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Increase in salaries and benefits has economic reason
19.02.2016  

“TRUD” (Labour) Newspaper, February 19, 2016

Increase in salaries and benefits has economic reason

President of the Federation of Independent Trade Unions of Russia (FNPR) on proposals into the anti-crisis programme of the government and his meeting with President Putin

Russian President Vladimir Putin recently met with the FNPR President Mikhail Shmakov (Feb.9Transl.note). The union leader provided an overview of how to support the workers and the country's economy during the crisis. He shared his opinion on what the Government should take into account in preparation of the national development plan for 2016.

The President described the union proposals as important and pledged to further elaborate them. “The main thing is that we have to react promptly to changes in the labour market. This is absolutely accurate and correct," – he supported the FNPR president.

So what have the unions proposed to the President and the Government to address acute problems in the economy and the labour market?  Mikhail Shmakov has the floor.

Three main steps

– We, the unions, are interested in the economic growth as much as the President and the Government, but today, there are a number of obstacles to this. One of them is the low paying capacity of the population. According to official statistics, it has decreased by 10%, but in our estimates – by 20%, although the nominal salary has not changed much.

This problem, in turn, impacts small and medium-sized businesses and hinders their development. No demand, no supply. The efficacy and implementation of the import substitution programme is called in question, too.

As the experience of various countries has shown, sustainable economic development is not possible without active stimulation of domestic consumer demand. It supports the growth of production of goods and services within the country, ensures the growth of savings and investment.

Therefore, we propose to supplement the government's anti-crisis plan of measures to increase the purchasing power of population, including socially vulnerable categories of citizens.

We strongly recommend that the government take into account three important factors.

First. To date, the minimum wage is 6204 rubles. It is just a little more than half the cost of the minimum consumer basket.

Yes, we hear explanations that today only less than 1% of the citizens receive the minimum wage, and that for most workers its size makes little difference, as if it were not a problem for the national economy. Objection! Minimum wage is an important amount guaranteed to each employee by the Constitution of the Russian Federation. Many enterprises use it as a basis to form their system for the remuneration of the staff. The lower is the minimum wage, the less the employer can pay the employees. As a result, in order to survive physiologically, the latter have to work much more than eight hours a day. The employer, in turn, can practically officially pay wages off the books: that is, legally pay the minimum wage, and the rest – under the counter.

We deem it unacceptable. We therefore request the government to envisage incorporating its anti-crisis plan a provision to increase minimum wage to the subsistence level of the able-bodied population.

Adopting this measure will bring the salaries out of the shadow and improve financial situation of the regions through the boost of revenues from individual income tax. Following the minimum wage, the revenues of the state social extra-budgetary funds will grow, too. Such practice proved its worth in 2009. Now it is time to get back to it.

Understandably, it will hardly be possible to raise the minimum wage one hundred percent right away, but to draw up a road map with a detailed schedule for its gradual increase is quite realistic.

Second. The problem of unemployment in the country becomes topical again. Many businesses are closed, their employees made redundant. Those having lost their jobs can count on benefits. However, the maximum amount of payments is more than two times below the minimum subsistence level of the able-bodied population. The benefits have not been indexed since 2009.

We propose that the plan makes provision for raising the maximum amount of the unemployment benefit to the subsistence level of able-bodied population as a measure of partial compensation for the lost earnings of skilled workers.

Third. In recent years there has been an actual increase in direct and indirect levies on employees, increase of the tax burden on citizens. This refers to collection of the property tax according to the cadastral value, which is often higher than the market value, and imposing fees for major repairs in apartment houses.

We propose to establish in 2016 a moratorium on all decisions and initiatives of the executive power which may lead to an increase in direct and indirect taxes from the population.

It is clear that these fees depend on the regional budgets. Nevertheless, it is necessary to find a compromise between paying capacity of the population and the budgetary needs.

From the FNPR perspective, the increase of consumer purchasing power should be considered as a major factor of economic growth when drafting strategic documents for the country's development.

On the danger of tax administration

The government proposes that the tax authorities administer the insurance premiums paid to the social extra-budgetary funds. Also, it proposes to establish a unified federal data resource containing information about the population, including that on civil registration.

What worries the unions most? Back in 2001-2009, the tax authorities already collected the Unified Social Tax, and we got a negative experience. It turned out that the same methods of administration, which are effective for taxes, customs- and excise duties, are not applicable to insurance fees.  Different social security systems have their own peculiarities.

For example, the regions make contributions for the non-working population directly to the territorial funds of Compulsory Medical Insurance (CMI). In most regions, the Social Insurance Fund of the Russian Federation (SIF) uses the imputation method to pay benefits from collected contributions within companies and organisations. The accounts and personal data of the insurants are sent to the Pension Fund of Russia (PFR) along with the payments.

In the past, separation of financial and information flows seriously complicated the work of the PFR. Errors would frequently occur with regard to insured persons.

We have struggled for a long time to move away from the Unified Social Tax, and now the government actually wants to introduce it again! Where will this lead to?

Development of the tax service as such and creation of a Unified federal information resource will require substantial allocations from the state budget already at the initial stage of the project, and to find budgetary resources at the time of the crisis will be very difficult, practically impossible.

