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Russia among world leaders in terms of income inequality

October 10, 2013, 15:15 UTC+3 Alexandrova Lyudmila

MOSCOW, October 10 (Itar-Tass) - Russia is among the world leaders in terms of property inequality. What is to be done to narrow the gap between the rich and the poor? This issue has been the focus of vigorous debates for quite a while now, but the gap is as wide as it has been all along, although according to some experts Russians’ lives get wealthier from year to year.

From the standpoint of inequality in income and property distribution Russia is among the world’s leaders, as follows from a survey Credit Suisse Research Institute published on Wednesday.

A tiny group of 110 multi-millionaires control up to 35 percent of the national wealth. On this rating list Russia immediately follows tiny insular states in the Caribbean.

The bank’s analysts blame this inequality on the condition of the market during the transitional phase of the 1990s, when against a backdrop of administrative chaos the Soviet-era mechanisms of social protection collapsed. At first certain attempts were made at fair distribution of the national wealth, for instance, through the free privatization of housing and the distribution of shares in public companies to individuals. However, pretty soon the distribution grew increasingly uneven despite the overall rise in people’s incomes.

According to Credit Suisse, in 2013 Russia had 1,986 people whose wealth exceeded 50 million dollars. On the list of dollar millionaires there were 84,000 names.

Forbes magazine estimates the number of Russia’s dollar billionaires at 110.

According to the federal statistics service Rosstat the Gini index, which measures the concentration of incomes and social stratification, grew from 0.395 in 2000 to 0.42 in 2012. As the daily Nezavisimaya Gazeta says, by international standards it must not be allowed to exceed 0.4. Otherwise social disturbances are likely. In most advanced countries it is far lower.

Rosstat chief Aleksandr Surinov points to two parallel processes. On the one hand, Russians’ incomes have been growing, but on the other, inequality has been getting worse.

The daily Komsomolskaya Pravda quotes Surinov as saying the group with incomes below the poverty line in 2012 reduced by ten million in contrast to 2005.

“Under Engel’s law,” the analyst said, “the greater the share of one’s incomes that has to be spent on food, the poorer the person is. The greater the share of spending on housing and other goods and services, the richer the person is. This proportion incorporates everything - inflation and wage rises. If this proportion is used as a basis, then it will turn out that we live better. Whereas in 1995 we spent nearly 50% of incomes on food, now the rate is down to 30%.”

On the average many parameters look far better. First and foremost, the real wages (less inflation). Over the past ten years it kept rising, except for 2009, when the crisis peaked. Secondly, Russians’ fleet of private cars has grown four-fold. Thirdly, Russians consume more fruit and fish.

Over the past twenty years Russia’s population has become slightly wealthier, Surinov said. “Russia has turned into a country with average incomes, which is an impressive gain.” Whatever the case, this is so only by average parameters.

The trend towards greater inequality has failed to be reversed. “We are following in the footsteps of American society, originally founded on inequality. The Europeans have grown up in a somewhat different cultural environment,” Surinov said.

“In Russia there has appeared a large number of poor or almost poor people, while on the other hand there is the top tier of society - 10%-12% of the wealthiest, who live separately from this large mass of the population,” says the director of the Social and Economic Measurements Centre under the Russian Academy of Sciences, Aleksei Shevyakov. “Today we have profound social and economic stratification of society. The root cause of such deep deformations is in the nature of distribution mechanisms. They are to be re-adjusted,” the online periodical quotes him as saying.

In the meantime, analysts say that too little is being done in the country to narrow the gap between the rich and the poor.

“In Russia the concentration of resources neither promotes investment nor transforms itself into the creation of new top quality jobs,” the news agency KM.RU quotes the director of the Independent Institute of Social Policies, Liliya Ovcharova, as saying. “These resources are either taken out of the country or used in a variety of grey and corruption schemes. Even such megaprojects as the Winter Olympics have resulted in the creation of too many unskilled jobs that were promptly taken by migrants.”

This problem has no simple solutions, the expert says. Some believe it is enough to raise the minimum wage. “But if it is raised too fast, then poverty will drift into the sphere of joblessness. Simply because a great many low-paid jobs will be just slashed.”

Easing income inequality might be possible on the condition of restoring the progressive system of taxation and the introduction of the luxury tax, experts believe. The idea of progressive taxation was discussed quite seriously two or three years ago. But Finance Minister Anton Siluanov has said more than once last year and this year that the income tax collection rate will fall, if a progressive tax is introduced instead of the current 13% for all.

The tax on luxuries has been adopted to a certain extent. In the middle of last summer a special tax on luxury motor vehicles was introduced (it is to take effect on January 1, 2014). The fate of taxes on other luxuries - countryside palaces, yachts, antiquities and jewelry - is still undecided.