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Will maternity capital solve the problem of poverty?

Will maternity capital solve the problem of poverty?

     The main topic of Vladimir Putin’s address to the Federal Assembly was the problem of Russians income stagnation. The issue of abolishing income tax for the poor has not been considered. Instead, the president proposed introducing a set of measures that includes targeted state subsidies.

     Vladimir Putin made a proposal to pay a monthly benefit for children from three to seven years old to those families whose incomes are below the subsistence level per person. From January 1, 2020 and until 2021, it is planned to make payments in the amount of five and a half thousand rubles, from 2021 – about eleven thousand. The president also proposed to pay maternity capital at the birth of the first child and increase payments at the birth of the second child by 150 thousand. For the first-born, payments will amount to 466.6 thousand.

The Ministry of Economic Development also made a proposal to reduce income taxes for those companies that are engaged in investments. Thanks to this, organizations will be able to free up funds to increase investment in production and increase employee salaries.

     Anton Siluanov, First Deputy Prime Minister, said that about 400-450 billion rubles would be needed to implement the measures. The Ministry of Economic Development claims that 300 billion rubles in 2020 and more than 600 billion in 2022 will be enough.

     The Ministry of Economic Development claims that revenue will increase by about 0.5% per year. Revenues of 20% of less well-off households will increase by 10% in the second half of 2020. The ministry also noted that thanks to the implementation of these measures, GDP will grow by 0.3%.

     Forecasts of economists do not look so optimistic.

     The head of the Economic Expert Group, Evgeny Gurvich, told Forbes that the proposed measures are aimed more at fighting poverty than at increasing the growth of incomes of Russians in general. Payments will affect income, but not as dramatically as authorities expect. Also, measures will probably stimulate birth rate. According to him, the GDP growth will be insignificant, since it is more influenced by the influx of investments than the growth of demand.

     Raiffeisenbank macro-analyst Stanislav Murashov claims that such actions do not trigger growth mechanisms. There is one significant problem in Russia – the debt load on the population, and the proposals made will not solve this issue. Citizens need to pay loans, and this is impossible without an increase in salaries. Targeted assistance does not work to improve the economy and has a negative impact on the budget.

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