If the funds for these purposes are sought from the budgets of the PFR, CMI and SIF, the insurance contributions will be used to cross-subsidize the organization of tax, excise- and customs duties’ collection. At the same time it would mean unlawful diversion of insurance contribution funds. In our firm opinion, the problem of creating a Unified federal information resource must be solved first, and only then the methodology of collecting insurance contributions can be discussed.

The sad experience of the Unified Social Tax has also shown that social extra-budgetary funds are more effective in providing the payment discipline of insurants, because the insurers have an economic motivation: securing insurance payments – and their own salaries, too – depends on how much they collect. That is why it was decided in 2009 to cancel the unified tax and to go back to real social insurance – to return the function of administering insurance contributions to the Pension Fund and Social Insurance Fund of the Russian Federation.

Also, the Constitutional Court of Russia has ruled that the insurance contributions are legally established special statutory payments to be used only for the purposes of compulsory social insurance of employees.

What is the danger of returning to tax administration in the context of a continuing crisis? First of all it is the incurrence of debts in mutual settlements. This will result, on the one hand, in delays in the release of social transfers, and the other hand – in the desire to limit their sizes. Collection of contributions by the tax authority will change the organisation of employees’ social protection, turn it into a social security funded residually, as in the Soviet past which is criticized today.

A number of countries have experience in financing social insurance using tax methods. However, in such systems individual income taxation is made on a progressive scale, otherwise the funds will not be sufficient. Therefore, the real economic choice is between separate collection of insurance contributions on a regressive scale (as in Russia) and progressive taxation of all incomes (as in the UK).

What is the main danger of replacing targeted collection of insurance contributions with unearmarked tax levies? By doing so the authorities may consciously dismantle the institute of compulsory social insurance violating many fundamental norms of public law.

We are concerned that, contrary to the declared principle of openness of the government activities, preparation of the documents on this subject was carried out in secrecy, behind closed doors, and had never been brought up for discussions with insurers and insurants, although these documents directly affect social and labour relations.

When I told the President about apprehensions of trade unions, he was very surprised. It turned out that the government had not informed him that this decree had opponents. We do hope that our opinion will be taken into account.

What does the FNPR propose? To comprehensively examine and calculate all the risks arising from such decisions, focus on creating a Unified federal information resource, and only then decide on the procedure and timeline for execution of the plan. For our part, we will not let the contributions that belong to workers and are part of their deferred wages, turn into taxes, that is, would belong to someone else! We will defend our position.

On the role of trade unions during the crisis

Trade unions have always been and remain one of the most influential social institutions; millions of people are involved in their activities. Their role is increasing now, particularly at a time of economic problems when more care needs to be taken to ensure that the owners comply with the terms of the labour contracts.

Violations of labour legislation are observed across all sectors and industries, but mostly in medium and small business where enterprises depend on the turnover.

Today some companies still believe that reduction in staff costs is just about the only way to control their expenditures. Fuel and energy companies are a good example. Due to decline in oil prices they suffer heavy losses. It results in wage reduction, job cuts and growing tensions among workers. When there are no social guarantees, not enough attention to the working conditions, occupational safety and health, workers feel themselves vulnerable. Eventually, it affects productivity.

Trade unions have to intervene here. We uphold the rights of the workforce by all legal means, try to resolve all disputes without taking the matter to court.

We have been consistently advocating extensive development of the social partnership system. Regrettably, not all business leaders desire to cooperate, sometimes they strongly oppose the establishment of trade union organisations at their enterprises. So we have to fight. We make efforts to raise awareness among the workers and the management. Awareness of the importance of maintaining a partnership and of having a trade union organisation helps to solve the problems without upheavals and practically avoid wage arrears and mass layoffs.

We succeeded in establishing such synergy at a major oil company where the trade union organisation focuses on constructive bargaining, as both sides aspire to achieve the same objectives – performance gains and labour productivity – which directly influence the well-being of employees and their families. Today the company employs over 110 thousand people in more than 60 regions of Russia and 40 countries worldwide, and in all its subsidiaries the management is working closely with the unions which is a good example of socially responsible business.

We are convinced that it is always possible to find a balance of interests and come to an agreement; all it takes is the mutual desire of the parties which is reaffirmed in a new agreement between the employer and the trade union. It has not only retained the achieved level of guarantees, but further strengthened them through additional measures of social protection. Incidentally, the agreement is related to such a problematic sector as fuel and energy.

Trade unions continue to work constructively with state authorities at the highest level. We discuss acute problems at the monthly meetings of the Russian tripartite commission on regulation of social and labour relations and find common solutions.

The support from the deputies of the State Duma (national parliament) plays an important role, too. Trade unions have an allied political party – "Labour Alliance", but we are ready to cooperate with other political forces that defend workers’ rights and support the position of trade unions. Furthermore, the FNPR members belong to different parties, which also enhances our capabilities.

In a recent meeting with the President we discussed how to improve the efficiency of trade unions. Today, for example, such organisations as the Consumer Rights Protection Society have the right to protect the interests of an indefinite circle of persons. The FNPR is striving for the same capability. Trade unions should have the right to bring cases before the Court on behalf of an indefinite circle of persons. Quite often, for fear of countermeasures from the employer, workers do not dare to initiate an individual lawsuit or to issue a power of attorney for legal representation to their unions. In fact, an employee cannot exercise his or her constitutional right to comprehensive judicial protection. This situation must be remedied.

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