The war, or rather the deaths of close relatives and subsequent compensations, have become the main factor in the growth of the incomes of the poorest Russians. Compensation for death and one-time payments to participants in hostilities have reduced poverty in Russia, Bloomberg notes .
As an illustrative example, the publication cites the story of Alexei Malov, who “dreamed of a white Lada” and was able to afford it, having received compensation for his son who died in the war. Russian budget expenditures on combatants have inflated so much that they have led to a record budget deficit. The agency notes that Vladimir Putin is ready to sacrifice the Russian economy for the sake of military success.
“The state targets the poor and the needy. For the middle class, the message sounds like this: “Goodbye, guys, you are on your own,” Natalia Zubarevich, a professor and specialist in Russian regions, told the agency.
The publication calculated that the cumulative increase in social spending by the state allowed a sharp increase in the incomes of the 10% of the poorest segments of the population. According to Bloomberg estimates, the growth in government spending on these tasks has allowed the incomes of poor Russians to overtake inflation, which in 2022 amounted to 11.9%, twice. Military social payments eventually led to the fact that there were significantly fewer Russians living below the official poverty line. According to Rosstat data for the third quarter of 2022, compared to the same period last year, the number of poor people decreased by 700,000, and compared to the second quarter of 2022, by 2.3 million people.
In 2023, a reduction in social payments from the state should not be expected. Finance Minister Anton Siluanov said earlier that he would rather cut infrastructure spending than take measures to reduce the number of the poor in the country. However, such rhetoric and its implementation creates serious risks for the Russian budget, especially if the oil sanctions work successfully.
“A surge in social and military spending, coupled with a shortfall in oil and gas revenues, will make Russia's fiscal balance unusually fragile this year. Faced with the risk of a revenue shortfall, the government may opt for fiscal consolidation, allowing inflation to partially undermine the real cost of welfare benefits,” notes the Russia economist at Bloomberg Economics.
In addition to spending on social military payments, in 2022 the budget spent more than 1 trillion rubles to help families with children and about 400 billion for pensions. The Ministry of Finance claims that these costs will double in 2023. The agency estimates that spending on mobilized and volunteers costs the budget about 1.1 trillion rubles a year. However, even such a sharp increase in spending does not yet create critical problems for the Russian budget.
Economist Yevgeny Gontmakher notes that in general people are getting poorer, but the poorest are getting a little richer thanks to lump sum payments and social benefits. According to him, the middle class in Russia has fallen to an all-time low due to the war – now it is below 10% of the population. As confirmation of these data, he recalls that hundreds of thousands of Russians left the country, often giving up work and leaving real estate inside Russia.
“People in general are getting poorer, but there are fewer poor people,” he concluded.
This thesis is confirmed by the data of opinion polls on the consumption of Russians. More than a third of the population in 2022 began to save more on food, which goes in parallel with data on the decline in real incomes of the population, which fell for three quarters in a row. Such conditions often leave no choice for Russians, for whom participation in the war is often the last way to increase their own income or repay loans.
“People often go to war because of poverty. This is a way to break free,” explains Zubarevich.
The families of the Russians who died in Ukraine receive 5 million rubles from the wounded – 3 million rubles. Often, families can qualify for additional federal and regional payments, which only increase the dependence of Russians on the state and accustom them to loyalty, the agency states.