Geländewagens, Christmas trees for $45 thousand, and VIP tickets for Leningrad concert – how governmental officials are spending public funds in the period of strict economy
TV tells us every day that we live in a besieged fortress surrounded by enemies, fat years are over, and now we have to be tight with money, endure, and wait. However, this applies not to everybody. While some people are all together collecting money to save a sick child, others deny themselves nothing – governmental acquisitions vividly illustrate this.
The summer is over, the euphoria of 2018 FIFA World Cup is vanishing, and austere times are back. The economic perspectives are not optimistic at all.
Prime Minister Dmitry Medvedev recently said that the next six years would be difficult for the Russian economy. The situation may deteriorate due to the sanctions and trade wars. Earlier we were told that the sanctions are beneficial for us and just laughing stock for our Iskander ballistic missile systems...
Economic experts currently forecast a stagnation in the Russian economy gradually turning into a recession – while the authorities expect the GDP to grow by 1.8% in 2018 and by 1.3% in 2019. Pessimists don’t rule out a default depending on the sanctions. According to the Federal State Statistics Service (Rosstat), despite the growth of the average salary in August 2018 in comparison with the last year, the disposable incomes of Russians have slightly decreased.
It is necessary to watch money in tough times. In our country, it was decided to save some money on the retirees. Vyacheslav Volodin, Speaker of the State Duma, called the pension reform a “decision” – according to it, the retirement age increases to 65 years for men and to 60 years for women.
The Russians were notified of the forthcoming retirement age increase at the beginning of the 2018 FIFA World Cup – i.e. there was enough money in the country for a mundial, but not for elderly people.
How reasonable was it to spend over 880 billion rubles ($13.3 billion) on the championship? Now it is necessary to find somewhere additional 16 billion rubles ($241.8 million) to maintain the 12 newly-built stadiums for at least 5 years. Concurrently, Minister of Finance Anton Siluanov has announced that the Pension Fund of the Russian Federation is lacking exactly 1 trillion rubles ($15.1 billion).
At year-end 2017, Russia had held the 135th position, out of the 180, in the Transparency International’s Corruption Perceptions Index. The country had shared this position with the Dominican Republic, Honduras, Kyrgyzstan, Laos, Mexico, Papua New Guinea, and Paraguay.
Amid the growing public discontent, the authorities have used an old and time-tested technique – change of agenda. September was pretty rich with events: challenge to fight a duel brought by Viktor Zolotov, Director of the National Guard of Russia; “Boshirov and Petrov” and the Salisbury Cathedral; a hole bored in the International Space Station; new version of the Boeing crash suggested by the Ministry of Defense; Israel’s guilt in the catastrophe of Il-20 supposedly downed by our Syrian allies; gubernatorial elections spectacularly lost by Edinaya Rossia (United Russia) Party, etc.
Such a mix of white noise and post-truth has effectively concealed the really important events. The meetings against the pension reform were fruitless, while a small revision of the retirement age for women prior to the voting in the State Duma was presented by some media as its reduction.
Screenshot of Izvestia newspaper
Overall, it is now obvious that the risk of mass street protests is over – so, the authorities may relax, while officials may continue ‘spending’ and embezzling whatever is not ‘spent’ and embezzled yet.
However, the situation still remains uneasy, and the oil revenues may be insufficient not only for the retirees. High oil prices of the 2000s made it possible to increase all spending articles. The Government overlooked the changing situation in 2014. The year of 2016 became a watershed – the budget fell short of 2.6 trillion rubles ($39.3 billion) in oil and gas revenues, while their share in the total income reduced from 50 to 36% in comparison with 2014. Therefore, the state had to reconsider its priorities and... start spending less on the people.
For instance, in the budget for 2018–2020 composed a year ago, social expenditures have been reduced, sports expenses halved, while the healthcare and education costs were slightly increased. On the other hand, 38% of the current budget are intended for the officials, military, and police.
Disruption of the meeting against the pension reform in Moscow
It is also necessary to keep in mind secret budget articles whose share has been steadily growing in the recent years. In 2005–2012, the secret items had amounted to some 11% of the budget, in 2014 – to some 15%, while in 2016, these articles reached 22%. A year later, they reduced to 17% and in the current year increased again to 18.6%.
The lion's share of the secret funds is spent on the national defense, security, and law enforcement. Experts explain the increasing expenses by the military operation in Syria, growing assertiveness of the defense industry and special services, rearmament programs for the period until 2020, and creation of the National Guard of Russia.
According to the Expert and Analytical Department of the Russian United Democratic Party "Yabloko", the presence of the Russian Army in Syria could cost the budget 245 billion rubles ($3.7 billion) as of early March 2018. Needless to say how desperately the Pension Fund needs these billions...
However, war makes some people rich. The pension reform won’t affect officers of the enforcement and military structures, including the Ministry of Defense, Ministry of Internal Affairs (MIA), Federal Security Service (FSB), Federal Protection Service, National Guard, Federal Penitentiary Service, Ministry of the Russian Federation for Civil Defense, Emergencies and Elimination of Consequences of Natural Disasters (EMERCOM), and Prosecution.
