Putin Offers Russians More Payouts But Rich Get Tax Increase

(Bloomberg) --

Hailing Russia’s success in controlling the coronavirus epidemic, President Vladimir Putin Tuesday proposed new cash payments for families and the unemployed, along with a tax increase for the rich.

In a nationally televised address, he also called for cutting taxes on the information-technology sector to what he said would be some of the lowest levels in the world in an attempt to stimulate one of the few industries outside commodities where Russia is a global competitor. Shares in Yandex NV and Mail.ru Group Ltd. rose more than 5% on the news.

“We have forced the epidemic to retreat and are making a breakthrough,” Putin said just over a week before Russians are to go to the polls to approve constitutional amendments that would allow him to rule until 2036.

Though Russia has the third-largest number of cases of Covid-19 in the world after the U.S. and Brazil, Putin said the government’s quick response, and Russians’ efforts, allowed the country to overcome the worst of the disease.

New Payouts

To ease the continuing economic pain from the outbreak and lockdowns imposed this spring to control it, Putin called for extending increased benefits for the unemployed and said the government would repeat in July a popular payout of 10,000 rubles per child over age 3 that was first made this month.

At the same time, Putin called for ending the flat-rate income tax that’s been one of the hallmarks of his economic policy, raising the levy for the wealthy. Under his plan, which would take effect next year, incomes over 5 million rubles a year would be taxed at 15%, not the current 13%, which would remain in place for those who earn less.

What Our Economists Say:

“The money raised by the tax hike will be small relative to the budget. More significant is that this could mark a first step toward a more progressive tax system, reducing the government’s reliance on energy revenue.” --Scott Johnson, Bloomberg Economics

Putin said the roughly 60 billion rubles raised by the measure would be earmarked for medical care for children with rare diseases. The higher rate would affect less than 0.3% of Russian taxpayers, according to Dmitry Dolgin, an economist at ING Bank in Moscow.

For the IT sector, Putin proposed slashing payroll levies and the profit tax to 3% from the current 20%.

“That will be one of the lowest tax rates in the world,” he said.

He also proposed a flat 5-million-ruble-a-year tax payment for the foreign income of Russian residents in an effort to stimulate investors to locate in Russia.

“Overall, the speech contained an extensive list of measures aimed at addressing issues related to household income, employment, and business climate,” said ING’s Dolgin. “At the same time, the president praised Russia’s prudent macro framework, which does not suggest there is a huge appetite for fiscal and monetary easing.”

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