Russia's government raises retirement age and VAT

Russia's government raises retirement age and VAT

Russian Prime Minister Dmitry Medvedev said the retirement age and value-added tax (VAT) will be raised in Russia. 

The PM said that the Russian government proposed to raise the retirement age to 65 for men and 63 for women, the transition period will begin in 2019 and will last until 2028 for men and until 2034 for women.

"It was proposed to introduce a sufficiently long transition period - to start from 2019 to gradually reach retirement age of 65 for men in 2028 and 63 years for women in 2034," Medvedev said at the governmental meeting. According to him, "this will allow us to send additional funds to increase pensions above the level of inflation."

Currently, the retirement age for men and women is 60 and 55 years, respectively.

The PM noted that the current terms of retirement in Russia were set in the middle of last century and remained at the same level, despite growth of life expectancy and the changing conditions of life and work. "We have been preparing for raising the retirement age for a long time, and we have approached this just now because conditions have been created to solve the task of increasing life expectancy within the framework of the 80+ program," Medvedev said.

He noted that now people do not just live longer, but also stay active longer, adding that almost all countries have already raised the retirement age, including in the post-Soviet space.

According to Medvedev, increasing the retirement age does not affect the current pensioners, which includes around 46.5 million people. They will continue to receive all previously assigned retirement payments and social benefits according to the previously established regime.

In addition, Medvedev said that Russia’s government has proposed raising value-added tax (VAT) to 20% from 18%, starting from 2019.

The PM said the so-called "tax manoeuvre", which envisages a gradual increase in the mineral extraction tax (MET) and a cut in export duties on oil and refined products, was on track to be completed in 2024.

The vice-rector of the Academy of Labour and Social Relations Alexander Safonov, speaking to a correspondent of Vestnik Kavkaza, noted that the draft reform with an increase in the retirement age of 5 years for men and 8 years for women in 10 and 16 years is quite radical. "First of all, the planned total retirement age for men today exceeds the averagehealthy life expectancy: Russian men remain healthy for about 62 years, and according to current indicators, the likelihood of surviving to a retirement age of 65 for working men will be less than 40%. In fact, only half of the people will be retiring in those years, therefore, the economy will need to provide at least 300,000 new jobs every year. There is no answer, how and by what means they will be provided," he pointed out.

"The main problem is at the expense of what incomes people will live. There are no free vacancies in the economy. Today, this reform project means bigger risks than benefits. Yes, the budget will receive certain savings, but it will be temporary, and further the costs associated with the social security of citizens with low incomes will start increasing. Due to the inflow of additional workforce into the labor market, wages are usually not increased, inflation rises, and the purchasing power of the population declines - prompting the growth of poverty," Alexander Safonov explained.

The simultaneous rise in VAT to 20% is even more worrying. "Together with the increase in the retirement age, this can mean only one thing: the growth of inflation with a decrease in real incomes of the population. These things together will affect the ability to create jobs. It's a pity that the government has combined these steps, since they will cause an increase in unemployment and a slowdown in wage growth," the vice-rector of the Academy of Labour and Social Relations pointed out.

"The government says that tax benefits for socially important goods will be preserved, but they are produced using other goods, for which VAT will be increased to 20%, that is, the cost of goods that have benefits will simply increase," Alexander Safonov added.