Incomes to Fall Despite Social Benefits’ Indexation

Incomes to Fall Despite Social Benefits’ Indexation


A decision on the unscheduled indexation of social payments, salaries of state employees and pensions will be made at the meeting of the State Council on Social Policy, which will take place on May 25, said presidential aide Maksim Oreshkin.

The extraordinary indexation, of course, should slow down the dynamics of decline in the level of pensions and salaries in Russia, but it will not be able to fully prevent it. Nevertheless, according to the VEB Institute of Research and Expertise, the proposed unscheduled indexation should slow the decline in incomes of citizens by 1.4-2.8% already this year or, depending on the scenario, to 7.5-9.2%.

It should be taken into account that this assessment was given by the VEB Institute of Research and Expertise in the report “On scenarios for the development of our economy under the current sanctions,” and analysts provided for two options with unequal indexation conditions.

According to the first scenario, the minimum wage would increase by 9% from July 1, 2022. As for unemployment benefits, they will not change at the moment, but Russians who are left without earnings will be retrained by the state or at least provided with temporary work.

Maternity capital and social benefits will be indexed by 9% and pensions by 5%. Public sector wages will not be raised yet. It should be noted that this option will cost the government 794 billion rubles ($14.1 bln,) and support of the labor market will be particularly expensive. This measure will cost the state 443 billion rubles ($7.87 bln.)

Under the second scenario, 1.44 trillion rubles ($25.58 bln) will have to be spent on envisaged measures of assistance to the population. It will also include indexation of the minimum wage, all benefits, including unemployment, as well as pensions. This scenario calls for a 10% increase in public sector wages as early as July 1 this year.

Back in March, Russian President Vladimir Putin gave instructions to study the issue of increasing social payments, salaries of state employees and pensions at a meeting on measures of socio-economic support of the regions.

Last year, despite the crisis associated with sanctions and the raging COVID¬-19 pandemic, Russia managed to avoid an increase in poverty by increasing social payments. As for this year's situation, unfortunately, the proposed scenarios will not fully stop the decline in income of our country's citizens, but without the implementation of these proposals, this decline would go much faster.

So, in the forecast of the VEB Institute of Research and Expertise, it is assumed that the decline in salaries of state employees in the first scenario will reach 9.7%, and in the second scenario 6.7%. As for the economy as a whole, wages will decrease by 8.2% or 5.8% depending on the scenario, pensions will decrease by 5.2% or 3.1%, unemployment will reach 6.2% or 5.7%, and the total growth of poverty will amount to 12.6% or 13%, again depending on the scenario proposed. At the end of 2021, 11% of Russians lived below the poverty line.

The VEB Institute's calculations are based on the following assumptions for 2022: the price of Urals oil is $79 per barrel (according to all scenarios); the average annual U.S. dollar exchange rate is 77 rubles per dollar (according to all scenarios); GDP is minus 10.2% or minus 8.9%; investment is minus 15.5% or minus 11.5%; the current inflation is 17.5%, and at the end of the year is 18.7% or 19.5%.

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