VEB experts proposed two scenarios for indexing social benefits during the crisis

The indexation of social benefits can slow down the decline in real incomes of citizens in 2022 by 1.4–2.8 p.p. depending on the scenario, up to 7.5–9.2% was estimated at the VEB Institute.

Extraordinary indexation of social benefits and the minimum wage (SMIC) will not be able to prevent the decline in real wages, pensions and incomes of Russians in 2022, although it will reduce the decline. This follows from a report on scenarios for the development of the Russian economy under complex sanctions, prepared by the VEB.RF Institute for Research and Expertise (RBC has read it).

A decision on unscheduled indexation will be made next week at a meeting of the State Council for Social Policy, Presidential Aide Maxim Oreshkin said on May 19. President Vladimir Putin issued an instruction to study the issue of increasing social benefits, salaries of state employees and pensions following a meeting on measures of socio-economic support for the regions, which was held in mid-March. “I understand that rising prices are seriously affecting people’s incomes, so in the near future we will make a decision to increase all social benefits,” he said then. According to Rosstat, in April annual inflation reached 17.8%, the highest since January 2002.

The economists of the VEB Institute considered two potential scenarios with different indexation conditions and calculated their effect on household income indicators, as well as estimated the required budget expenditures for their implementation.

Two scenarios for increasing social benefits

The first, baseline scenario provides for an increase in the minimum wage by 9% from July 1, 2022, in parallel with the payment of unemployment benefits without changing their size, as well as the organization of temporary work and retraining of unemployed Russians.

By a similar amount, 9%, the scenario includes an extraordinary indexation of all social benefits and maternity capital. At the same time, the indexation of pensions from July 1, 2022 is provided for only by 5%, and there is no additional increase in the salaries of state employees in the baseline scenario: the authors take into account only their traditional October indexation, which occurs annually and corresponds to the consumer price index in the previous year ( 8.4% in 2021).

A set of such measures will cost the budget 794 billion rubles, the most costly aspect of it due to the growth in the number of unemployed will be support for the labor market (443 billion rubles)

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Oreshkin announced Putin's decision to index social benefits at the State Council Politics

The second scenario, moderately optimistic, will cost the state almost twice as much - 1.44 trillion rubles. It provides for the indexation of the minimum wage and unemployment benefits by 10% from July 1, 2022, as well as the payment of unemployment benefits to all the unemployed in the maximum amount. The scenario also includes the indexation of all benefits and pensions, including for working pensioners, by 10%. The same amount is expected to increase the salaries of state employees.

Putin signed the law on the indexation of pensions by 8.6% Society

Effects of Indexing

Neither the baseline nor the moderately optimistic scenario of social support for the population through indexation will be able to prevent a decline in real disposable incomes of Russians in 2022, the report follows. It will be minus 9.2% (baseline forecast) or minus 7.5% (moderately optimistic), according to the VEB Institute. However, without indexation, the drop in income would be stronger: the contribution of indexation in the base case is 1.4 percentage points, while the effect of a more optimistic scenario is estimated by analysts as 2.8 percentage points. They slightly improved their expectations compared to March: a 12% drop in real incomes was then predicted.

The expectations of VEB economists are more pessimistic than the current forecast of the Ministry of Economic Development. According to the agency, the decline in real incomes of Russians in 2022 will be 6.8%.

The VEB Institute assessed the impact of sanctions on the incomes of Russians Economics

Despite indexation, the reduction in wages of public sector employees in real terms will also be deep: depending on the scenario, it will be minus 9.7 and minus 6.7%, respectively, analysts at the Development Institute believe. In the economy as a whole, they expect a decrease in real wages by 5.8% in a more optimistic version of the forecast and by 8.2% in the baseline. Despite measures to support the labor market, economists expect unemployment to rise to 6.2 or 5.7%, depending on the scenario (in March, unemployment was 4.1%).

The increase in pensions in the nominal amount to 17.6 thousand and 18 thousand rubles. with indexation at 5 and 10% (under two scenarios) will not allow avoiding their decline in real terms, follows from the report. According to economists' calculations, under a moderately optimistic scenario, they will decrease by 3.1%, and in the baseline - by 5.2%. The last time the decrease in the real size of assigned pensions in annual terms was recorded in 2016, it amounted to 4.4%, follows from the data of Rosstat.

As a result, the poverty rate in Russia will rise to 13% in the baseline scenario and to 12.6% in the moderately optimistic scenario, VEB predicts. At the end of 2021, 11% of Russians, or 16 million people, lived below the poverty line in Russia.

VEB Institute calculations are based on the following assumptions for 2022:

GDP - minus 10.2% (base case) and minus 8.9% (moderately optimistic); investments - minus 15.5 and minus 11.5%, respectively, for two scenarios; inflation at the end of the year -18.7 and 19.5%; the average annual exchange rate of the US dollar is  77 rubles. per dollar (all scenarios); the price of Urals oil is $79 per barrel (all scenarios).