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Under-the-table wages threaten pensions

Credit: Nina Zotina | RIAN

Russians’ illegal salaries amounted to RUR 13 trln ($199 bln) in 2018, which is close to the federal expenditure budget, Izvestia reports.

The Federal Statistics Service reports that undisclosed earnings account for less than 13% of GDP and it is the lowest percentage over the past five years. This can be explained by lower consumption in general and, therefore, lower demand for freelance services. In other words, Russians can afford fewer manicures and other services offered by sole proprietors. However, one in every three Russians has been paid under the counter at least once, the experts believe.

“Our country has a massive shadow economy right now. Thirteen trillion in illegal wages seems slightly exaggerated but it is not far from the truth,” Opora Russia First Vice President Pavel Sigal told Invest Foresight. “It is absolutely obvious that the drop-out of such a huge amount of money from the economy will eventually affect the entire structure and primarily the tax revenues. This year [Deputy Prime Minister] Tatiana Golikova estimated losses of the social insurance funds caused by shadow economy at RUR 2.3 trln ($35 bln). Essentially, this is the money that could be used for pension payments.”

Moreover, hidden earnings directly affect the statistics. Statistically, the real income in Russia has been decreasing for several years while in reality the situation could be quite the opposite, the expert suggests. Statistical data indicate that there has been no significant progress in fighting poverty, low income, etc. Among other, this backfires on the investment appeal of some Russian assets.

“The government’s efforts against the shadow economy are certainly bringing some results but soft legislation with regard to tax evasion remains a natural obstacle. For example, in the United States tax evasion is a serious crime that entails a harsh penalty in some states,” Pavel Sigal stressed.

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