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‘They will have money for one month of groceries’ Putin announced new measures to support Russian citizens and businesses during the coronavirus pandemic. We asked economists if these benefits will help.

Source: Meduza

On May 11, President Vladimir Putin made his fifth address to the nation during the coronavirus pandemic, and announced new measures for supporting Russian citizens and businesses. These include bonuses for doctors and social service workers, benefits for families with children, preferential credit terms for company owners, as well as tax exemptions for small- and medium-sized businesses. Meduza reached out to a number of economic experts and asked them to assess the effectiveness of the newly announced support measures.

Svetlana Misikhina

Deputy director of the “Development Center” Institute at the Higher School of Economics

Let’s try to assess the effectiveness of the concrete measures in yesterday’s package. The president suggested paying families with children between the ages of three and 16 years old a 10,000-ruble ($135) lump sum. The subsistence minimum for a child in the fourth quarter of 2019 was 10,000 rubles. So if a family receives this payment in June, it will approximately cover the monthly subsistence minimum of a child. In the context of the quarter, this is a third of the subsistence minimum for that period.

According to the Social Development Ministry, Russia now has more than 1 million people already registered as unemployed. Around 4 million people have lost their jobs. Surveys show that a noticeable part of the workforce received reduced bonuses and allowances, or were paid nothing at all. Presumably, about 25 percent of workers lost either their jobs or part of their income. As a result, average monthly incomes will fall 21.8 percent in the second quarter — for some it will be more and for others it will be less, because while one person lost their job, another lost part of their earnings, and the salaries of public sector employees are guaranteed by the state.

What does a 20 percent drop in income [mean] after we lived through five years of falling incomes that never recovered to the level of 2013? The population spent savings, took out loans, people expected incomes to begin to rise, but they are falling — and significantly. And the population does not have large reserves, they have been spent during five years of falling incomes. And the next year or two, they will not see incomes grow; they will fall.

This will be very difficult for the population. The support measures that the government announced before May 11, will make up for about 10 percent of citizens’ lost incomes. And here we return to what we already talked about : 10,000 rubles per child, and average income per capita is approximately 31,000 rubles per month ($420). On average incomes for families with children could drop to about 24,000 rubles per person (around $325). A family of three’s income will be reduced by 18,000 rubles per month (about $245), and 10,000 rubles will be added. That is, they will be compensated for this reduction by half for one month. If a mother is on maternity leave and a father is unemployed with an allowance of 12,000 rubles (about $162), then this will mean that they will have money for at least one month of groceries. What will happen next month, we don’t know. 

Not long ago researchers from ING published a study about who has adapted to working remotely. This is linked to a person’s level of qualification and, therefore, to the size of their wages. In the top quartile, with the largest incomes, 61 percent of people are working remotely and feeling well; their salaries did not change. Among those in the lower quartile with low salaries, the situation is different. Only 9 percent of these people are working remotely. Russia did not participate in the study, but one can assume that the situation here is similar, that is, first and foremost, we need to help those who are most affected. Those left without earnings are the ones who also receive low salaries, those suffering are those who did not live very well, and now will live even worse. Benefits for children in high-income families will not play a significant role. Maybe we should focus on support for those who really need it. 

About the future: If the economy recovers quickly, then income recovery will be faster. And in order to have a quick recovery, we need to invest money in supporting business, and its renewal. Loans guaranteed from the Finance Ministry are needed to ensure that business starts working again. If this does not happen, then employment will rise slowly.

Konstantin Sonin 

Economist, professor at the University of Chicago and the Higher School of Economics, and co-author of the “Coronavirus-2020” report on measures needed to support the Russian economy

The part that deals with child allowances is the right measures, because allowances for children are the most effective existing means of supporting low-income families. The vast majority of low-income families have underage children, accordingly, this aid will reach about 80 percent of families. These channels are already worked out, people don't need to submit new documents, everything has already been prepared. For the first time during the crisis we are seeing that the size of payments is at least somewhat in line with what economists wrote about, and what opposition leaders suggested.

Regarding measures to support business: now in the fight against the crisis, everything linked to supporting enterprises, in one form or another, is secondary and not very important — from the point of view of citizens’ welfare, and from the point of view of recovery growth. Because the question of which businesses to preserve is not important, but how and what kind of demand will be created after recovery begins. 

For example, writing off concessional loans for those who maintain 90 percent employment is a correct measure in and of itself, because then it will be used as a channel for funneling money to citizens. But this measure, unlike the support measures for children, is more sensitive to all types of fraud. 

The support measures announced so far can be estimated at around 7 to 10 percent of the National Wealth Fund. So on the one hand this is a massive waste, but on the other hand, it is still only a small part of the National Wealth Fund.

It seems to me that pensions should be increased for an extended period of time and that unemployment benefits should be increased temporarily. The difficulty lies in the fact that according to economists’ estimates, the main source of income for almost 10 million people is in the informal sector of the economy, where people receive money off the books. How to support these citizens, other than through pensioners in their families, or with the help of their children, is unclear.

Evsey Gurvich 

Head of the Economic Expert Group

Support for families with children is a very correct measure: not only in a crisis, but also in all other periods, this is the most vulnerable group in the population. These families are far more represented among the poor — that is, those with per capita incomes below the subsistence level — than, say, pensioners. It cannot be said, of course, that pensioners are “fattening themselves,” but families with children are an even more vulnerable group.

It would be nice if these measures were to remain in place for a period of time after the crisis, but in a modified form, where support will be offered to really needy people, and not to everyone, including the families of millionaires. 

The measures for business are equally reasonable, they have the right focus, much of this has already been suggested, including on the basis of international experience. For example, these wage credits to stimulate job retention. International practice has shown that this is an effective measure that actually lowers the number of cutbacks at small- and medium-sized businesses. As a result, several key tasks are being resolved at once: people are retaining their source of income, businesses have the opportunity to survive the most difficult crisis months, and the economy gets additional impetus from the demand side. So all of the announced measures deserve support and approval, but maybe they are a little bit late. One of the key problems for businesses now is the uncertainty in even the near future. Nobody knows when the normal mode of operations will resume: when people will begin to go to restaurants and hairdressers, go on vacation in our country or abroad, and so on. For the businesses’ confidence, it would have been better if there had been a large-scale, anti-crisis program announced at the very beginning of the crisis — this would have helped many to decide not to close their businesses. But better late than never. 

I think there need to be further steps — for example, expanding the list of vulnerable industries that should be offered support, or resolving the problems, which have so far only been minimally addressed: rent and loan servicing for small- and medium-sized businesses.

The government’s expenses for financing the announced measures are not negligible for the budget. But in such an extremely unfavorable situation one needs to go beyond the usual notions of the limits of possibility. Furthemore, let’s not forget that by supporting demand, we are increasing the volume of GDP for this year and the year after. That is, these are not unilateral expenses — part of them will return to the budget. Overall, I am sure that we will still see new support measures for both citizens and businesses.