It is hard to estimate pensions in the above agencies because their retirees receive money not from the Pension Fund – but obviously, these retirement benefits are much higher than ordinary pensions and sometimes are paid since the age of 40–45 years and combined with other allowances.
The state also intends to maximally compensate losses sustained due to the retirement age increase for residents of Chechnya. According to Ramzan Kadyrov, Head of the Chechen Republic, men over 60 and women over 55 will get the following social benefits: privileged use of public transit; subsidized housing and utilities; subsidized land tax and property tax; social and medical benefits; and regional allowances. May the hand of him who gives to this subsidized region do never become empty...
Losses sustained by another important class – oligarchs – have also been minimized. Last year, the President signed a bill enabling those affected by the Western sanctions neither to report their revenues nor pay taxes to the budget.
According to Levada Center non-governmental polling and sociological research organization, the majority of Russians believe that President Putin represents the interests of law enforcement structures (41% of the respondents), oligarchs (31%), officials (31%), and heads of big companies (25%). The people believe that these population categories are the social basis of Putin.
* the respondents could pick more than one answer option; therefore, the total sum exceeds 100%.
The notorious vertical power system is clearly visible – the revenues from natural resources belonging, according to the Constitution, to all citizens and earned by these citizens are redistributed by power brokers: “All animals are equal, but some animals are more equal than others”. In addition, officials at each level of this vertical system pinch off whatever they can from the national financial flow.
As a result, the deprivation of millions of Russians of pensions, sanctions continuously mentioned by the official information sources, and the overall economic decline are accompanied by major national spendings. Below are some examples dated this September.
The Federal Treasury has identified violations committed during the acquisition of Christmas trees by the Ministry of Defense. The tender was announced last year. The total cost of 268 trees was 17.2 million rubles ($260 thousand), including an artificial LED spruce worth 3 million rubles ($45.3 thousand). To justify the price, the ministry provided offers from three vendors with an average price of 40 thousand rubles ($605) per spruce, including decorations. However, RBK Group found out that such a set can be purchased at least 3 times cheaper. The Ministry of Defense reportedly faces a fine of 10 thousand rubles ($151) (!) for this violation.
Christmas tree in front of the Ministry of Defense in Moscow
According to RBK Group, the ministry makes acquisitions to entertain its servicemen on a regular basis. For instance, in 2016, inflatable items were purchased for Krym (Crimea) Military Health Resort. The governmental structures paid 245 thousand rubles ($3.7 thousand) for a trampoline, banana boats, and tablet attractions. In 2011, the Ministry of Defense posted on its web site a governmental order for Firebird, Witch, and Snowflake costumes for the total of 1.3 million rubles ($19.6 thousand). In September 2011, a military unit deployed in the Bryansk region posted an order for Birch, Snowman, Father Frost, and other costumes worth in total 58.5 thousand rubles ($884).
The care about children is a holy cause. Therefore, Interregional Distribution Grid Company of Urals has allocated 13 million rubles ($169.5 thousand) to purchase gifts for children of its employees, while Rostelecom –11.7 million rubles ($176.8 thousand). The Omsk region is going to spend 10.5 million rubles ($158.7 thousand) on the Gubernatorial Christmas Tree Party, while the Voronezh region – 10.3 million rubles ($155.7 thousand). It is nice to be a magician and make gifts at the public expense. Vladimir Miklushevsky, ex-Governor of the Primorsky Krai, used to spend some 50 million rubles ($755.8 thousand) per year from the budget on children’s gifts.
In April 2018, the Accounts Chamber of the Russian Federation has reported that the total amount of violations committed in 2017 in the course of governmental acquisitions was 104.6 billion rubles ($1.6 billion). This is 2.5 times higher than in 2016 (48.8 billion rubles ($737.6 million)). The number of violations has increased almost thrice – from 823 in 2016 to almost 2200 in 2017.
Of course, the officials take care of themselves as well. For instance, Nizhny Novgorod Water and Sanitation Authority and the Government of the Nizhny Novgorod Region have already started preparations to the New Year, including acquisitions of gifts for the total amount of 1.5 million rubles ($22.7 thousand). The presents include women's sets with collectible head-clothes, folding umbrellas, whisky rocks in velvety bags, hand-made goblets, soccer balls made of high-quality leather, and tablets.
Officials of the Perm krai are also preparing to make an important expenditure – in anticipation of its 25th anniversary, the Regional Legislative Assembly intends to publish a book: 1000 copies at a cost of 2 million rubles ($30.2 thousand). According to the terms of reference, the memorial publication shall consist of 25 chapters. The current and former Deputies (at least, 30 persons) will share their memories about main milestones of the regional legislative authority.
