RUSSIA: Medvedev Says Wants To Double Pensions

MOSCOW (Guardian - Reuters), January 29, 2008: President Vladimir Putin's chosen successor Dmitry Medvedev said on Tuesday he wanted to double pensions and raise wages in the next few years as he embarks on his campaign, likely to be dominated by social issues. Russia, which saw economic growth of 7.7-7.8 percent in 2007, plans to use $14 billion in extra revenues to raise pensions and public sector wages in 2008 -- a powerful boost to Medvedev's popularity ahead of the March 2 election. "We need to support the elderly and raise the average pension above the subsistence level. We plan to double pensions already in the next few years," Medvedev said during a meeting with trade unions. The average monthly pension was 3,292 roubles ($136) in October 2007, according to Social Affairs Ministry data, while the minimum subsistence level was set by the government at 3,809 roubles. Pensioners, who make up about one fifth of the country's population of 140 million, traditionally voted for communists but appeared to shift their sympathies in favour of pro-Kremlin parties in the last parliamentary election. Medvedev, the 42-year-old lawyer, buoyed by strong support from the popular Putin, is already way ahead of all rivals in opinion polls and gets blanket coverage on state-run media. He has so far kept silent about his future economic policy. Economists see the pension system's reforms as the key economic policy challenge for Russia. Medvedev said he wanted the government and employers to work together to boost "the pension capital" but did not elaborate. TAX REFORMS Russian pensions as well as public healthcare are financed through a unified social tax paid by employers. Deputy Finance Minister Sergei Shatalov told a news conference also on Tuesday the ministry will propose a sweeping reform of the tax. "We are ready for a serious reform of the unified social tax, all the way to abolishing it altogether," said Shatalov. The tax is now regressive, falling as earnings rise, with the maximum rate of 26 percent of gross salary. The government also wants to boost voluntary pension savings -- a tool so far rejected by vast majority of Russians -- promising to match each rouble contributed by an individual with one rouble from the $157 billion budget stabilisation fund. "The risks posed by the pension system become very high. The gap between pay and pension is growing and growing and we need to do something," Shatalov said. He also promised tax breaks for employers' contributions to pension saving schemes. Russians earned 13,518 roubles ($550) a month in 2007 on average, up 27 percent on 2006, but their unwillingness to set money aside for pensions leads to low savings rates, high consumption and pushes Russian firms to seek financing abroad. The government is working on pension reform proposals and Shatalov said the first draft may see the daylight already in February, in time for Medvedev to make it part of his economic strategy. Reporting by Gleb Bryanski Editing by David Christian-Edwards Additional reporting by Darya Korsunskaya © Guardian News and Media Limited 2008