“It opens the Pandora's box”: why is Putin cancel his most successful reform

The threats of the Kremlin sources about increasing income tax for the middle class were exaggerated. Vladimir Putin announced such an increase in personal income tax that he will not be noticed by either taxpayers or budget. The Kremlin is also not worth counting on a long populist effect. But this decision will not pass without a trace. It officially cancels the only undisputed successful market reform of Vladimir Putin - a flat taxation scale, the introduction of which in 2001 made it possible to withdraw taxpayers from the shadows and immediately raise budget revenues from personal income tax.

We made the main business media in the country, now we are doing better-subscribe to the email newsletter of The Bell!

Putin's most successful reform

Now not everyone is remembered now, but in 2000, the first government of Vladimir Putin, headed by Mikhail Kasyanov, came to the White House with a large package of liberal economic reforms. The “Strategy-2010” plan was written by the Center for Strategic Development, led by German Gref. Pension reform turned out to be the most long-suffering, and the authors of the “Strategy-2010 Strategy-2010” after ten years recognized only two-budget and tax. Vladimir Putin himself also remembers this well - otherwise he would hardly have devoted a separate passage to his appeal on June 23 to the fact that the plane scale of personal income tax is a fair system, and its introduction became a great achievement.

In the late 1990s, a complex progressive taxation scale operated in Russia. In 1999, ithad as many as six thresholds of elimination with rates from 12% to 35%. By 1999, their number was reduced to three - 12%, 20%and 30%. The tax at a rate of 30% was paid by people with an annual income above 150 thousand rubles ($ 5350), at a rate of 12% - less than 50 thousand ($ 1800).

At the beginning of 2000, the Ministry of Finance and the Ministry of Taxes and Duties (MNS) prepared a cautious reform plan - it was planned to leave only two rates, 12% and 20%. Even this plan in the country, whose main problem for many years was a budget deficit due to low tax collection, was perceived as too brave. And at the end of April 2000, the Grefa CSR, who remained two weeks before the Minister of Economics, published a truly radical plan: the introduction of a single tax rate of 13% (in the first version-12%).

It was difficult to believe that a decrease in the rate will help to collect more taxes. “The introduction of a flat scale was a revolutionary decision. He had many critics who said: “We cannot collect this amount, and you will let the country around the world with such a low bet.” But the reformers-Gref, Gaidar, Kudrin, deputy director of the Gaidar Institute of Economics of the transition period Sergey Sinelnikov-Murylev-insisted. As a result, everything turned out exactly the opposite. Paying a person has become more profitable and safer, it is much easier to administer a flat rate, ”recalls the president of Skolkovo Business School Andrei Sharonov, who then held the post of deputy minister of economics. The author of the idea was called the economist Sinelnikov-Murylev, who was part of the CSR experts group, Sharonov recalls.

New figures for income tax quickly forced skeptics to change the position. In April 2000, the head of the Moscow Administration of Tax Gennady Bukaev Grimil even the first cautious proposals of the Ministry of Finance and his own authorities from the Ministry of Taxes and Distribution of taxes, calling them “nonsense”. “If we establish an income tax at least one penny, the taxpayer will still find a way how to not pay this penny. But if he is caught, punished, forced to pay - another thing. This is the only way to work, ”the tax authority reasoned.

A month later, Bukaev was appointed head of the Ministry of Taxes and Duties, where he carried out Gref's reform, and a year later - reported in the State Duma about its first results: the receipts from personal income tax increased by 70%. This, of course, was a nominal figure, excluding inflation (in 2000 - 20.2%) and other variables. But even in real terms, admission to the budget from personal income taxwas doubled in just four years-from 2001 to 2004.

What now

The decision to increase personal income tax for wealthy Russians during the discussion was transformed twice. The conversation about him began in 2019 - as part of the discussion about the fight against poverty: to increase taxes for the rich in order to compensate for the cancellation of personal income tax for the poor. When in mid -June sources in the government and the Kremlin again started talking about increasing income tax, it was no longer a question of its cancellation for the poor - but the cut -off threshold to increase the scale (annual income of 2-3 million rubles) began to look like a middle class tax.

At the exit, the decision was devoid of serious economic meaning. Vladimir Putin announced that at an increased rate of 15%, only income of more than 5 million rubles per year will be taxed - this is an increase that taxpayers will hardly notice and the budget, which will receive 60 billion rubles a year, is ten times less than last year’s VAT increase.

Increase in personal income tax is just a beautiful symbolic gesture, the head of the fiscal policy of the economic expert group Alexander Suslin states. It is impossible to objectively increase taxes in a crisis - this helps to slow down the economy through a slowdown in demand, she explains. If for the sake of social justice I wanted to announce a progressive scale, it would be reasonable not to slightly increase the tax for the richest, but to reduce taxes for the poorests - from the point of view of justice and from the point of view of stimulating consumer demand, Suslina believes. But this would require trillions to reimburse the income of regional budgets that are paid by personal income tax.

It could be argued that in this way the state will finally receive money for the treatment of seriously ill children. But it is not very clear what prevented the allocation of this money earlier. For example, in the state media in 2020, the budget plans to spend one and a half times more - 92 billion rubles. To say that for the sake of gathering 60 billion rubles to help sick children need a new tax, in a situation where the Accounts Chamber reports on a trillion of rubles, which is simply hung - pure populism before voting on amendments to the Constitution, Suslina says.

“On the one hand, this is a demonstrative measure. On the other hand, she opens the Pandora's box. Going from a flat scale to progressive is much more difficult than changing the bet. New, higher rates may appear, for more and more wealthy and narrower layers of the population, ”agrees Andrei Sharonov. Now Russia is much more ready for progressive taxation than in 2000 - the Federal Tax Service has completely different opportunities and technologies, people have a habit of paying taxes and paying white salaries - say that all tomorrow they will run into the shadow, he lists. But, if the increase in the rate will progress further, some old schemes can return, Sharonov believes.

“The personal income tax must be raised by those who have revenues from 10 million rubles and higher, but we must start with VAT, which we imposed an IMF in the 90s. We received the tranches of the IMF and profiled, and now we can’t cancel it in any way, we continue to fuck our people - we increase and increase it, ”another former official who took part in the development of tax reform in 2000 is categorical.

What is they from this?

Although Vladimir Putin in his appeal insisted that “justice has nothing to do with it”, the Kremlin sources in mid -June did not hide that the increase in personal income tax for the rich was an answer to a “request for social justice”, about which the Kremlin has been discussing for at least a year.

There is, of course, a request for justice-people on focus groups, although not very often, say that we need to raise taxes for the rich, says the deputy director of the Levada Center Denis Volkov. But more often people talk about the need to increase the standard of living or control over prices, and arguing that it is necessary to select money from the rich, they mean specific oligarchs from the 90s, the sociologist says. He is not sure that the current increase in personal income tax will work: this is a momentary measure that can give a small emotional effect, but nothing will change fundamentally - people are waiting for the revival of the economy, growth of income, and for this there are no prerequisites.