Housing and utility services of St. Petersburg prefer music over reading. Zhilishchnoe Khozyaistvo (Housing Service) Collective Computation Center of the Multisectoral Housing Complex State Unitary Enterprise has recently posted information on its corporate event on the governmental acquisitions web site: 40 its employees are going to watch a concert of Leningrad band in the VIP zone.
Leningrad rock band
The MIA of Russia launched tenders to produce memorial badges “300 Years of the Russian Police Sevice”. The total amount of the contracts is 26 million rubles ($393 thousand). 65 thousand badges featuring Peter I are to be produced and supplied. A year ago, the National Guard of Russia had ordered crystal shoulder strips for more than 580 thousand rubles ($8.8 thousand). The enforcement agency explained that this was a traditional and “relatively cheap in monetary terms” memorial gift to its supreme officers.
In addition to expensive and often useless gifts intended to raise the status of their recipients in the public eye, this status can be demonstrated in more glaring ways as well.
For instance, the Head of the Cherkessk Water and Sanitation Authority has ordered for himself a Mercedes-Benz AMG G 63 worth 20.4 million rubles ($308.3 thousand). According to the contract posted on the governmental acquisitions web site, the car shall feature a panoramic roof, leather interior, headlights with Swarovski crystals, and a 585 horsepower engine. Otherwise, people may not understand who is driving it.
Mercedes-Benz AMG G 63
The Pension Fund of Russia stands the pace as well. A question has recently arisen again in relation to the forthcoming reform: why does the organization need such luxury buildings for its regional branches? In response, Anton Drozdov, Board Chairman of the Pension Fund, explained that all the buildings have been erected in accordance with the standards and are just ordinary offices, while the Pension Fund is going to take control over all episodes involving misapplication of funds allocated for their maintenance.
Who is going to pay for this luxury during the ‘tough times’? In fact, the funding sources have already been identified. Although the oil and gas revenues have dropped twice and constitute less than 20% of the budget for 2019–2024, it has been declared a surplus one. The authorities are actively compensating the shortfall in the export income by internal taxes (value added tax and excise duties) and the mineral extraction tax, thus, offsetting the reduction of export duties. In other words, the state budget is to be replenished by commercial mineral resources and citizens.
In addition to the retirement age increase in 2020, the value added tax rate will be raised since January 1, 2019 from 18 to 20%. This measure is not as glaring as the retirement age increase – therefore, it hasn’t caused so much stir. However, it is necessary to note that all of us are going to pay for this – the increased tax will raise prices on goods and services. Furthermore, the proposal to raise the value added tax rate to 22% is currently in discussion.
The government is also going to take care of self-employed Russians – although the President had asked to leave them alone. A pilot project has been launched since July 1 – nannies, tutors, cleaners, and other officially unemployed citizens shall report themselves to the tax authorities and pay up to 3% of their earnings. The taxmen are going to identify such ‘shady’ revenues jointly with banks by tracking financial flows going through bank cards.
If the oil prices remain at the same high level – which is the key prerequisite – then the fiscal revenues should exceed the expenditures by almost 2 trillion rubles ($30.2 billion) in 2019. Last time, Russia had a surplus budget in 2011; the surplus was 0.8% of the GDP – 442 billion rubles ($6.7 billion). Concurrently, the amounts spent to compensate the Pension Fund deficit are going to be reduced – from 3.2 trillion rubles ($48.4 billion) in 2019 to 3 trillion rubles ($45.3 billion) in 2021.
The above economic measures should enable the authorities to increase funding for the secret expense articles, including defense, counter-terrorism, intelligence and counterintelligence, etc. In 2019, these costs will increase by 5%, in 2020 – by additional 14%, while in 2021 – by 19% and reach almost 20% of the total budget – 4.12 trillion rubles ($62.3 billion).
In the next three years, it is planned to actively replenish the National Wealth Fund – the only remaining reserve. To remind: the Russian Reserve Fund has ceased its existence a few months ago.
Even seemingly-wealthy people are complaining of the worsening financial situation. For instance, Deputy Vera Ganzya, member of the Budget and Tax Committee, recently whined about her low monthly salary of 380 thousand rubles ($5.7 thousand). It remains unclear whose sympathy was she seeking – according to Rosstat, the average salary in Russia in 2018 was some 10 times lover.
Deputy Vera Ganzya
Another Deputy – Nikolai Valuev – decided to ease the situation by saying that it is not a shame to be poor, it is a shame to be cheap. Many thanks to him.
Such statements clearly demonstrate not only the distance between the public servants and the public – but also indicate that there are no more ‘authorities’ and ‘people’. The people maintain the authorities who, in turn, are supposed to make the people’s lives better. But they don’t do this anymore. There are just organized interests and persons whose sole purpose is to gain maximum profits. The state has broken the unofficial ‘sausage’ social contract with the population: people don’t interfere into politics in exchange for their growing welfare. The carrots are over; now it is time to tighten belts and use sticks for dissenters.
As Dmitry Medvedev once said: "There is just no money, but you take care".