Officials mull tax hike for the middle class

After a raid on the ‘superprofits’ of metals companies, Russian officials are now looking at new taxes: one on the middle class, and another on high earners. The two levies being considered could bring in as much as 200 billion rubles ($2.7 billion) a year to the state’s coffers, according to media reports Thursday. Such a move — to be seen to be targeting the rich — might also be politically beneficial for the ruling United Russia party as they campaign ahead of parliamentary elections in September.

• Plans to tax high net worth Russians were reported Thursday by Russian Forbes. There are apparently two measures under discussion: a hike in taxes on property worth over 500 million rubles and increased social insurance contributions on monthly salaries above 122,000 rubles.
• Obviously, the property tax hike targets the genuinely wealthy (Russia has 269,000 dollar millionaires, according figures from investment bank Credit Suisse). But the second will affect many more people: 122,000 rubles a month is just 23 percent above the average Moscow salary.
• The government has not confirmed these plans, possibly because it is the kind of political announcement that would traditionally be made by Putin himself. For example, a week before the referendum on constitutional amendments last summer Putin unveiled tax hikes for the rich for the first time in 20 years, promising to use the funds to treat children with rare illnesses. Social justice is an idea the Kremlin has been keen to monopolize in recent years.
• This summer would also be a great time for such measures. Parliamentary elections are scheduled for mid-September and United Russia’s ratings are at an all-time low. Independent pollster Levada Center put the party’s approval rating at just 27 percent in March — a seven-year low. In the battle for voters, the party even recently sidelined its long-term leader Dmitry Medvedev.
• But Putin’s televised phone-in last month showed he isn’t ready to use ‘tax the rich’ as a political slogan. Putin had every opportunity to do so. Among the carefully rehearsed questions that day was a complaint from a man who wanted to build a metal fence and found that raw materials had doubled in price in a month. It was a perfect set-up for Putin to show he was curbing the excesses of rapacious oligarchs, but the president contented himself with a lecture about the nature of inflation and noted that “decisions are being made to control prices.”

Why the world should care: The Kremlin clearly has no scruples about ramping up taxes on Russia’s tiny middle class. But it is wary of trying to make political capital from exploiting social divisions, or playing on a widespread envy of the wealthy.