Another Result of Pension Reform: Young Russians Less Willing to Pay Taxes

Paul Goble

            Staunton, October 18 – Moscow’s decision to raise the pension age, an action many Russians view as nothing more than officially sanctioned theft, is having another and perhaps more consequential result: Young Russians see ever less reason to pay taxes to a government that doesn’t keep its promises and are again increasingly working off the books.

            A new study by the Russian Academy of Economics and State Service finds, Mariya Beezchastnaya of Svobodnaya pressa reports, that “ever fewer young people in the regions want to work” in situations where their incomes will be reported and taxed. Sometimes this is their own choice; sometimes, that of employers (svpressa.ru/economy/article/213388/).

            The academy surveyed 1800 people between the ages of 18 and 30 in three predominantly Russian oblasts.  Of them, 327 – or just under 20 percent – said they were working off the books and not paying taxes.  That constitutes a significant loss to the state now and a more significant one, both financially and politically, over time. 

            This trend, analysts say, is “the result of distrust in the government” both by young people and by their employers and is the direct result of what both see as the government’s having “changed the rules of the game” by unilaterally and in the face of popular opposition raising retirement ages.

            Already more than 40 percent of all Russians are involved in the shadow sector of the economy. Such attitudes among the young suggest that that number will increase rather than decline in the coming years.

            According to Andrey Pokida, one of the authors of the study, 20 percent of young people intentionally work off the books either as “a form of protest” against increasing tax burdens at a time when the government is cutting back services or as a response to ever-increasing difficulties in finding good-paying jobs.

            This is a serious problem, he argues. According to his institute’s estimates, some five trillion rubles (70 billion US dollars) in Russian incomes are not being taxed because those who are receiving them are not officially employed. Moscow needs to address this problem by ensuring that Russians see that they will benefit in immediate ways from paying their taxes.

            Meanwhile, Ivan Antropov, the deputy head of the Moscow Institute on the Economy, agrees. Young people see no good reason to pay higher taxes and have no confidence that the pension system will even exist when they are old enough to retire.  And this attitude is intensified by how they see the government spending money.

            Instead of supporting the population at large, the Kremlin is giving money to large corporations, helping the dollar billionaires to become even richer, and so on.

            What must be recognized, Antropov says, is that the government itself is to blame for this situation rather than ordinary Russians who are simply behaving according to the laws of economic rationality.  The powers that be prefer to “tighten the screws” rather than boost the incomes of the population and hence tax revenues.

            As a result, working off the books is an entirely logical result and is likely to increase.