be changed to a progressive one.
Finance Minister Alexei Kudrin said that a period is needed to bring capital out of the shadows, after which it would be possible to move to a progressive scale. Such a statement can be equated to an admission that the state, which guaranteed that the flat scale was being introduced “seriously and for a long time,” at least did not comply with the rules of the game, calling for the withdrawal of income from the shadows. Minister of Economic Development German Gref recalled in turn that increasing income differentiation is unfair and creates a socially unstable climate. But this automatically raises the question of how much the manipulation of income taxes will improve the social climate when the state’s attitude towards the so-called middle class and the ideology of the “consumer society” that is emerging in it changes from a “plus” to a “minus” sign.
Finally, it remains unclear why such proposals are being put forward if the state currently does not have problems with revenues and, by and large, does not have a deep fiscal interest. The motivation for redistributing money from those who live better in favor of the poor is not enough in this case. Neither German Gref nor Alexei Kudrin even voiced the idea that the economic justification for such an undertaking could be, for example, problems with local budget revenues, which only confirms the lack of financial and budgetary need for such a reform.
If you introduce a progressive scale, this will undo everything that the authorities have done and declared recently, many experts are sure. According to Valery Gushchi, a partner at the law firm John Tyner and Partners, “after talking about capital amnesty, reducing VAT, income tax, and tax administration reform, it is difficult to understand the motives of officials who advocate a progressive scale.” According to the expert, Russians who have just begun to get used to declaring their salaries will go into the shadows.
According to the head of the presidential expert department, Arkady Dvorkovich, a return to the progressive scale will disincentivize labor initiative. And it would be much more expedient to introduce a progressive scale of property taxes.
“Income tax reform will become a socially alarming factor that is not supported by proper economic justification,” says Elena Matrosova, director of the Unicon Center for Macroeconomic Research. “If you need to help local budgets, why not think about optimizing budget policy, and if we are talking about injustice, then in developed countries the consumer economy stimulates economic growth,” she explained to Vremya Novostei.